London seeks to solidify its role as Europe’s Islamic finance hub

LONDON // UK efforts to secure a slice of the lucrative Islamic finance sector will step up a notch when the British capital hosts the World Islamic Economic Forum this month, marking the first time the gathering — dubbed by some the Islamic world’s Davos — is held outside the Muslim world.

London seeks to solidify its role as Europe’s Islamic finance hub

Analysts expect the market in Sharia-compliant assets, now estimated at between US$1.7 trillion (Dh6.2 trillion) annually, to continue growing, making it an attractive proposition for Britain’s large financial services sector.

Successive British governments have sought to establish London as a hub for Islamic financial services, even though the financial crisis in 2008 and uncertainty accompanying Arab Spring upheavals dampened some of the enthusiasm for the market.

Nevertheless, Britain remains well positioned for an industry that has grown dramatically in the years after the global financial crisis, said Sahar Ata, an Islamic finance expert with the London School of Business and Finance.

London is already “the hub for Islamic finance in Europe”, Ms Ata said, with 22 financial institutions that offer Islamic finance products, including five that are fully Sharia-compliant, and 30 law firms that advertise expertise in the sector.

“London has a head start. The infrastructure in London is already in place. But European countries have joined lately, so there is competition.”

In March, the British government set up an Islamic finance task force under both the treasury and foreign office.

Baroness Sayeeda Warsi, the foreign office minister who leads the task force, said then that the sector looked set for ”significant growth” and Britain should be “doing more” to promote the UK’s Islamic banking industry in the Muslim world.

A higher profile for London could also attract more investment to the UK, she said, a key consideration for London, which in recent years has seen a number of marquee investments from Gulf and other Muslim countries.

A £150 million (Dh878m) Qatari investment in London’s Shard building, the tallest in Europe, was Sharia-compliant, as was a Kuwaiti buyout of luxury carmaker Aston Martin in 2007.

A Malaysian consortium, meanwhile, is leading the £8bn redevelopment of London’s Battersea Power Station, after acquiring the site for £400m last year.

Malaysia, a leader in Islamic finance, is the second largest investor in London real estate after the US.

Hosting the World Islamic Economic Forum — a three-day event that starts on October 29 — could therefore provide an important opportunity for London to tout its credentials to Islamic investors.

“We want to be the leading [Islamic] finance sector outside the Muslim world,” the deputy mayor of London, Edward Lister, said in Malaysia last month.

The 2012 forum, in Malaysia, attracted more than 2,100 participants from 86 countries, and led to the signing of contracts worth more than US$9n, according to the Financial Times.

“The conference is a good opportunity for London to take [it’s role in the market] further,” as well as an opportunity for Islamic financial institutions to promote themselves to a non-Muslim market, said Ms Ata.

Ms Ata estimated the global market for Islamic finance products to be currently worth $1.7 trillion. TheCityUK, a British finance sector pressure group, estimated the value at slightly less than $1.2 trillion in 2012, up 50 per cent from 2010, when the group valued the market at $812bn.

That represents strong growth in light of the 2008 global financial crisis, and the Islamic financial market’s ability to weather that meltdown is one of its biggest selling points, Ms Ata said.

Though the financial crisis and Arab Spring jitters caused a decline in interest on the retail level — HSBC closed its Islamic retail operations in 2012 — the corporate finance business has continued to grow.

Islamic finance conforms to the principles of the Quran and Sunnah, which forbid interest. Sharia-compliant bonds, or sukuk, are asset-based — sukuk holders are asset owners — and fixed returns cannot issue from currency speculation.

Islamic principles also forbid investment in debts and loans. Bank-to-bank investments in bad loans were a major contributor to the 2008 financial crisis.

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London can lead the world as an Islamic finance hub

A sukuk bond issue will promote overseas investment, writes George Osborne

This week, more than 1,000 investors from more than 100 countries and 15 global leaders are gathering for the ninth World Islamic Economic Forum.

London can lead the world as an Islamic finance hub

London can lead the world as an Islamic finance hub

The forum is not in Dubai, Jakarta or Islamabad, however, but in London. For the first time, it is being held in a non-Islamic country – and Britain is honoured to play host. This is an example of the UK’s position as the centre for global finance. And we intend to keep it that way.

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That is why I have already set out to ensure that the City of London is the home to fast-growing new markets, from Indian infrastructure funds to offshore Chinese renminbi. Now we have set ourselves this ambition: to be the unrivalled western centre for Islamic finance.

