London is set to become the hub of Islamic finance. The World Islamic Financial Forum is in London and the UK Prime Minister David Cameron has taken the opportunity to announce some initiatives to raise the financial district the City of London’s profile in this growing business.
Mr Cameron says the UK Treasury is working on an Islamic bond that will raise about 200m ($320m) and which is likely to be launched next year.
It is usually done by making the initial payment – in this case, from an Islamic investor to the British government – an investment in some asset rather than loan.
Several governments in the Islamic world do use this method to raise funds, with Indonesia, Malaysia and Turkey being among those who have adopted this approach.
Conventional borrowing with interest still dominates for governments in the Islamic world that need to get funds from the markets, or from agencies such as the IMF or the World Bank.