Contemporary financing techniques underpin development of Islamic finance

As uncertainty persists in certain parts of the global economy, it has created an opportunity for Islamic finance to continue to flourish and expand into new economies.

Contemporary financing techniques underpin development of Islamic finance

Contemporary financing techniques underpin development of Islamic finance

This was clearly evident at this year’s World Islamic Economic Forum (WIEF), held in London at the end of last month. At the forum, the British prime minister David Cameron announced Britain’s intention to become the first non-Muslim state to issue sukuk (Islamic bonds).

The issue size is expected to be fairly modest – in the region of £200 million (Dh1.17 billion). But the announcement has been viewed as a symbolic backdrop to Britain’s clear ambition to capture more of the growing Islamic finance market.

Earlier this year, Dubai declared its own intention to become the capital of the global Islamic economy, estimated to have a total value of US$8 trillion, including the Islamic finance industry.

Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, set a three-year timetable for Dubai to achieve its goal. It has already been confirmed that the emirate will host next year’s WIEF, marking the 10th anniversary of the forum.

The growth of Islamic finance is attributable to many different factors, but that growth would not have been possible without the development of the contemporary financing techniques or structures that underpin the industry.

These techniques have developed in accordance with strict Islamic principles. They all tend to have a common reliance upon a trade or transaction involving underlying assets as a fundamental part of each Islamic contract. This structuring avoids some of the fundamental prohibitions that would otherwise be associated with these kinds of financing products.

What are the main characteristics of sukuk? They are a type of certificate or note that represent a proportionate interest (sometimes also described as a participatory interest) in an underlying asset or investment.

They are generally considered to be debt securities (akin to bonds) which, depending on the underlying asset or transaction, can also be traded in the secondary market.

The sukuk certificates are often “layered” on top of other underlying Islamic financing techniques, which themselves are intended to derive a return from an underlying asset or investment. For example, ijara (or leasing), mudaraba (or investment partnership), or wakala (or investment agency) are commonly used to generate the periodic distributions (in other words, amounts comparable to the “coupon” on a bond) which are payable to the investors.

However, for modern-day purposes, the vast majority of sukuk structures are best described as being “asset-based” because the primary credit risk remains that of the issuer/obligor who is obliged to pay the sukuk holder irrespective of the performance of the underlying asset or investment.

This is to be distinguished from less prevalent “asset-backed” sukuk (in other words, securitisation) where recourse to, and revenues from, the underlying asset or investment play a more critical role.

The Islamic finance industry has developed on the basis of the following strict principles of Sharia (or Islamic law:

1. No interest: under Sharia, money is regarded as having no intrinsic value and also no time value. Money is considered as a means of exchange to facilitate trade. As such, Sharia principles require that any returns on funds provided by an investor should be earned by way of profit derived from a commercial venture in which that investor is involved. The payment and receipt of interest (riba) is prohibited and any obligation to pay interest is considered to be void. This rule also prevents an investor from charging penalties.

2. No uncertainty: uncertainty (gharrar), especially any uncertainty as to one of the fundamental terms of an Islamic contract (such as subject matter, price or delivery), is also considered to be problematic under Sharia. This principle is fairly broad, as it requires certainty on all of the key terms of a contractual arrangement.

http://www.thenational.ae/business/industry-insights/finance/contemporary-financing-techniques-underpin-development-of-islamic-finance

Race to lead Islamic finance

At last month’s World Islamic Economic Forum in London the British prime minister, David Cameron, said the United Kingdom’s capital aims to become a top centre of Islamic finance – echoing similar ambitions voiced by Dubai, Malaysia and others.

Race to lead Islamic finance

Race to lead Islamic finance

Related

■ Dubai will host next World Islamic Economic Forum
■ Australia has chance to ride high on an Islamic finance wave
■ Dubai Crown Prince launches Islamic banking centre
Topic Islamic finance Finance Financial literacy

So far, there does not seem to be much more than talk going on in the financial capitals of the world and it is unclear exactly where each country is in the race to dominate the fast growing Islamic finance sector, valued currently at around US$1.6 trillion.

