Britain's debt chief says Islamic bond to be 'one-off'

By Christina Fincher

LONDON (Reuters) – Britain’s plan to issue an Islamic bond, or sukuk, next year is a symbolic gesture that is unlikely to be repeated, the head of the government’s debt-issuing arm said on Thursday.

Britain's debt chief says Islamic bond to be 'one-off'

Britain’s debt chief says Islamic bond to be ‘one-off’

The government’s plan to sell a 200 million-pound sukuk in 2014 – the first sovereign sukuk outside the Muslim world – will act as a beacon, signalling London is a centre for Islamic finance, said Robert Stheeman, the head of the Debt Management Office.

“It’s clearly symbolic and at this stage it’s envisaged to be a one-off transaction,” Stheeman told Reuters.

Stheeman gave no details about the timing of the sale. He said his team was working closely with the Treasury as well as with experts in Islamic finance.

“There’s a lot going on behind the scenes. A lot of ground-work, such as identifying suitable assets.”

Shariah law prohibits interest payments, so sukuk bonds entitle investors to a share in the returns generated by an underlying asset.

Britain first announced plans for a sovereign sukuk five years ago, but that issue never materialised. The Debt Management Office decided the structure was too expensive.

That bond would have been 10 times bigger than the one now planned. Stheeman said the smaller sale would make the new bond cheaper to issue, although he made clear the ultimate decision on whether it represented value for money for taxpayers lay with the Treasury.

“We would have input into that decision, but ultimately the Treasury will make that judgement,” he said.

He said the Treasury would take a broad view when making its assessment, looking not just at the absolute cost of raising funds via a sukuk but also at the potential benefits to London as a financial centre.

“That could justify a potential increase in costs, over and above what you would expect with a conventional five-year gilt,” he said.

On the broader health of the gilt market, Stheeman said he was confident a plan by British insurers to invest 25 billion pounds ($40.86 billion) in infrastructure projects over the next five years would not undermine demand for long-dated government bonds.

“Given the size of insurers’ overall demand for gilts, I don’t think it will cause us any problems,” he said. “I don’t see a situation where one cannibalises the other.”

(Editing by Larry King)

http://au.news.yahoo.com/thewest/a/-/world/20180769/britains-debt-chief-says-islamic-bond-to-be-one-off/

US investor and author Howard Marks pays tribute to Islamic finance’s ethical values

Howard Marks was speaking at the Fajr Capital and London School of Economics House of Commons reception on Ethical Finance. His comments follow on after UK Parliamentarians tabled an early day motion calling on the UK Government to ‘promote Islamic finance’s principles of community banking and socially responsible investing to enable long-term growth, employment and prosperity’.

US investor and author Howard Marks pays tribute to Islamic finance’s ethical values

US investor and author Howard Marks pays tribute to Islamic finance’s ethical values

Howard Marks, the Chairman and co-founder of the $80 billion asset management firm Oaktree Capital, paid tribute to the Islamic finance industry’s ethical and values-based approach. Marks, who currently serves on the Board of Directors of Jadwa Investment, made the comments whilst delivering the keynote address at the Fajr Capital and London School of Economics House of Commons reception. He said: “It is a great pleasure for me to be associated with a [Shari’ah-compliant] firm that follows a set of exacting ethical standards.

“We have an active Shari’a Research Group, and the provisions in the literature that they set out are these: trade should be based on ethical values; wealth should be developed by means of investing and circulating money instead of hoarding it up; and property should be the bank. I am extremely pleased to be associated with a [Shari’a compliant] organisation that concerns itself not only with achieving success, but by how it does it. And those are some of the ways.”

The House of Commons reception was co-hosted by Fajr Capital and the London School of Economics to mark the culmination of a six-part lecture series to educate students, recent graduates and city professionals on Islamic finance and the importance of values and social responsibility in financial services.

Speaking at the reception, Iqbal Khan, CEO of Fajr Capital, said, “It is both pertinent and historically symbolic that we are hosting this reception at the House of Commons – in a parliament and a city that has played a leadership role in the development and growth of trade, commerce and finance across the world.
“Our lecture series with the LSE has highlighted the role ethical finance can play in three major areas: Reducing volatility and increasing the embedded capital of the world’s economies; addressing the world’s current fiscal imbalances; and generating growth and employment in today’s interconnected world.”

The Early Day Motion, tabled at the House of Commons last week, said:

“That this House congratulates the London School of Economics and Fajr Capital on co-hosting the 2013 Islamic Finance Lecture Series; welcomes the House of Commons reception on 2 December 2013 to conclude that series of events; notes that the lecture series informed students, recent graduates and city professionals on the importance of a principles-based approach to financial services; further notes the Islamic financial services industry’s valuable role in attracting trade and investment into the UK; and calls on the Government to promote Islamic finance’s principles of ethical, community banking and socially responsible investing to enable long-term growth, employment and prosperity.”

http://www.cpifinancial.net/news/post/24580/us-investor-and-author-howard-marks-pays-tribute-to-islamic-finances-ethical-values

Interest-free finance reaches Europe – What’s next?

