David Cameron to unveil plans for £200m Islamic bond

David Cameron will on Tuesday pledge to make London one of the world's "great capitals of Islamic finance" when he unveils Treasury plans to create a £200m Islamic bond by early next year.

In a speech to the first meeting of the World Islamic Economic Forum to be held outside a Muslim country, the prime minister will also unveil plans by the London Stock Exchange to launch the first Islamic Market Index.

Cameron will tell more than 1,800 political and business leaders, who have travelled to London for the ninth meeting of the forum, that Britain aims to secure a slice of global Islamic investments, due to reach £1.3tn by next year. Britain hopes that the index will help identify Islamic finance opportunities.

The government moved on Monday night to offer assurances that the Islamic bond, or Sukuk, and the Islamic index would not encourage investments that discriminate against Israel. Boris Johnson was forced to order Transport for London to rewrite the contract for the Emirates Thames cable car in the summer amid fears that Israeli companies could have been blocked from involvement in the project. The United Arab Emirates does not recognise the state of Israel.

A government spokesman said: "The government's decision to issue a Sukuk compliant bond is about making sure Britain is open for business – we will not open one door at the expense of another. While the Treasury is still working on the practicalities, we can confirm that the government would never exclude a supplier on nationality grounds."

The Sukuk bond will comply with Islamic law and investment principles that prohibit lenders from charging interest.

The prime minister will say that London is already the biggest centre for Islamic finance outside the Islamic world. But he will also say: "Today our ambition is to go further still. Because 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 as one of the great capitals of Islamic finance anywhere in the world. There are some countries which naturally look inwards, pull up the drawbridge and refuse to recognise that the way the world is changing affects their future success. But Britain will not make that mistake."

Cameron will say that his government aims to become the first outside the Muslim world to issue an Islamic bond next year. He will say: "For years people have been talking about creating an Islamic bond outside the Islamic world. But it's just never quite happened. Changing that is a question of pragmatism and political will. And here in Britain we've got both.

"This government wants Britain to become the first western sovereign to issue an Islamic bond. So the Treasury is working on the practicalities of issuing a bond-like Sukuk worth around £200m, and we very much welcome the involvement of industry in developing this initiative which we hope to launch as early as next year."

On the Islamic index he will say: "The growth of Islamic finance means that there is an increasing demand for new ways of identifying Islamic compliant business activities. Again the City of London is leading the way – this time not just in Europe, but right across the world.

"Today the London Stock Exchange is announcing the creation of new indices. These not only identify companies that meet traditional Islamic investment principles but also use the most advanced techniques on the planet to screen financial ratios and enable investors to identify opportunities with lower volatility. In plain language, this means the creation of a new way of identifying Islamic finance opportunities – a world-leading Islamic Market Index."