There was $275.2 billion of global sukuk outstanding as of August 31, according to figures from Malaysia’s finance ministry. Ernst & Young forecast in a December report that international demand for Islamic debt will reach $950bn by 2017.

And Islamic finance has been expanding faster than conventional finance according to the Islamic Finance Secretariat, a British lobby group.

The Islamic Corporation for the Development (ICD) of the Private Sector,a Jeddah-based body, has launched a series of numerical studies of Islamic finance to help policymakers to develop the industry. It is collaborating with Thomson Reuters to produce the finance studies, known as the Islamic Finance Development Indicator (IFDI).

The IFDI will track five areas of industry development, which can be broken down by country: social responsibility, quantitative development, governance, knowledge and awareness.

There are many issues that need to be resolved if Islamic finance is to grow into the truly global industry that most analysts expect it to. These challenges include the substantial differences between the Arabian Gulf and South East Asia in the design and use of Sharia-compliant financial products.

Analysts also warn that the industry has often become narrowly fixated on measures such as asset growth.

The expansion of Islamic finance education is also an important part of the industry’s development.

According to a study by the ICD, Britain is at the top of the list with 60 institutions offering Islamic finance courses and 22 universities with similar degrees. Malaysia, the UAE and Pakistan come next.

A total of 655 research papers were issued globally on Islamic finance in the past three years, of which 354 were peer-reviewed. Malaysia published 169 papers in the period and Britain and the United States published a combined 184.

Japan

The country’s lenders provide Islamic financing only via foreign-incorporated units, which is hindering growth.

Japan, which introduced equal tax treatment for Islamic bonds last year, is in a similar position to Hong Kong, which hasn’t made much progress in forming a Sharia finance hub because of lack of local demand and familiarity, according to Davide Barzilai, a partner at Norton Rose Fulbright in Hong Kong.

“Japan needs to allow the banks there to facilitate Islamic transactions instead of limiting them to undertake such activities outside the country,” Badlisyah Abdul Ghani, the chief executive at CIMB Islamic Bank, a unit of Malaysia’s second-biggest sukuk arranger this year, told Bloomberg News. “A market requires players. Without players there are no markets.”

Mr Barzilai said: “Islamic finance in Japan is being purely driven from the underlying projects that their companies are involved in. It might be a joint venture with a Saudi entity, which has a Sharia-compliant component. I don’t think it will be coming from the Japanese side unless there’s a specific requirement or reason.”

There are only 183,000 Muslims in Japan, although interest in Sharia-compliant finance has recently experienced a revival and is gaining popularity among Japanese companies operating in Malaysia and other Islamic countries.

Mohd Effendi Abdullah, the head of Islamic markets at AmInvestment Bank said: “There’s a good chance Japan may amend the relevant laws to enable [state-owned banks] to issue sukuk and follow the UK’s footsteps to strengthen its involvement in Islamic finance.”

Malaysia

The world’s biggest sukuk market, Malaysia is not slacking off in its efforts to maintain its lead.

http://www.thenational.ae/business/personal-finance/race-to-lead-islamic-finance

Why Islamic finance could be our best “soft” foreign policy tool

With global Islamic investments expected to hit over £1.3 trillion next year, and Islamic finance accounting for only 1 per cent of all global finance the UK Government is right to identify Islamic finance as a key growth area.

World Islamic Economic Forum.

Why Islamic finance could be our best “soft” foreign policy tool
Speakers at the World Islamic Economic Forum, which took place in London this week. Photograph: Getty Images.

I broadly welcomed the announcement from the Prime Minister at the opening of the World Islamic Economic Forum that a new Islamic Index will be created on the London Stock Exchange and that there are real plans afoot for the UK Government to issue a £200m Islamic bond, or sukuk. With global Islamic investments expected to hit over £1.3 trillion next year, the fact that 25 per cent of the world’s population is Muslim and yet with Islamic finance accounting for only 1 per cent of all global finance the UK Government is right to identify Islamic finance as a key growth area.