Although there were several similar activities in the UK and also across other European countries, we can see the launch of “The Institute of Islamic Banking and Insurance” and the “Islamic Bank of Britain” as a remarkable starting point in interest-free finance’s journey from the Muslim world to Europe.

Interest-free finance reaches Europe – What’s next?

Interest-free finance reaches Europe – What’s next?

Ferdi Ilkhan / World Bulletin.

The Institute of Islamic Banking and Insurance (IIBI) was founded in its present form in 1994 and became a registered charity in 2010. The origins of the IIBI are associated with the education, training and research activities of the International Centre for Islamic Studies (ICIS) in London, a registered charity established 1985.

The ICIS used the Institute of Islamic Banking and Insurance (IIBI) to promote and advance education, training, research and publications on Islamic principles underpinning interest free finance. With the decline in the activities of the ICIS, in 1994.

The Islamic Teachings Limited was formed as a company limited by guarantee, trading as the Institute of Islamic Banking and Insurance (IIBI). On 30 September, 2009 The Islamic Teachings Limited changed its name to the Institute of Islamic Banking and Insurance, as a company limited by guarantee and was also registered as a charity on 18 November 2010. (Institute of Islamic Banking and Insurance, n.d.)

Alongside these more theory-based and researching activities of interest free financeprinciples, there also arose a bank that strove to practice these norms within its business activities. In August 2004, the Financial Services Authority (FSA) gave the go-ahead for the launch of the first totally Islamic British bank, which operates in accordance with Islamic principles. Established in 2004 as the UK’s first wholly Sharia compliant retail bank, Islamic Bank of Britain (IBB) has pioneered interest free banking in the United Kingdom.

This hasn’t been without critics, however, as many prominent Islamic scholars have challenged its claims to being fully sharia-compliant. The Islamic Bank of Britain plc. (IBB) is listed on the Alternative Investment Market. Its headquarters in Birmingham initially employed 50 people. The first ever branch of IBB opened to the public in London. Employing 9 people, this branch claimed to be the first ever wholly Sharia compliant retail bank branch in Europe. The core business of Islamic Bank of Britainis to provide British Muslims the ability to access banking services from a British bank, wholly operated in accordance with Islamic Sharia principles.

After this initial period, the number of institutions and businesses which work according to Islamic principles have proliferated. Indeed, focusing on the needs of the Muslims in the UK not only fulfils a religious purpose, but also has a high potential for a very profitable business.

The recent report published by the Muslim Council of Britain (MCB), estimates that 10,000 Muslim millionaires are among 2.78 million Muslims in the UK contributing over £31 billion to the British economy. According to this report, over 13,400 Muslim-owned businesses are creating more than 70,000 jobs in London alone. The Muslim Council of Britain is a national representative Muslim umbrella body with over 300 affiliated national, regional and local organisations, mosques, charities and schools.

The Muslim Council of Britain pledges to work for the common good of society as a whole: encouraging individual Muslims and Muslim organisations to play a full and participatory role in public life. MCB published this report on the occasion of the 9th World Islamic Economic Forum, which was held in London this October. (The Muslim Council of Britain, 2013).

The main message that appeared to be given during this event – taking place outside the Muslim world for the very first time – is that interest free finance has reached the United Kingdomand Europeand is here to stay. In his speech, Mayor Boris Johnson reminded the audience as to his background, saying, ‘I am very proud to be here this morning because I am sure that I am the first Mayor of London of partly Muslim extraction, and indeed the descendant of a Muslim entrepreneur by the name of Ahmed Hamdi.’ Moreover, Mr. Johnson described London as a city with more American banks than New York, more museums than Paris, less rainfall than Rome and the greatest centre for interest free finance in the world.

‘London is being transformed by developments financed by Muslim investors which are also Sharia compliant’ he remarked. Finally, Mr. Johnson announced a £100million fund to encourage tech start-ups from the Muslim world to move to Britain and urged wealthy figures from across the Arab world to invest inLondon (Chorley, 2013).

Marking the 9th World Islamic Economic Forum, UK Prime Minister David Cameron stressed that interest-free finance is already a fundamental part of today’s financial world, including the UK and across Europe. He said: ‘We welcome the fact that Thames Water, Barclays, Sainsburys, Harrods and the Olympic Village are all financed in part by Islamic investors. And we welcome the fact that Qatari Diar’s investment in Chelsea Barracks represents the largest Islamic finance deal anywhere in Europe in history and that work is commencing on the site in November’ (Cameron, 2013).

