Sharjil Ahmed, associate Business & Lifestyle Middle East, provides an insight into the Islamic finance scene in Great Britain
London, an international leader in the world of finance, and its involvement in politics, entertainment, fashion, media and the arts, contribute to its status as a major global city. Its international expertise and capital, with a supportive legal and regulatory system, an advanced communications and information technology infrastructure and an unrivalled concentration of professional services, make it one of the most competitive cities in the world.
A survey of European cities among business executives in 2000, found London to be the best location for business, ranking first for access to markets, external transport links, internal transport, quality of telecommunications, availability of qualified staff and languages spoken.
It connects 270 cities worldwide, operating from five airports, and when the $100 billion Heathrow Terminal 5, which is due to be completed in 2008 is ready, it will make it the largest airport in Europe.
In terms of investment London has been rated the best city for the last 16 years and boasts of the biggest research community in Europe.
Being a culturally diverse capital, it has taken care to cater to the needs of those belonging to different religions and backgrounds and to serving the needs of international business. Awareness in Islamic finance has significantly increased, and it is not only aimed at the odd 1.8 million Muslims living in the UK but also non-Muslims.
Islamic banking is not only for Muslims, it is open to everyone from any religion. In fact, the first customer to open an Islamic bank account with the Islamic Bank of Britain was a non-Muslim.
The British Government has been pushing its ambition to make Britain the global Islamic finance hub, and at the Islamic Finance and Trade Conference in London in June this year, the UK's finance minister Gordon Brown announced "the ambition for Britain to be the global gateway to Islamic finance and trade".
The speech should encourage and help potential investors and Islamic banks to come and invest in the UK.
Total assets of Islamic banking are estimated to be nearly $300 billion and this is a rapidly expanding phenomenon. The growth rate of Islamic banking is 10% to 15% annually and it is expected to increase further by another 5 to 10% in the next ten years.
The regulatory environment of London is balanced which encourages financial institutions to invest there. The City contributes around 2.5 per cent to the UK's GDP. It is a leading centre for securities dealing with 43 percent of the global market in foreign equities trading, and the world's most important centre for foreign exchange trading with 31 per cent share, as well as in international bond issues and trading, and public private partnership financing. Approximately half of all European investment banking is conducted in London.
At present, there is one Islamic bank and one Islamic investment bank operating in the UK. Apart from this, three conventional and two investment banks have opened windows for Islamic banking and financial products. Soon after Gordon's Brown speech, Lloyds TSB rolled out their Islamic banking services in their 2000 branches nationwide.
Dubai Islamic Bank, one of the pioneers and the biggest Islamic bank on the globe has already showed its interest to invest in the Shari'ah compliant products in Europe. Albaraka, also being one of the biggest banks showed its interest to come and open its branches in the UK.
Recently, DP world Dubai group who bought P&O (UK port and ferries group) this year, issued the $3.5 billion Sukuk that is co-led by Barclays Capital and Dubai Islamic Bank. This clearly shows the rising interest of foreign entities wanting to invest in London.
There are around 15 million Muslims living in Europe, which means there is a big opportunity for Islamic banks to enter the European market. Research suggests the savings of European Muslims are even higher than the average saving rates within the EU member states which make the Muslim community in Europe an attractive clientele for Islamic financial services.
The recent surge and increasing awareness about Islamic Finance has led to major banks and financial institutions open their doors to the public; offering not only Shari'ah compliant financial products but also project financing, funds, real estate, Sukuk, corporate and litigation, the latter which is by and large handled by law firm Norton Rose. Islamic Finance is not restricted anymore to major high street banks such as HSBC and Lloyds TSB. It has also caught the attention of major investment banks such as Merrill Lynch and Goldman Sachs who are interested in setting up Islamic finance groups. Clifford Chance was one of the first law firms with an Islamic finance practice in the Middle East, with the Dubai office recently celebrating its 30th anniversary. The list does not end here and continues with firms like Linklaters, King&Spalding, Dechert and White&Case having established offices in London and Dubai which cater solely for all Islamic transactions and dealings.
Chancellor Brown's announcement has only strengthened the prospective and the opportunity Britain has as a nation to be the centre of all Islamic related activities. The demand for Sharia'h compliant products can only increase keeping in mind the 1.8 million Muslim residents Britain has. According to Datamonitor the Islamic mortgage sector rose to an estimated value of $400 million in 2005, climbing from the $70 million recorded in 2001 and is further expected to touch the $2 billion mark in the UK by 2010.
© Banker Middle East 2006
