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Sunday, 17 February 2008

Decision on Sharia bonds expected

Chancellor Alistair Darling is likely to announce in his March 12 Budget whether the Treasury will press ahead with plans for so-called "Sharia bonds" to attract money from the cash-rich Middle East.
The Treasury announced last April that it was interested in exploring the possibility of borrowing funds via Islamic law-compliant bonds, known as sukuk, and a consultation exercise on the issue, launched in November, ends on Thursday.
A Treasury spokesman said that the feasibility study has been looking at whether or not the bonds would be practical, and MPs are expected to be updated on progress in the Budget.
Islamic law forbids making money from interest, making conventional loans unacceptable to the devout.
But specially-designed bonds have been designed to comply with the demands of Sharia, and sukuk is now estimated to be worth £5.5 billion in a £125 billion global Islamic financial market.
Most Islamic financial products work on the principle of investing in a fixed asset able to generate a rate of return, such as property that yields rent or an asset that can repay a larger capital sum on redemption. These avoid paying interest.
Announcing the study last spring, then-Chief Secretary to the Treasury Ed Balls - now Schools Secretary - said: "The Islamic finance market is growing globally year on year, and we want London to play a key role in this area. We will do everything we can to promote new ways for British Muslims to bank, save and borrow."
A Treasury spokesman said: "We want the City of London to be one of the gateways globally for Islamic financial products and we want it to be competitive on all products you can imagine, so we should be competitive on Islamic finance as well as any other. Just because of your faith, there shouldn't be any issue about your access to financial services in the UK."
But Edward Leigh, the chairman of the House of Commons Public Accounts Committee, raised concern over the plans.
He told the Mail on Sunday: "I am concerned about the signal this would send - it could be the thin end of the wedge. British Common Law must be supreme and should apply to everyone.'

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