New Islamic index on London Stock Exchange shows UK "open for business" to investors, says Cameron

David Cameron said that the Treasury was "working on the practicalities" of issuing a sukuk worth around £200 million next year, with input from industry. Together with the opening of a new Islamic index on the London Stock Exchange, the proposal is designed to attract to the UK a share of £1.3 trillion global Islamic investment.

Amir Ahmad, an expert in Islamic finance with Pinsent Masons, the law firm behind Out-Law.com, said that it had been "not a question of if, but when" the Government would seek to issue a sukuk and establish a separate Shari'a-compliant exchange.

"The announcement is testament to the growing importance of Islamic finance in the global financial sector and the British Government's desire to ensure that liquidity continues to flow through the City," he said.

Sukuk are financial instruments that resemble government-issued sovereign bonds while adhering to the principles of Islamic law, paying investors a fixed return based on the profit generated by an underlying asset. Islamic, or Shari'a, finance prohibits interest, or 'riba', and does not allow one party to make money unjustly at another's expense. In addition, wealth can only be generated through trade and investment in 'real' assets, such as infrastructure; providing that those assets are not banned by Shari'a.

The value of Shari'a-compliant finance is growing 50% faster than conventional banking, and the value of Islamic investments globally is expected to rise to £1.3 trillion by next year - a 150% increase since 2006.

Earlier this year the Government set up an Islamic Finance Task Force, charged with raising London's profile as a centre for Islamic financial transactions ahead of its hosting of the WIEF. The annual business event is currently taking place outside of a non-Islamic or Asian city for the first time, and is hosting more than 1,800 political and business leaders from over 115 countries.

In a speech to WIEF attendees, Cameron said that his ambition was for London to "stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world". He said that it would be a "mistake" for the UK not to take steps to encourage more Islamic investment.

"We know we are in a global race for our economic future so we are backing our businesses, seeking new markets and banging the drum for Britain to show we are a first class destination for trade and investment," he said. "When Islamic finance is growing 50% faster than traditional banking and when global Islamic investments are set to grow to £1.3 trillion by 2014 we want to make sure a big proportion of that new investment is made here in Britain."

Cameron told the conference that the LSE is to establish new indices which would allow potential investors to easily identify Islamic-compliant business activities. The new Islamic Market Index would identify companies that meet traditional Islamic investment principles and would use "the most advanced techniques on the planet" to screen financial ratios and enable investors to identify the safest and least volatile investment opportunities, he said.