These words illustrate that the application of interest-free financial principles are no longer just to satisfy the needs of domestic Muslims, but also to attract wealthy investors from across the Muslim world to financial centres such as London. Moreover, public debate against conventional credit institutions and their methods have increased recently due to the outbreak out of the economic crisis. Calls for the application of a “moral economy” in the Western world have become louder.

In this context, more and more frequently the concept of “Islamic Banking and Finance” is being presented as an interesting alternative. Interest-free finance contains both a financial dimension and a moral dimension. For this reason, there is an increasing attention being paid to it by non-Muslims.

In regards to future developments, Mr. Cameron stated: ‘We are not going to sit here and rest on our laurels. We know there is much more to do. When Islamic finance is growing 50 per cent faster than traditional banking and when global Islamic investments are set to grow to £1.3 trillion by 2014 we want to make sure a big proportion of that new investment is made here in Britain. We are already taking big steps to open up the City of London to more Islamic finance’. As an example, Mr. Cameron announced that the London Stock Exchange Group is currently working on new indices to create a new way of identifying Islamic finance opportunities – a world-leading Islamic Market Index. Finally, the Prime Minister emphasized his hope to see billions of pounds of new investments in a range of sectors from property and housing to aerospace and life sciences, over the coming years. (Cameron, 2013).

Taking all these into account, interest-free finance seems to have a huge potential with financial activities under Islamic principles going to expand and develop rapidly in the years to come. Additionally, developments in countries such asGermanyare showing that these efforts will not remain limited to theUnited Kingdom, but will also expand across different European countries. Still, though the outlook for the growth of Islamic finance inEuropelooks solid, we should warn of some possible dangers. It is necessary to observe internal developments inside interest-free finance and among interest-free finance experts. Not every product under the label interest-free finance actually conforms to Islamic law or principles. In some cases, we can observe that merely using the label is sufficient to be part of a growing market potential. There are different control mechanisms to avoid such activities.

However, high demand, such as that coming from the UK and other European countries for profitable Islamic investments, could force also these control mechanisms to soften their requirements. In the long-term this would lead to a very well known label, but with a different content than what is actually ‘Islamic’. Of course, from a moral and religious point of view, this situation would be pretty catastrophic. But also from an economic point of view, such Islamic finance products would not be able to last very long and would completely disappear out of the market in the long run. The interest-free finance label would disappear and only the damaged label “Islamic” tag would remain in Europe.

For this reason, it is necessary to remember the actual goal of the first Islamic economic thinkers, who recommended an Islamic solution for global economics. We should not forget that Islamic finance is only one important part of a whole Islamic economic system.

In the long run, it will not be sufficient to implement certain Islamic financial products into an economic system which is based on theories and applications other than the Islamic economics principles.

Certainly, activities under the label interest-free finance have pioneered Islamic principles in European countries and have supported the rapprochement of the Muslim world andEurope. However, the challenges in the future will be the implementation of certain theories and connected applications based on the fundamental Islamic economic principles. These principles should not necessarily replace the conventional capitalistic ones – it would be sufficient to develop them so that they can coexist to provide an alternative groundwork. In short, interest-free finance as an alternative is not sustainable enough in its current form, so there is a pressing need for innovative solutions and a coexisting alternative groundwork for interest-free economics.
References

Cameron, David, (2013). Why I Want London To Be One Of The Great Capitals Of Islamic Finance. [online] Linked in. Available from: < https://www.linkedin.com/today/post/article/20131029170632-146036479-why-i-want-london-to-be-one-of-the-great-capitals-of-islamic-finance?loadAction=share&trk=eml-ced-b-share-Ch-2&fromEmail=&ut=3Ei9KNhAH4M5Y1&_mSplash=1> [Accessed 24 November 2013].

Chorley, Matt, (2013). I’m the first London Mayor of ‘Muslim extraction’, Boris Johnson boasts as he pleads for Arab investment in the capital. [online] Mail Online. Available from: <http://www.dailymail.co.uk/news/article-2480251/Boris-Johnson-Im-London-Mayor-Muslim extraction.html#ixzz2lsKuA9k6> [Accessed 24 November 2013].

Islamic Bank of Britain, (2013). History of IBB. [online] London: Islamic Bank of Britain. Available from: <http://www.islamic-bank.com/useful-info-tools/about-us/history-of-ibb/> [Accessed 25 November 2013]
Institute of Islamic Banking and Insurance, (2013). Short History. [online] London: Institute of Islamic Banking and Insurance. Available from: < http://www.islamic-banking.com/history.aspx> [Accessed 24 November 2013].

