Dr Michael Nazir-Ali, the former Bishop of Rochester, is a man of strong opinion. There is nothing extraordinary about this. As a senior official within the Anglican Church he had a legitimate mandate to provide social commentary; by nature, it often happened to be contentious. Nothing has changed during his current position as director of the Oxford Centre for Training, Research, Advocacy and Dialogue, an organisation tasked with mitigating threats directed against Christianity. It’s an outspoken sort of business.

Image courtesy of the Walters Art Museum Illuminated Manuscripts © 2013, some rights reserved
Image courtesy of the Walters Art Museum Illuminated Manuscripts © 2013, some rights reserved

It’s fair to say though that Dr Nazir Ali’s views have been more colourful than most. And unfortunately, with unsettling regularity, they’ve been directed at the Muslim community.

The gloriously narrow-minded assertion that the Church of England was failing to convert enough Muslims to Christianity takes the cream among a litany of politically insensitive comments. Yet rather than rehashing past controversies on a progressive high horse – that’s best left to the Guardian – his latest public statement, concerning David Cameron’s plans to issue a ₤200 million Sharia-compliant bond, or sukuk, deserves to be interpreted afresh. Unsurprisingly he’s not happy about it. Not one bit.

So what exactly is it about Mr. Cameron’s decision that Dr Nazir-Ali finds so destructive to British finance? Well, surprisingly, not a lot. In fact, his argument is totally devoid of engagement with the financial impact of sukuk, a frankly unforgiveable error. For the argument against issuing a new financial instrument should be fought on financial grounds, not shaded by obvious prejudices. It appears that Dr Nazir-Ali’s economics scorecard is in fact worse than his political one; a pretty astonishing feat.

You simply don’t deserve credibility or authority on an issue if you fail to answer the right question. Lambasting the British government’s intentions of issuing a sovereign sukuk on the basis that it will open the floodgates to an uncontrollable proliferation of Islamic law deserves nothing but derision. It’s quite simply unfounded, toxic scaremongering. Of graver importance, though, is its misrepresentation of the issue, which is financial in nature.

A sovereign sukuk issued by the British government would be anything but destructive to British finance. Noting that Islamic finance is growing twice as fast as traditional finance, David Cameron’s prescription for an Islamic debt instrument is naturally lauded by the City. The intent to tap into a market predicted to be worth £421 billion by 2016 is far from reckless: it is economic pragmatism. Additionally, the creation of a new Islamic index on the London Stock Exchange clearly signals that London is willing to engage with the broader Islamic finance market, valued at £1.3 trillion as of 2012.[1] In fact, rather than merely suggesting that the UK is willing to engage with Islamic finance, Mr Cameron is actively encouraging them to do so. There is no wavering over this.

But how will access to this market operate, and what are its implications? Islam prohibits interest, or ‘riba’ so a British sukuk would be structured so as to allow investors’ returns on an underlying asset. The most conventional way of structuring this would be to back the sukuk with rental payments on government property. In this sense the sukuk finesses its way around the thorny issue of interest, while still providing issuers with a stream of payments. A quasi-bond is perhaps a good way of looking at it.

According to Robin Wigglesworth of the Financial Times, an expert on debt, a UK sovereign sukuk would primarily target ‘infrastructure investments’ by large Muslim corporations.[2] This is where the real merit in encouraging a UK sukuk is derived, and the government has been strident on this point. Investment in significant infrastructure projects is therefore the target of the scheme; and the financial benefits it provides, the justification.

For the six domestic financial institutions already fully compliant with Sharia law, the announcement of a sovereign sukuk is welcome news indeed. Hitherto these institutions have been hampered in their efforts to raise capital due to their inability to rely on conventional sources of finance. The stringent regulatory requirements concerning capital, that were pushed through in the wake of the financial crisis have only exacerbated this problem. Seen in this light, a government instrument denominated in sterling would not only aid the existing financial institutions, but also encourage more to enter the market.

Yet the critics remain unconvinced. The most common objection argues that it’s not just purely financial – there are alleged social and political implications that need to be considered as well. For many accommodating Islam sets a dangerous precedent. There is a fear that Sharia law will disseminate throughout Britain eroding traditional institutions. Such sentiment is mere folly. Sources from within Treasury have made it clear that a British bond would comply with British laws ‘first and foremost’, which after all should be self-evident in that it is a British sovereign bond.[3]

Furthermore, the discussion inevitably gets tied up in the murky and often heated politics of migration. There may indeed by a growing pressure by the public on the UK government to deal effectively with migration. The forum for dealing with these issues, however, is certainly not the bond market.

The creation of a British sovereign sukuk will not be without complication. It will require a great deal of collaboration between Sharia scholars, lawyers, financiers and politicians. Teasing issues will need to resolved – inconsistency of Sharia application and limited legal precedence being the most pressing – yet this is nothing novel in the realms of financial innovation. It’s inherently a complex process.

Lodging an argument against sukuk without addressing the financial consequences of its implementation is the real danger. Dr Michael Nazir-Ali is right to assert its construction will have ‘unforeseen consequences’: he’s wrong, however, to suggest it will be destructive. Innovation and financial nous should be encouraged in a stymied global economy. For that, Mr. Cameron deserves praise not scorn.



[1] Sohail, Jaffar, Sukuk: From a Niche Instrument to a Global Financial Alternative. Retrieved 6 November, 2013, from www.worldcommercereview.com; David, Cameron, ‘Increasing the UK’s Exports and Attracting Inward Investment’, in World Islamic Economic Forum: Prime Minister’s Speech, 29 October, 2013. Retrieved 5 November, 2013, from www.gov.uk.

[2] Robin, Wigglesworth, Industry Welcomes George Osborne’s Plan for UK Islamic Bond. Retrieved November 7, 2013, from www.ft.com.

[3] Edward, Malnick & John, Bingham, Bishop Fears Sharia Bonds Pave Way for More Islamic Law. Retrieved November 6, 2013, from www.telegraph.co.uk.

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