Cold water thrown on London's Islamic finance ambitions

November 28, 2013.

Finance ambitions –> Mark Mobius , an emerging markets investment expert at Franklin Templeton , certainly stirred things up at the Global Islamic Economy Summit in Dubai .

Cold water thrown on London's Islamic finance ambitions

Cold water thrown on London’s Islamic finance ambitions


You would expect at a gathering in the UAE that he would say nice things about the Emirates, and he duly expressed his belief that for ease of doing business, and as an investment destination, it was the best place in the region, rivalling any in the world. But what he said next went above and beyond the call of duty.

Asked which of the “big three” global Islamic centres – Malaysia , Dubai or London – had the best chance of achieving global hub status, his reply was blunt: “London doesn’t have a chance.” Mr Mobius explained that the British capital would be ruled out because of two issues: tax and regulation.

Levies by the government on the financial industry – all the heavier since the financial crisis and austerity regime of the Cameron government – and increasing red tape – for much the same reason – make London simply too expensive, he said. His view flies in the face of accepted wisdom. Strategic thinking about the global Islamic economy usually results in it splitting between the three centres, with London regarded as the premier market in the European time zone, Dubai and Malaysia assuming the same place in their own geographies.

It must have come as a surprise to Baroness Warsi , the British foreign office minister, who had appeared on the same stage in Dubai a few minutes earlier to extol the virtues of London as an Islamic financial centre, especially for the listing of sukuk (Sharia-compliant bonds). Only a few weeks ago, the British prime minister David Cameron won plaudits from the Islamic business world by becoming the first non-Muslim country to issue a sovereign sukuk, with a £200m (Dh1.18 billion) issue planned for early next year.

So is Mr Mobius right? Some of the statistics seem to bear him out. In figures prepared for the Dubai summit by the information group Thomson Reuters, London is way down the global league tables for sukuk issuance. Between 1996 and 2013, Malaysia was by far the most active country in the sukuk issuance, with an aggregate value of $324bn worth of bonds. Next, a long way behind, came the UAE , with $47bn worth, followed by Saudi Arabia, with $39bn . London was way out of the reckoning, with a mere $279m of sukuk issued, far behind even the US, which has so far not shown much interest in Islamic finance, but which issued $765m worth in the same period. So London is way off top spot in the issuance league. But when it comes to listing and trading it is a different story.

Sukuk issuers chose to list, and often trade their instruments, on the London Stock Exchange , which has $44bn worth of sukuk debt listed, the highest number in the world. Liquidity and sophistication of London markets prove highly attractive for those seeking to list their debt. Sukuk trading in the secondary market is more complex. Most of the secondary market trading in sukuk was in over-the-counter form – that is, not on a recognised transparent market – and therefore impossible to estimate accurately. London financial institutions involved in sukuk trading would not voluntarily disclose details of their business, it was said. The picture is further complicated by the fact that many sukuk holders do not trade them at all.

There is a global supply gap of sukuk of about $270bn , which will narrow as more issues come up in the next couple of years, but until then many sukuk holders will opt to hold on to their paper. As a world city of prestige, London has other attractions in the race for global hub status – structural, lifestyle and cultural advantages – that might enable it to sustain its position, especially with regard to listing and trading, against its competitors.

Mr Mobius’s rather dramatic assertion appears to be based on some solid evidence. But the next few years, as Dubai seeks to become the global centre of Islamic economy, will determine whether or not he is right. Maybe it should not be regarded as a horse race between three competitors. The message from the summit was that the Islamic financial market is growing so fast it will be able to accommodate many hubs.
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Source: National, The (United Arab Emirates)