The Muslim Council of Britain, (2013). The Muslim Pound – Celebrating the Muslim Contribution to the UK Economy.London: The Muslim Council of Britain.

http://www.worldbulletin.net/?aType=haber&ArticleID=124100

S&P sees Islamic finance flourishing next year

DOHA/LONDON:

Global growth of the Islamic finance market has continued unabated this year, undeterred by the uncertain recovery elsewhere in the world’s financial markets, Standard & Poor’s said in a report titled “Islamic Finance 2014: We Expect Continued Double-Digit Growth, And A Push For Regulation And Standards.”

S&P sees Islamic finance flourishing next year

S&P sees Islamic finance flourishing next year

“We believe that worldwide, Shariah-compliant assets — which we estimate at upward of $1.4 trillion — are likely to sustain double-digit growth in the coming two to three years,” said Zeynep Holmes, Regional Head of Eastern Europe, Middle East & Africa at S&P.

Islamic finance remains a demand-driven market, with scarce supply, still hampered by a limited range of Islamic financial centres and their various regulatory frameworks.

Expansion and enhancement of existing centres, and a more transparent regulatory environment could build the momentum for the growth needed to break into the mainstream, said the report.

S&P said that it is only a matter of time before Islamic finance achieves critical mass, as the pool of assets broadens and deepens, and enhances liquidity.

The regulatory efforts to accommodate Islamic finance and the establishment of additional industry bodies at national levels will take centre stage starting in 2014, the report said.

Newcomers in the industry — such as Oman, Turkey, and Nigeria, for instance — have started to trace the footsteps of fast-growing pioneers, such as Malaysia.

Right behind the newcomers, a long line of countries is aspiring to enter the market, with the continent of Africa in the forefront, S&P said.

“The gradual building out of local and regional regulatory frameworks and establishment of standards ought, in our opinion, to minimise the barriers that are preventing the industry from achieving its full potential. Globally accepted standards, we believe, are necessary for growth of the industry,” Holmes said.

In this respect, the two regional heavyweights and pioneers of the industry—Asia (most notably Malaysia) and the Gulf Cooperation Council (comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE) — are set to lead the way.

Aspiring regional champions, such as Turkey, may also help foster a more systematic approach to channelling and shaping growth in Islamic finance. 

The Peninsula

http://thepeninsulaqatar.com/index.php/business/qatar-business/262711/s-p-sees-islamic-finance-flourishing-next-year

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.
For more stories on investments and markets, please see HispanicBusiness’ Finance Channel
Source: National, The (United Arab Emirates)

http://www.hispanicbusiness.com/2013/11/28/cold_water_thrown_on_london_s.htm

S&P Report Sees Double-Digit Growth And A Regulatory Push For Islamic Finance In 2014

LONDON/DUBAI (Standard & Poor’s) Nov. 28, 2013.

Global growth of the Islamic finance market has continued unabated this year, undeterred by the uncertain recovery elsewhere in the world’s financial markets, Standard & Poor’s said in a report published today, “Islamic Finance 2014:

S&P Report Sees Double-Digit Growth And A Regulatory Push For Islamic Finance In 2014

S&P Report Sees Double-Digit Growth And A Regulatory Push For Islamic Finance In 2014

We Expect Continued Double-Digit Growth, And A Push For Regulation And Standards.”

“We believe that worldwide, Sharia-compliant assets–which we estimate at upward of $1.4 trillion–are likely to sustain double-digit growth in the coming two to three years,” said Zeynep Holmes, Regional Head of Eastern Europe, Middle East & Africa at Standard & Poor’s.

Despite more than a decade of heady growth, the industry is still in a formative stage. But we believe it’s only a matter of time before it achieves critical mass, as the pool of assets broadens and deepens, and enhances liquidity.

“Nevertheless, the speed at which the industry matures and joins the mainstream comes down to how market participants address a classic imbalance between supply and demand,” said Ms. Holmes.

Islamic finance remains a demand-driven market, with scarce supply, still hampered by a limited range of Islamic financial centers and their various regulatory frameworks. In our view, expansion and enhancement of existing centers, and a more transparent regulatory environment could build the momentum for the growth needed to break into the mainstream.

We believe that regulatory efforts to accommodate Islamic finance and the establishment of additional industry bodies at national levels will take center stage starting in 2014. Interestingly, newcomers in the industry–such as Oman, Turkey, and Nigeria, for instance–have started to trace the footsteps of fast-growing pioneers, such as Malaysia. Right behind the newcomers, a long line of countries is aspiring to enter the market, with the continent of Africa in the forefront.

“The gradual building out of local and regional regulatory frameworks and establishment of standards ought, in our opinion, to minimize the barriers that are preventing the industry from achieving its full potential. Globally accepted standards, we believe, are necessary for growth of the industry,” Ms. Holmes said.

