Osborne sukuks up to Islamic finance, but will it work?

Ensuring that the sukuk are watertight in their compliance with sharia will be the acid test for the Chancellor.

The government could soon issue its first taxpayer-guaranteed sukuk, marking the UK’s entry into the lucrative, rapidly expanding market of Islamic finance, which was until now exclusive to Muslim countries. But what are sukuk and why are they important?

Sukuk (plural of ‘sakk’) are essentially government bonds that must comply with the moral code and religious law that comprises sharia (as any part of the holistic system of Islam must). This word will probably generate some trembling articles in the right-wing press, but sharia’s main stipulation in terms of finance is simply a ban on riba (interest). Since Islam sees money as a pure measure of value, and not a profitable asset in and of itself, the charging of interest on money is haram (forbidden). In lieu of interest, the issuer of a sukuk (in this case, the UK government) sells an investor or group the bond, who then rents it back to them for an agreed-upon rental fee. The issuer also signs a contract promising to buy back the bonds at a future date at par value. Sukuk are traded on 'real' assets, not risk and futures.

The first sukuk (which translates as 'cheques' or 'certificates') proposed by Osborne would only be valued at £200m, a miniscule amount in the context of the total Islamic finance market (currently valued at around £750bn and expected to double in value by 2017 according to the 2012 Global Islamic Finance Report), leading Jonathan Guthrie in the Financial Times to call it little more than an "amuse bouche". Issuing them is not about to end Britain’s economic woes with a tide of oil money from the Gulf.

Sukuk are at this stage a marketing tool: a gesture to the Muslim world that London is open for business. Whoever you are, we’ll suit your conditions (if you have cash). Osborne wrote an article to this effect in the FT last week, stating his ambition for London to be "the unrivalled western centre for Islamic finance". It would make Britain the first non-Islamic country in the world to issue sovereign sukuk, joining Egypt, Malaysia, Kazakhstan, Qatar and Turkey. As London is already a global finance capital whose stock market dwarfs those of all these other countries put together, the potential for growth in a new sector of culturally-sensitive investment funds (another example would be green investment) is not to be underestimated.

But ensuring that the sukuk are watertight in their compliance with sharia will be the acid test for Osborne. If they’re not, they are rendered pointless and a huge waste of time and money. In the winter of 2011, Goldman Sachs proposed to debut a $2bn sukuk al marabaha (deferred payment) program, but it was judged non-sharia compliant and was aborted, causing a lot of red faces in some quite altitudinous boardrooms. Since sharia works horizontally rather than hierarchically – that is, fatwas (judgements on points of sharia) can be issued by anyone with the recognised Islamic qualifications and then debated on equal terms – scholars can often differ irrevocably on the finer points.

But even in the event that the government’s sukuk are eagerly snapped up, it is not going to revolutionise our financial relationship with the Islamic world. London is already a piggy bank for the world’s elite, whatever their religion, because, as Michael Goldfarb recently argued in the New York Times, skyrocketing prices and a tax law which is only able to skim British earnings mean that London property has now all but become a "global reserve currency" – a sort of hyper-money only accessible by the global super rich, most of whom don’t live here and don’t intend to.

And as the New Statesman has already shown, the Middle East in particular has been enthusiastically pouring cash into the UK (well, London) for the past decade anyway. Qatar alone owns 95% of the Shard, Harrods, over a quarter of Sainsbury’s, a fifth of the London Stock Exchange itself, the Chelsea Barracks, the Olympic village, 20% of Camden market, No. 1 Hyde Park (the world’s most expensive block of flats), and the US embassy building.

So if Osborne’s sukuk have a successful debut, it will herald a greater level of fiscal openness and consensus between the Islamic world and Britain, and it will make it easier for some of Britain’s own 2.7 million Muslim citizens to decide upon halal (permitted) domestic investments. As far as Treasury policy can be, this is socially inclusive. But that’s about it. Even in the case that a new enthusiasm for religiously-influenced investment boosts GDP, as each day passes we see that the previously accepted link between GDP and living standards has all but dissolved anyway.

It is highly unlikely this policy will make a difference to the life of the average British Muslim, and issuing a few culturally-catered bonds will not even begin to address the rampant inequality and instability of a British economy increasingly leaning on the crutch that is the trickle-down of elite foreign capital. The extent to which Osborne’s financial policy adheres to the central Islamic idea of maslaha (public interest) is, to put it mildly, up for debate.

The 9th World Islamic Economic Forum at ExCel on October 29, 2013 in London. Photograph: Getty Images.
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“Brexit is based on racism”: Who is protesting outside the Supreme Court and what are they fighting for?

Movement for Justice is challenging the racist potential of Brexit, as the government appeals the High Court's Article 50 decision.

Protestors from the campaign group Movement for Justice are demonstrating outside the Supreme Court for the second day running. They are against the government triggering Article 50 without asking MPs, and are protesting against the Brexit vote in general. They plan to remain outside the Supreme Court for the duration of the case, as the government appeals the recent High Court ruling in favour of Parliament.

Their banners call to "STOP the scapgoating of immigrants", to "Build the movement against austerity & FOR equality", and to "Stop Brexit Fight Racism".

The group led Saturday’s march at Yarl’s Wood Immigration Detention Centre, where a crowd of over 2,000 people stood against the government’s immigration policy, and the management of the centre, which has long been under fire for claims of abuse against detainees.  

Movement for Justice, and its 50 campaigners, were in the company yesterday of people from all walks of pro and anti-Brexit life, including the hangers-on from former Ukip leader Nigel Farage’s postponed march on the Supreme Court.

Antonia Bright, one of the campaign’s lead figures, says: “It is in the interests of our fight for freedom of movement that the Supreme Court blocks May’s attempt to rush through an anti-immigrant deal.”

This sentiment is echoed by campaigners on both sides of the referendum, many of whom believe that Parliament should be involved.

Alongside refuting the royal prerogative, the group criticises the Brexit vote in general. Bright says:

“The bottom line is that Brexit represents an anti-immigrant movement. It is based on racism, so regardless of how people intended their vote, it will still be a decision that is an attack on immigration.”

A crucial concern for the group is that the terms of the agreement will set a precedent for anti-immigrant policies that will heighten aggression against ethnic communities.

This concern isn’t entirely unfounded. The National Police Chief’s Council recorded a 58 per cent spike in hate crimes in the week following the referendum. Over the course of the month, this averaged as a 41 per cent increase, compared with the same time the following year.

The subtext of Bright's statement is not only a dissatisfaction with the result of the EU referendum, but the process of the vote itself. It voices a concern heard many times since the vote that a referendum is far too simple a process for a desicion of such momentous consequences. She also draws on the gaping hole between people's voting intentions and the policy that is implemented.

This is particularly troubling when the competitive nature of multilateral bargaining allows the government to keep its cards close to its chest on critical issues such as freedom of movement and trade agreements. Bright insists that this, “is not a democratic process at all”.

“We want to positively say that there does need to be scrutiny and transparency, and an opening up of this question, not just a rushing through on the royal prerogative,” she adds. “There needs to be transparency in everything that is being negotiated and discussed in the public realm.”

For campaigners, the use of royal prerogative is a sinister symbol of the government deciding whatever it likes, without consulting Parliament or voters, during the future Brexit negotiations. A ruling in the Supreme Court in favour of a parliamentary vote would present a small but important reassurance against these fears.