CIPFA to explore Islamic finance's public sector potential

27 Oct 14

CIPFA is to examine how councils and other public bodies could make use of Islamic finance as a source of borrowing.

The institute wants to explore how the international expansion of Islamic finance could be tailored to help meet the needs of the UK public sector.

As of March last year, 74% of local government’s long-term borrowing came from Public Works Loan Board with outstanding debts of £69bn, according to CIPFA. But it added that PWLB borrowing was inflexible because of large early-repayment charges.

Islamic finance, however, could provide an extra source of funding for public bodies, offering greater flexibility when it comes to structuring debt, the institute said.

Alan Edwards, strategy and development director at CIPFA, said: ‘Islamic finance in a growing source of funding around the world. CIPFA is committed to ensuring UK local authorities and public bodies get the chance to explore all funding options.

‘Islamic finance may become an ethical and reliable source of funding.’

Luke Webster, finance director at the London Pensions Fund Authority, added: ‘Intuitively there should be a role for Islamic finance in local government. The key will be structuring Islamic finance products that can meet our needs with competitive pricing.’

CPIFA’s move follows a round-table event, which took place last week to assess the use of Islamic finance. It involved a broad range of stakeholders including local government representatives, the banking sector, specialist Islamic finance legal advisors and a Sharia scholar.

The meeting discussed the features and benefits of Islamic finance and examined how practicable products could be developed.

The initiative comes after the government launched its first sovereign Sukuk bond in June, worth £200m, in a bid to establish the UK as a global hub for Islamic finance. The issue was more than ten times over-subscribed demonstrating the appetite for Islamic finance products in the UK, CIPFA noted.

  • Judith Ugwumadu

    Judith Ugwumadu joined Public Finance International and Public Finance online as a reporter after stints at Financial Adviser, Global Security Finance and The Sunday Express. Currently, she writes about public finance, public services and economics.

    Follow her on @JudithUgwumadu_

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