In this respect, we believe that the two regional heavyweights and pioneers of the industry–Asia (most notably Malaysia) and the Gulf Cooperation Council (comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates)–are set to lead the way. Aspiring regional champions, such as Turkey, may also help foster a more systematic approach to channeling and shaping growth in Islamic finance.

-Ends-

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The UK and the City: Drive to promote financial services

Whatever challenges Britain faces as an international financial centre, it is hard to accuse the government of being bashful about promoting it.

The UK and the City: Drive to promote financial services

The UK and the City: Drive to promote financial services

The initiatives have come from the top down. George Osborne, the chancellor, recently announced plans for Britain to become the first non-Muslim country to issue an Islamic bond, or sukuk. He said his goal was for the City of London “to be the unrivalled centre for Islamic finance”.

Meanwhile, Britain is easing regulatory requirements to allow Chinese institutions to set up wholesale banking branches rather than having to establish separate subsidiaries. In a parallel move, the government is promoting London as an overseas centre for trading in renminbi.

Nor is the drive to promote Britain as a financial centre confined to the government. In a recent speech, the governor of the Bank of England, Mark Carney, evoked an image of the UK at the centre of a renewed globalisation. His emphasis was on the Bank facilitating this role by ensuring that financial institutions remain resilient.

Despite such pronouncements, the UK faces several challenges if it wants to remain a leading centre for global finance. On a macroeconomic level there is concern that it is perpetuating a lopsided economy that is too heavily dependent on finance.

A related worry is that the beneficiaries of investment in financial services could be too concentrated in London and the investment banking sector. The City, if defined most broadly as the whole financial services sector, employs about 1m people, of whom about two-thirds work outside London. Throw in professional services – such as accounting practices, law firms and property professionals – and almost another 1m could be added.

Finally, there is increasing competition from other financial centres, especially those in Asia.
While London is generally maintaining a slight lead over New York, according to a recent report by City think-tank Z/Yen, Hong Kong and Singapore are both gaining ground on the established leaders. For Chris Cummings, the chief executive of TheCityUK, a financial services industry body, this is “absolutely a concern”.

Martin Gilbert, the chief executive of Aberdeen Asset Management, is in pole position to witness some of these trends first hand. His company is based in Aberdeen and has an extensive operation in Asia, including a regional headquarters in Singapore. Mr Gilbert has also joined the government’s Financial Services, Trade and Investment Board, tasked with promoting UK financial services.

He specifically defines himself as bringing a “Scottish view” to the challenges facing UK financial services. “There are vast numbers of people in financial services employed outside the M25 [London orbital motorway]”, he says. “Especially in places like Glasgow and Edinburgh.”

Mark Gregory, chief economist for the UK and Ireland at EY, accepts that inward investment is flowing into existing locations but says it is not going to new ones. “Where there is a historic relationship – Yorkshire, Scotland are probably good examples – there is some definite spillover there,” he says.

Sue Langley, the chief executive of the Financial Services Investment Organisation, is pursuing four priorities for investment in financial services: asset management, insurance, financial technology and mid- and back-office functions.

As for international competition, the most formidable threat is seen as coming from Asia.
“Places like Singapore and Dubai are really very keen to woo people to have their financial centres there as well,” says Mr Gilbert.

EY’s Mr Gregory adds that while Asian centres have the potential to grow stronger, the recent turbulence in emerging economies has, at least in the short term, worked to London’s advantage. “Asia probably is the new threat, but London seems to have advantages that are holding up.”

http://www.ft.com/cms/s/0/ac5e38fc-4adb-11e3-ac3d-00144feabdc0.html#axzz2lBCFfldP

London stakes claim to be the global capital of Islamic finance

The UK capital is already the biggest such centre outside the Islamic world.

London stakes claim to be the global capital of Islamic finance

London stakes claim to be the global capital of Islamic finance

Mr Cameron: Wants London to be like Dubai and KL in Islamic finance

[SINGAPORE] Which city, or nation, will be the global leader in Islamic finance over the next decade?

The favourites at the moment are Kuala Lumpur and Dubai. But a lot of people are now beginning to bet on London.

On Oct 29, the British government created a stir that reverberated across the financial capitals of the Islamic world. On that day, Prime Minister David Cameron announced that the UK Treasury would soon issue a £200 million (S$401 million) “sukuk” or Islamic bond. This will be the first sovereign sukuk issued by a Western country (a sukuk differs from a traditional bond in that it pays no interest; investors get a share of profits from an underlying syariah-compliant asset).

Moreover, the UK sovereign sukuk could serve as a global benchmark for Islamic bonds, which at the moment have none.

Mr Cameron was speaking at the 9th World Islamic Economic Forum (WIEF) in London at the end of October – the first time this annual convention – known as “the Davos of the Islamic world” – has ever been held in a non-Islamic nation. He was expansive about his country’s ambitions in the realm of syariah-compliant finance.