This will not only create jobs in Britain, but it will also bring investment. London’s Shard building and the athletes’ village for the 2012 Olympic Games were made possible by Islamic finance. And Islamic investment is continuing to play a vital role in rebuilding UK infrastructure – from the £400m Malaysian investment in Battersea power station, which will regenerate the Nine Elms area of London after decades of decay; to the £1.5bn Dubai investment in the London Gateway, the UK’s first deep-sea container port.

Just look at the mathematics. Islamic finance is growing 50 per cent faster than the traditional banking sector, and it has huge growth potential. A quarter of the world’s population is Muslim but only 1 per cent of the world’s financial assets are sharia-compliant. Across the Middle East and north Africa, less t han 20 per cent of adults have a formal bank account. That gap presents a huge economic opportunity for the UK.
We are building on existing strengths. London, with $19bn of reported assets, is already a major home to Islamic finance outside the Islamic world.

Britain has more sharia-compliant banks than any other western European country. And it has more than a dozen universities or business schools offering executive courses in Islamic finance – including a new programme for senior executives at the University of Cambridge announced this month.
We need to do even more if we want the UK to reap all the benefits of Islamic finance. So we have announced plans to make government schemes such as student loans, start-up loans and the enterprise allowance compatible with Islamic finance rules.

But with the World Islamic Economic Forum in town, now is the time for a big and bold step that will cement the UK’s reputation in the Islamic financial world. Today the prime minister will announce that the UK Treasury is working on the practicalities of issuing a bond-like sukuk worth about £200m.

Our ambition is clear: to make Britain the first sovereign to issue an Islamic bond outside the Islamic world. Sukuk bonds do not pay interest but instead entitle investors to a share in the returns generated by an underlying asset, such as property, making them Islamic-compliant.

These bonds will support the expansion of Islamic banking in the UK – providing economic benefits to non-Muslims and Muslims alike, including the 2.7m Muslims living in Britain.

The government’s Islamic bonds issue will act as a catalyst for corporate institutions to follow suit – further expanding the use of sukuk as an asset class in the global capital markets, and helping to promote more needed overseas investment in Britain’s infrastructure.

Britain is at its best when it is open to the rest of the world. So while others in the western world resist change, this government is embracing it – banging the drum for British businesses, seeking out new markets and welcoming overseas investment with open arms. We are prepared to take the big steps our nation requires if it is to succeed in the global race.

Whether it is attracting money from China, rejecting damaging protectionism and financial transaction taxes, or issuing the first sovereign Islamic bond in the western world – this government is doing what it takes to open Britain up for business, and for new sources of finance and extra jobs.
The writer is the UK chancellor of the exchequer.

Kenya alters bank laws for Islamic financing

Kenya has made adjustments to its banking sector to let Islamic finance institutions set up and prosper in the east African nation, the governor of the Central Bank of Kenya (CBK) said yesterday.
Njuguna Ndung’u – whose statement was read to a conference in Nairobi – said Islamic finance had the “overwhelming support” of Kenya’s Muslims and non-Muslims, but as a regulator CBK faced challenges in encouraging the niche market.
Kenya has two Islamic banks and is seen playing a role in the African expansion of Islamic finance, which caters mainly to customers who follow Islamic rules on avoiding direct payment or earning interest, which are viewed as usury under Islam.
“The Banking Act prohibits wholesale trading and restricts holding land and buildings, while Shariah-compliant lending has an element of trading and land and building,” Ndung’u said.
“This challenge has been cured through granting exemptions to institutions concerned upon request.”
Ndung’u said they had adjusted the Banking Act, which requires all banks to pay interest on savings accounts as long as they maintain a minimum balance, giving leeway for banks to pay some form of return for Sharia compliant savings products.
He said Kenya’s two Shariah-compliant banks have 1,570 loan accounts and 58,548 deposit accounts and control 0.8% of the banking sector’s net assets after being in operation for less than two years.
The Islamic finance industry wants to grow outside its main centres in the Gulf region and Southeast Asia to tap into Muslim minorities in Western and African countries. Kenya is seen as a launching pad for the movement in the region.
“There is growing interest in Shariah-compliant banking in our neighbouring countries and Kenya has the potential to be a regional Islamic finance hub,” Ndung’u said.
One of Kenya’s Islamic banks, Gulf African Bank (GAB), turned profitable in the last quarter of 2009.
GAB chairman Suleiman Shahbal told the conference the Kenyan example shown the viability of Islamic banking in Africa.
“Islamic banking has proven its mettle as we were able to break even in our second year of operation,” Shahbal said.
“This has given us the impetus to move forward and become a regional bank in the near future. GAB plans to enter into Uganda and Tanzania,” he said.