With growth of over 150 per cent in Islamic finance in the last seven years alone, this is trajectory the UK is right to be grasping. But among all the arguments around increasing the competiveness of London as a financial sector was a wider point missed?

As well as economic competiveness, Islamic finance offers a unique opportunity for broader relationship building between the West and the Islamic world, and in particular the Middle East, which could have important foreign policy outcomes. In an age of fiscal restraint, defence retrenchment and conflict weariness in the West, the PM’s announcement offers the chance to build a new type of multi-lateral alliance between regions, driven not by traditional diplomatic tools but by business and global investors, overseen by government.

This new type of alliance is likely to be less constrained by traditional short-term political considerations. Given on-going disagreement with the west over how to respond to issues across the Middle East, Islamic finance offers a new focus around which both politicians and the international business community can rally around. Outstanding political questions remain, particularly around the viability and taxpayer risk of the sukuk which need to be ironed out with strong political will. I urge the UK Government to stick to the task. Political history teaches us that commerce leads to peace and stability.

In addition for the UK, the setting up of London as an Islamic finance centre allows the UK to begin to invest in the region, complementing the last few decades of, particularly Gulf sponsored, investment in the UK. It also enables the UK Government to focus on investing in, and building up, assets which suit the UK’s broader foreign and defence policy in the region such as around security, energy, technology and defence co-operation. The challenge for Islamic finance is to truly compete on an international scale, recognising the need for greater innovation and creativity to distinguish it from conventional banking and enable the sector to solve problems that cannot be addressed by current banking arrangements. In the process, we open up the possibility of a whole new range of bi-lateral and multi-lateral arrangements as well as building much needed understanding between the two regions.

This new economically-driven foreign and defence policy is already occurring through the development of military partnerships between the UK and the countries of the Gulf Co-operation Council (where UK exports now amount to £17bn per year). A recognition that the Islamic world is a growing economic region as well as a centre of trade and finance as well as an entry point to a whole new set of markets must continue to guide UK foreign policy. And the specific role of Islamic finance should be properly considered as an important tool in this armoury.

Mohammed Al Ardhi is the Vice Chairman of The National Bank of Oman, which is at the heart of Islamic Finance in Oman and received the “Banker of the Year” award from the Banking Magazine for the development of Islamic Finance across the Gulf Region. Al Ardhi is also the former Chief of the Omani Air Force and a member of the International Advisory Board of the Brooking Institute.

http://www.newstatesman.com/business/2013/10/why-islamic-finance-could-be-our-best-soft-foreign-policy-tool

 

UK aims to become centre for Islamic finance

London, UK – Britain is set to the become the first non-Muslim nation to raise money by issuing a government bond-style “Sukuk” compliant with Sharia law as part of a bid to transform London into a global capital of the Islamic finance industry.

UK aims to become centre for Islamic finance

UK aims to become centre for Islamic finance

David Cameron, the British prime minister, unveiled the scheme along with plans to launch an Islamic market index at the London Stock Exchange as the British capital this week played host to the World Islamic Economic Forum (WIEF), an annual gathering of political leaders, chief executives and delegations from across the Muslim world.

“Already London is the biggest centre of Islamic finance outside the Islamic world, but today our ambition is to go further still,” Cameron told the event. “I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world.”

Established in Malaysia in 2006, the WIEF aims to embed Sharia principles at the heart of financial and economic affairs. Islamic finance requires that deals are based on real assets and forbids usury, the practice of lending money and charging interest, while risk must be shared between both parties to a transaction.

“It means you should not be involved with interest, uncertainty and speculation,” Dzuljastri Abdul Razak, a professor at the International Islamic University in Malaysia, told Al Jazeera. “It’s basically about building the real economy. You can only sell something that exists. If you treat money as a commodity then there’s no asset.”

Britain is the first non-Muslim country to host the WIEF, and Cameron’s presence along with a gala dinner hosted by Prince Charles, the heir to the British throne, and cameo appearances by Boris Johnson, London’s extrovert mayor, offered ample evidence of the event’s significance to the government.