“London is already the biggest centre for Islamic finance outside the Islamic world,” he said. “I want London to stand alongside Dubai and Kuala Lumpur as one of the greatest capitals of Islamic finance anywhere in the world.”

There’s a lot to play for. According to a report by PwC, Islamic finance assets (including banking assets) total US$1.6 trillion globally. Between 2008 and 2012, they grew at close to 20 per cent per year and, by 2020, the market is expected to cross US$6 trillion. While Islamic finance assets are barely one per cent of all global financial assets, the number of players is also small.

Nearly all of the Western world does not participate in this market – London being the significant exception. Nine countries hold about 90 per cent of Islamic finance assets and just three (Iran, Malaysia and Saudi Arabia) account for more than 50 per cent.

Moreover, in certain areas of Islamic finance, demand exceeds supply – and this is particularly true of bonds. Sukuks outstanding at the end of 2012 totalled US$240 billion, with Malaysia being the biggest issuer, followed by Saudi Arabia.

Last year, Ernst & Young forecast that sukuk demand is likely to jump to US$900 billion by 2017, partly driven by rising risk aversion following the global financial crisis. Sukuks are popular because they are backed by real assets or real projects. Significantly, they are also favoured by investors from the non-Islamic world.

At the WIEF, Musaffar Hisham, CEO of Maybank Group Islamic Banking, pointed out that about half of the group’s customers for Islamic products in Malaysia are non-Muslim. In Singapore, the figure is around 70 per cent.
The wider world’s interest in Islamic finance products also derives from the growing interest in “ethical finance”. During a session on Internationalising Islamic Finance at the WIEF, Hasan Al Jabri, CEO of Sedco Capital, an asset manager in Saudi Arabia, said: “Syariah-compliant finance intersects 90 per cent with ethical finance, which is a US$6 trillion market.”

He added that common features include investments in sustainable development and avoiding investments in companies associated with gambling, alcohol, tobacco and weapons. A growing number of pension funds – such as Calpers, the California public employees retirement system, the biggest in the United States – and several foundations have strict guidelines mandating that they invest ethically. Many have Islamic finance products in their portfolio.

However, even its promoters and practitioners acknowledge that Islamic Finance has some way to go before it becomes truly mainstream. Sajid Javid, a British MP and Financial Secretary to the UK Treasury, who is one of the key personalities driving the development of Islamic finance in Britain pointed out: “Islamic scholars don’t always agree on what constitutes Islamic finance; they come from different schools of thought.”

Amr Al Menhali, head of Islamic Banking at the Abu Dhabi Commercial Bank in the UAE called for more simplicity in Islamic finance, including in the use of terminology.

Maybank’s Mr Hisham called for clearer global regulation to ensure more uniformity of syariah-compliant products.

But the UK is undeterred by these obstacles. It is pulling out all the stops to promote itself as the centre for Islamic finance. It has set up an Islamic Finance Task Force. Its infrastructure is already relatively advanced: more Islamic products are listed on London exchanges than anywhere else. London has 25 law firms that provide services in Islamic finance and more syariah-compliant banks than anywhere in the Western world. And 16 British universities offer courses in Islamic finance.

Even London’s mayor Boris Johnson (who spoke at the WIEF) is on board.
The mayor’s office co-finances a corporation called London & Partners, which is the official promotional organisation for London, including for business, tourism, education, and conventions. Its director for International Business, David Slater told BT that London has seen what Islamic finance can do and likes what it sees.

On the proposed British sovereign sukuk, he said: “Investors are demanding more Islamic finance products, so it’s about following the market, responding to what the market wants.”

http://www.businesstimes.com.sg/premium/top-stories/london-stakes-claim-be-global-capital-islamic-finance-20131118

No interest in Islamic Finance?

Aliya Ram claims that sukuk bonds may sound like a more moral way of banking, but they’re a rhetorical sham.

No interest in Islamic Finance?

No interest in Islamic Finance?

The antagonism between the theory and practice of Islamic finance will lead to the disinterest of the West. How could a financial system regress to a set of principles whose modern manifestations are a complete farce? Take sukuk bonds, for example, which have been in the news ever since David Cameron announced in October that the UK was going to issue £200 million worth.

Sukuk bonds enable investors to borrow against their future income by buying an asset from an investor and then renting it to them for a pre-determined price and on the condition that they (the issuer) will later buy it back. The issuer still gets interest but the interest has been refigured as profit: loans have been disguised as the more rustic ‘exchange of goods’.

A sentimental comment about sukuk bonds in the Arab News exposes the logical fallacy: “money ceases to be a commodity in itself and used as it ought to be – only as a medium”. But we have to ask author of the piece Alsir Sidhamed what, if not money, is being mediated when the purpose of a transaction is to give someone money they don’t have. And is it really more moral if just anyone can do it that way?

