UK Prime Minister David Cameron made a bid to position London as a leading hub for Islamic finance yesterday, announcing plans for Britain to become the first Western country to issue a sovereign sukuk.

The planned issue, worth around £200 million ($323 million) and expected next year, would be much smaller than an originally planned sukuk but would provide a much-needed liquidity management tool for Britain's six Islamic lenders and could encourage local firms to consider issuing sukuk of their own.

Britain's push to promote itself as a leading Islamic finance hub comes as competition heats up with other financial centres in Asia, led by Malaysia, and in the Middle East.

Britain first announced plans for a sovereign sukuk five years ago but that issue never materialised as the country's Debt Management Office decided the structure was too expensive.

The new proposal is less than a fifth of the size of the original and is designed to boost London's status rather than to diversify Britain's investor base.

"I don't just want London to be a great capital of Islamic finance in the Western world, I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world," Cameron told the World Islamic Economic Forum being held in London.

The global Islamic banking industry is expected to tip $1.8 trillion by the end of this year, according to consultancy Ernst & Young, and is starting to attract interest among big Western banks because of rapid growth of trade involving Gulf economies.

Malaysia, the world's largest marketplace for sukuk, is shifting efforts from local market development towards attracting global issuers, while Dubai is revising regulations to attract sukuk issuance and trading.

Britain is the European base for several Middle East banks and a major centre for Middle East investors, whose assets include Harrods department store and Manchester City football club.

London has sukuk legislation in place and has attracted more than $34 billion in sukuk listings from around the globe over the last five years. Sizeable issuance from local firms, however, has remained elusive.

The government sukuk, by enhancing London's status as an Islamic finance hub, should not stumble on the Debt Management Office's "value for taxpayer" objective, a test which the original plan of five years ago failed.-Reuters