“It’s all about sending a message. It’s a message that says, ‘Look guys, you want it this way, in London you can have it this way. We’re quite relaxed. We’re happy about it and we want you to come and do your business here.'” Edward Lister, London’s deputy mayor, told Al Jazeera.

‘The UK needs capital’

Cameron said the government was working on the practicalities of issuing a Sukuk – a bond-like financial certificate used to raise money that is based on shared ownership of an asset rather than a promise to pay interest – worth £200 million ($320m) by next year.

Though comparatively small, given that the UK currently owes investors more than £1.2 trillion ($1.92 trillion), Mehmet Asutay, an expert in Islamic finance at Durham University, said the announcement amounted to a “huge signal” of the government’s commitment to attracting Islamic money, especially from wealthy Gulf states.

“Like most European countries, the UK needs capital. Everyone knows capital is essential for sustainable economic growth and since the global financial crisis the sources of capital in the western world have dried up, but in the Gulf of course there is huge capital available,” Asutay told Al Jazeera.

But Asutay said global demand for Sharia-compliant financing was still relatively untapped, and the UK was also positioning itself to capitalise on a growing industry.

Everyone knows capital is essential for sustainable economic growth and since the global financial crisis the sources of capital in the western world have dried up

Mehmet Asutay, Islamic finance expert

The global market in Islamic finance is currently estimated to be worth about $1.3 trillion, or just one per cent of the world’s total financial assets, yet Muslims make up about a quarter of the planet’s population.

Large Islamic countries such as Indonesia and Turkey are now developing their own financial sectors after years beset by political and economic instability, while potential markets in Africa were also opening up, Asutay said.

Asutay said the UK would face stiff competition from inside the Muslim world, with Kuala Lumpur having already established itself as an Islamic financial hub, and with the World Bank this week opening its first Islamic finance centre in Istanbul.

But he said London’s traditional strengths as a financial capital and the legal and regulatory security it could offer foreign investors could give it an edge over its challengers.

“The reality is that London has always been an important financial centre regardless of crises and ups and downs. It is open, it is very liberal and it hasn’t questioned the religiosity or the ideology of money. Its institutions have been around for longer than some of the countries we are talking about, so that gives London a lot of leverage.”

Britain’s burgeoning Islamic finance sector is already shaping the London skyline, having funded the construction of the Qatari-owned Shard, western Europe’s tallest building.

Other major London property developments at Chelsea Barracks and Battersea Power Station are also based on Sharia-compliant funding, while 49 Sukuk issued through the London Stock Exchange since 2007 have raised $34bn.

Alternative funding

Modern Islamic global finance is a relatively recent invention, dating to the establishment of the Saudi Arabia-based Islamic Development Bank (IDB) in 1975 as an alternative source of funding to the World Bank for Muslim nations.

Critics argue that the system amounts to an exercise in theological semantics, creating instruments that look and feel like conventional financial products and fall short of strict adherence to Sharia principles.

But Azmi Omar, head of the IDB’s research and training institute, said the industry was working hard to address that criticism.

UK aims to become centre for Islamic finance
The Shard, the tallest building in western Europe, was financed by investors from Qatar, an energy-rich Gulf state [EPA]
“There are fatwas to say that we have to move away from so-called legal tricks, and we have a financial product development centre that is working to resolve some of these issues,” he told Al Jazeera. “Islamic banking is still new, so we are still trying to evolve and develop new products that meet the needs of the industry.”

Advocates argue Islamic finance has the potential to radically transform the global economy, by rooting ethics and social responsibility at the heart of banking and financial affairs.

Dzuljastri Abdul Razak believes that a Sharia-based financial system would not have been prone to the sort of crisis triggered by credit-based speculation in sub-prime debt in 2007 from which the global economy is still recovering.

“Islamic finance has an answer to the issues that caused the crisis so it is fitting at this kind of conference that we explore these opportunities,” he said. “The strength of Sharia is that there is an ethical dimension, and there is consideration of the people affected.”