The real absurdity of the sukuk charade lies in how public the sham is. Even many of the most devout Muslims do not practice Islamic finance because they can see that the project is more about hammy rhetoric than actual financial practice.

The discussions about Islamic banking happen in negative terms: the debate, in the East at least, is precisely about rejecting the ways of the West. London will of course always cater to the preferences of investors with money, but it’s impossible that Islamic finance will become still more institutionalised than that.

For one, there’s no coherent moral landscape in the UK – and although there isn’t in a country like Saudi Arabia either, the UK actively encourages polyphony and secular politics, rendering impossible the homogeneity of a moralising financial industry.

The UK has lived that period of history already, and given our teleological conceptualisation of progress, it would be far too regressive to go back. No, if there’s going to be a reaction to what has happened in the last five years, it will be in pursuit of a present we have never seen and that is as yet an ideal.

Cameron’s £200 million sukuk issue is really just a token gesture.That Islamic banks are doing well is not indicative of anything significant. They are doing well because they are behaving just like normal banks, but are trading in an environment that is less financially toxic than that in Britain.

Much of the conversation about Islamic banking can be put down to the nationalistic politics that always follow a bad recession.

People reject individuation because it was alone that they suffered – and the charging of interest is saturated with the language of individuation. ‘Interest’ itself invites us to think about loans as the manifestation of a set of interests or advantages; ‘usury’, from the Latin word usura, essentially means to use, or exploit.

It would be too tragic to deal with the possibility that we are ourselves individuisers, and so we project them onto the monstrous ‘other’: Jews, bankers, “capitalism” – as though capitalism isn’t what happens each time our present self puts its own joy over the joy of our future self by spending into an overdraft.

British governments encourage the construction of this ‘other’ because it disguises their own partiality, or interests, and allows them to adopt passive neoliberal attitudes to financial questions.

But British banks will never restructure along Islamic lines. For one thing, Islamic finance also relies on the visible presence of a failing ‘other’. This is, currently, us: “some scholars argue that sukuk could be considered as one of the tools that should help in addressing some of the woes inflicted on capitalist societies as clearly exemplified in what happened to Greece, Spain, Ireland and to some extent Italy,” writes Sidahmed.

More importantly, adopting Islamic finance would have enormous implications for the UK’s global allegiances. We would alienate the US and no doubt lose all our major American financiers. We wouldn’t be able to justify the loss because we would still be doing the same kinds of banking, but now with more – and more unknown – procedural bureaucracies.

The failure of Islamic banks to delimit capitalism under transcendent Shari’ah values reveals an unpleasant truth about the Darwinism that structures our exchange relations.

The British financial sector will continue to change in the aftermath of the long recession, but the changes will involve reconstituting what we already have.

http://www.varsity.co.uk/comment/6473

Analysis: London, Dubai, Kuala Lumpur in three-way fight for Islamic finance crown

Analysis: London, Dubai, Kuala Lumpur in three-way fight for Islamic finance crown

Analysis: London, Dubai, Kuala Lumpur in three-way fight for Islamic finance crown

1 OF 7. Men walk pass a sign at the stock market in Dubai November 10, 2013.

(Reuters) – When the British government said last month it would issue its first Islamic bond, the implications went far beyond the debt market: it was a signal that London will not back down in an escalating tussle among cities for Islamic financial business.

London has long been the default center for international firms to issue sharia-compliant bonds, part of a fast-growing Islamic finance sector that will be worth $2 trillion globally next year, according to consultants Ernst and Young.

But it faces a mounting challenge from two centres: Dubai and Kuala Lumpur.

Dubai, at the heart of the wealthy Gulf, announced a push into Islamic finance this year. It has an entrepreneurial culture which has already made it the Middle East’s top conventional banking center, and big state-run firms which can be expected to support the government’s strategy.

The Malaysian capital has a reputation for efficient regulation of Islamic finance and a huge domestic market for local-currency Islamic bonds, which is now starting to attract foreign issuers.

The final result of the three cities’ rivalry may not be known for years, but thousands of jobs and large amounts of direct investment in companies and real estate are likely to depend on the outcome.

“You need a critical mass of borrowers and investors,” said Khalid Howladar, senior credit officer at Moody’s Investors Service. “You have multiple centres that are looking to establish their pre-eminence in the Islamic space.”

GROWTH

Islamic banking, which obeys religious principles such as bans on interest and pure monetary speculation, is still dwarfed by conventional banking with over $100 trillion of assets.

But the top 20 Islamic banks have been growing 16 percent annually in the last three years, far outpacing their conventional rivals, according to Ernst and Young. That makes Islamic finance tempting for many non-Muslim institutions.

