Feb 21 2012
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UK bids to remain West's top Islamic finance hub
London has been providing Islamic financial services for 30 years, but in recent years the industry has started to attain a greater profile.
Omar Shaikh, board member of the Islamic Finance Council (IFC) in Britain, thinks that this higher profile results from four main factors.
"The first is leadership, demonstrated by the UK government being the first mover in the West to create a conducive fiscal and regulatory framework to enable Islamic finance, by introducing legislation that gives a level playing field for Islamic finance," Shaikh told Zawya.
"The second factor is the strong basis of education, training and thought leadership originating from the UK, with a variety of qualifications and courses run by the Islamic Institute of Banking and Insurance, the Chartered Institute for Securities and Investment and others. The Islamic Finance Council itself offers a unique global course exclusively for Shariah scholars," Shaikh said.
"On the commercial side, there is a host of Islamic banks and institutions providing retail, investment banking, and real estate and broader asset management services. London has quality assets which have historically provided a home for Gulf liquidity," Shaikh said. According to a 2009 report by CityUK, Britain's Islamic banking sector is now bigger than that of Pakistan. A total of 22 banks, five of which are fully Shariah-compliant (Bank of London and The Middle East European Islamic Investment Bank, Gatehouse Bank, Islamic Bank of Britain, QIB UK) serve the local market. Another 17 leading institutions including Barclays, RBS and Lloyds Banking Group have set up special branches or subsidiary firms for Islamic finance clients. That's the largest number of banks for Muslims of any western country.
"Fourth, London itself is a global financial centre with a strong capital market which has attracted a number of global sukuk to list on the LSE platform," Shaikh said. Four major listing platforms are currently battling for dominance of the lucrative and fast-growing sukuk market - London (London Stock Exchange), Kuala Lumpur (Bursa Malaysia), Dubai (Nasdaq Dubai), and Luxembourg (Luxembourg Stock Exchange). The LSE is currently leading the game globally as it offers listing as well as trading, whereas other domiciles like Luxembourg are primary listing domiciles with no trading. Reduced costs are also part of the attraction.
"In addition to the prestige of admitting securities to trading on a truly international and globally respected exchange, allowing companies to raise their profile with investors worldwide and access a deep pool of capital, London offers the benefit of competitive admission and listing costs as London is the only major listing venue which does not charge an annual fee to issuers," the LSE says.
In January 2012, the LSE attracted the listing of another two sukuk bringing the total number of sukuk which have listed on the exchange to 42 and the total money raised to over USD 23.75 billion. The two latest issuances to list on the LSE include EIB Sukuk Company's issue of five-year USD 500 million Islamic Trust Certificates on behalf of Dubai-based Emirates Islamic Bank. The other listing was the FGB Sukuk Company's five-year USD 500 million Islamic Trust Certificates on behalf of Abu Dhabi-based First Gulf Bank.
The LSE is confident it can capture similar interest in the future. "The two new recent listings show that appetite from investors and issuers is strong. London's long tradition of financial innovation along with the commitment of the UK Government to developing Islamic financial markets means the UK will remain a popular destination," it says.
Beyond the LSE, the London Metal Exchange also has a role to play, as it currently offers commodity-based contracts traded off-exchange, such as Treasury murabaha.
Shaikh said that "underpinning all this activity is the significant talent pool of top-quality professionals across various fields including accounting, banking and finance, legal, tax, etc." Admittedly, the UK capital has a well-established base of specialists in the legal field: The Legal 500 cites 16 major London law firms with specialist Islamic finance expertise and experience.
There are other factors which should further support the development of Islamic finance in the UK, such as the demographics of the local Muslim population. The 2011 National Census figures to be unveiled later this year are expected to show the UK Muslim population has reached 2.2 million. In 2030, the figure will be closer to 5.6 million, US think-tank The Pew Forum estimates. Muslims in the UK have a combined spending power of GBP 21 billion and save about GBP 1 billion a year, which shows the significant potential for the market.
So the prospects of Islamic finance in the UK look good, but the industry-wide context seems hardly favorable.
Shaikh remains optimistic. "The global finance industry is in trouble but Islamic finance has for the past few years registered double-digit growth, specifically here in the UK. It will continue to grow, though it will be more challenging on the retail side. In the wholesale market, we will continue to see investments and growth. The sukuk and corporate sukuk market is very young but I can see it picking up in the next few years," he said.
Sultan Choudhury, managing director of the Islamic Bank of Britain, thinks the UK Islamic finance industry "has achieved a huge amount in a short while, both in the retail and corporate sectors".
"With continued product development and market education, I am confident the UK will maintain its leadership position as the Western hub for Islamic finance, achieving continued growth and success," he told Zawya.
© Zawya 2012
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