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Kitty Ussher announces response to Sukuk consultation
Economic Secretary and City Minister Kitty Ussher MP, today announced the Government's response to the consultation on a sterling Sukuk issuance saying the government favoured a 'bill-like' Sukuk programme which could be fully integrated with the conventional Treasury bill programme.
Chairing the third meeting of the Islamic Finance Experts Group, Kitty Usher said that, were the remaining barriers to be surmountable, a rolling programme of up to around £2 billion of 'bill-like' Sukuk issuance would be achievable over time. She added that the group will publish a UK strategy paper on Islamic Finance within the next year.
Speaking today, Kitty Ussher said:
"Today's discussion has emphasised both the importance of the Islamic finance sector to the City and the Government's commitment to ensuring the continued growth of this important sector in the future. The Government is determined to maintain its momentum on work on Islamic finance and to make clear to stakeholders its commitment to this industry.
"As such, we want to reiterate our aim to publish a paper detailing the UK strategy on Islamic finance by the end of 2008. This paper would clarify the role of the Government in the development of this sector and importantly, the steps that industry will need to take to ensure that Islamic finance becomes one of the UK's success stories."
Responses to the consultation published today have enabled the Government to move forward in the evaluation of the costs, benefits and risks associated with a Government sukuk issuance. The key conclusions from the consultation were presented to the group for the first time today, stating that:
* the balance of advantages and risks lies with 'bill-like' sukuk rather than 'bond-like' sukuk;
* a rolling programme of up to around £2 billion of bill-like sukuk issuance would be achievable over time;
* a 'bill-like' sukuk programme would be fully integrated with the conventional Treasury bill programme, which has rolling issuance at 1, 3 and 6 month maturities; and
* the Government would use a 'plain vanilla' Ijara-based structure to facilitate sukuk issuance.
There are still, however, a number of outstanding issues that need answering before the Government would be in a position to announce a decision on whether or not it will issue sukuk. The Government will continue to work to resolve these outstanding issues and will publish an update of progress in the 2008 Pre-Budget Report.
National Savings and Investments also presented the findings of their feasibility study of the Government becoming an issuer of retail Islamic financial products. The full report can be found on NS&I's website. The study is comprised of the following four elements:
* Understanding the Sharia'a rules and how these may be used to develop offers
* Sizing the target market
* Assessing the costs of making these offers
* Identifying risks to both NS&I and the Government
The NS&I feasibility study concluded that it would be premature for them to offer Sharia'a compliant retail products at this stage, but that they are eager to maintain interest in this market and have committed to repeating the feasibility study once further Government work on sukuk has been completed.
Notes for Editors
1. In the 2007 Pre-Budget Report, the Government announced that it would hold a further detailed consultation on its feasibility study on the potential issuance of sterling sukuk. On 14 November 2007, the Government published a consultation paper Government sterling sukuk issuance: a consultation. http://www.hm-treasury.gov.uk./consultations_and_legislation/sukuk_issuance/consult_sukuk_issuance.cfm
2. The consultation sought views on the advantages, disadvantages and risks of the Government becoming an issuer of Islamic financial instruments. It also raised technical questions including the merits of 'bill-like' and 'bond-like' sukuk and the characteristics that sukuk would need if they were to be priced at the same level as their conventional equivalents while ensuring their Sharia'a compliance.
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