In an unstable global market environment, the conservatism of Islamic financial structures may be helping the industry. Its access to big pools of Islamic investment funds in the Gulf oil-producing states and southeast Asia is certainly a factor.

Over the past year, the industry has been expanding from its traditional bases in those two regions across many nations with significant Muslim populations, from North Africa and Kazakhstan to Nigeria and Djibouti. European financial firms have tapped Islamic funds by issuing sharia-compliant bonds, known as sukuk.

That promises big rewards for the financial centres which arrange issues of sukuk and other Islamic products, employ the experts who structure them, and host the scholars who vet them for religious permissibility.

“The pent-up demand for short-term papers to manage liquidity in Islamic finance is huge, and to meet this will require other market players to come in,” Malaysia’s central bank governor Zeti Akhtar Aziz told Reuters.

Dubai laid claim to such business in January this year when its ruler, Sheikh Mohammed bin Rashid al-Maktoum, announced a drive to develop the emirate as an Islamic financial center.

Its main competitors responded. In March, Britain launched a publicity campaign involving government junior ministers and private sector executives to burnish London’s Islamic credentials.

In May and June, Malaysia took steps to strengthen its regulation of the industry while making it easier for its Islamic insurers to invest their money overseas.

SUKUK

The most high-profile – and most cut-throat – area of competition between the three centres is arranging sukuk. London has led in attracting issues by big international companies because of the massive size of its conventional financial markets and its globally respected legal system.

Malaysia, however, has the advantage of a vibrant market in local-currency sukuk, thanks to a Muslim-majority population; Kuala Lumpur has accounted for about two-thirds of all sukuk issued globally this year. That is persuading some foreign firms, from as far afield as Kazakhstan, to issue in Malaysia.

Dubai lists relatively few sukuk on its exchanges; traditionally its state-owned companies have gone to London to issue. But a determined campaign by Dubai’s government is now convincing its companies to issue at home, and could attract business from firms in neighboring Gulf states.

British Prime Minister David Cameron appeared to be trying to head off that threat last month with his plan for Britain to become the first Western country to issue a sovereign sukuk.

“The UK sukuk announcement has really helped to galvanize the market,” said Farmida Bi, European head of Islamic finance at law firm Norton Rose Fulbright in London, predicting the sovereign issue would help to trigger corporate issues.

However, Dubai won a victory this month when the Jeddah-based Islamic Development Bank, which has long operated sukuk issuance programs in London and Kuala Lumpur, said it would set up a $10 billion program on the Nasdaq Dubai exchange.

“I do believe Dubai can reach a leadership position, although progress has been slow and it will take a few years to reach the level of Malaysia,” said Apostolos Bantis, emerging markets credit analyst at Commerzbank in London.

Because London is not located within a natural pool of sukuk issuers and European customers will remain a limited group, its position looks weakest among the three centres from a long-term perspective, Bantis added.

TAKAFUL

Other areas of competition include Islamic insurance, known as takaful, and asset management. Once again, London’s sheer size gives it an advantage, while Kuala Lumpur benefits from its location in a vast, predominantly Muslim area of southeast Asia.

British-based firm Cobalt struck a blow for London earlier this year by developing a novel syndication model for takaful. The model offers A-rated capacity which most carriers in the Gulf lack, said chief executive Richard Bishop.

This could clash with Dubai’s plans to expand in takaful. Abdulaziz al-Ghurair, head of the authority overseeing Dubai’s financial center, said last month that since there were only 19 Islamic re-insurance firms globally, takaful firms were forced to transfer some of their risk to conventional re-insurers.

That creates a window for Dubai to set up Islamic re-insurers, he said without detailing how this would be done.

Ultimately, much will depend on which financial center can establish “thought leadership” in Islamic business, creating standards and structures which come to be accepted across regions and, ideally, across the global industry.

Traditionally, Malaysia has been influential because of its centralized model of regulation, which minimizes disputes among different boards of Islamic scholars. But some Gulf scholars view Malaysian regulation as too liberal, arguing that it permits structures which too closely mimic conventional finance.

Dubai has a chance to chart a path between these two camps; it has said that after consulting the industry, it will issue sukuk standards that are more detailed and comprehensive than others, hopefully resolving conflicts between the regions.

“This is very important. We think it’s a basic requirement but it doesn’t exist as we speak. But this will not come from the sharia scholars – it has to come from the industry,” said Hamed Buamim, director-general of the Dubai Chamber of Commerce & Industry, which is promoting the emirate’s Islamic push.

(Additional reporting by Carolyn Cohn, Shadi Bushra and Marie-Louise Gumuchian in London; Editing by Andrew Torchia and Peter Graff)

http://www.reuters.com/article/2013/11/12/us-islamic-finance-competition-analysis-idUSBRE9AB0LZ20131112