Iqbal Saqlain, a member of the WIEF’s advisory panel and a former secretary general of the Muslim Council of Britain, said the endorsement of Islamic financing would also benefit British Muslims, many of whom have traditionally conducted their personal and business affairs beyond the reach of high street banks, by bringing them into the mainstream economy.

Britain has a Muslim population of about 2.8 million, including about one million in London, with a combined spending power estimated at more than $20bn. The government has also launched schemes to offer Sharia-compliant student loans and business start-up loans.

“They were literally keeping funds in cash or in some dodgy investments in the name of Sharia, and people have lost lots of money,” Saqlain told Al Jazeera. “Now you have legitimate Sharia-compliant investment opportunities and the Muslim community has been empowered.”

Source: Al Jazeera

http://www.aljazeera.com/indepth/features/2013/10/uk-aims-become-centre-islamic-finance-201310319840639385.html

Islamic finance for beginners

What’s so Islamic about Islamic finance? Do you have to be a Muslim to do it? Does it make more money than conventional finance? Here’s a quick guide with everything you need to know

Islamic finance for beginners

Islamic finance for beginners

An Iranian gold coin. Iran came top of the list for global islamic finance last year, could the UK be next? Photograph: Atta Kenare/AFP/Getty Images

London is hosting a meeting of the World Islamic Economic Forum – the first city in a non-Muslim country to do so. David Cameron will use the opportunity to boast British credentials when it comes to Islamic finance, announcing plans to create a £200m Islamic bond by early next year.

Finance is described as Islamic when it complies with sharia, a set of moral laws laid out in the Qur’an and writings about the prophet. Sharia forbids making money from money which begs the immediate question; how can banks that don’t charge interest survive? It’s a question worth answering, not least because academics have argued that the financial crisis wouldn’t have happened if the global economy was regulated by Islamic finance.

How it works

Islamic finance is all about sharing risk between financial institutions and the individuals that use them. To do that, the two parties are tied into a longer-term relationship with each other that is supposed to shift incentives and avoid cut and run financial deals.

So, for example, sharia-compliant mortgages mean that the bank and the borrower share the risks of repayment rather than charging any form of interest. Similarly, Islamic bonds like the one announced by David Cameron today involve both parties owning the debt, rather than a simple promise to repay a loan.

Since it’s Islamic, that also means that financial trading is off-limits for things that are forbidden even if no interest is charged – so investments can’t be made in alcohol, tobacco, non-halal meat products such as pork, pornography or gambling companies. So if there’s no interest and gambling on high-risk ventures is a no-no, how can Islamic banks be profitable? Hilary Osborne explains:

banks can profit from helping customers to purchase a property using a ijara or murabaha scheme. With an ijara scheme the bank makes money by charging the customer rent; with a murabaha scheme, a price is agreed at the outset which is more than the market value. This profit is deemed to be a reward for the risk that is assumed by the bank

You don’t have to be Muslim to use Islamic financial services – a fact which has stimulated further interest in the sector. The Islamic Bank of Britain reported a 55% increase in applications for its savings accounts by non-Muslims last year after the Barclays rate-fixing scandal.

In numbers

275: The number of Islamic financial institutions in the world.
75: The number of countries where they have a presence.
US$1.357 trillion: The value of the global Islamic finance services industry by the end of 2011.
US$4 trillion: The projected value of the global Islamic finance services industry by 2020.
£200m: The value of the planned Islamic bond being unveiled by David Cameron today.
11th: The ranking of the UK (up 4 places from 2011) in the Global Islamic Finance Report which weighs up variables like the number of institutions involved in Islamic finance industry, the size of Islamic financial assets and the regulatory and legal infrastructure.
Glossary

bay ‘al-mu’ajjal: Instant sale of an asset in return for a payment of money (made in full or by instalments) at a future date
gharar: Describes a risky or hazardous sale, where the details of the sale contract are unknown or uncertain
ijarah: Leasing contract
istisna’: Refers to an agreement to sell a non-existent asset, which is to be manufactured or built according to the buyer’s specifications and is to be delivered on a specified future date at a predetermined selling price.
mudarabah: Profit and loss-sharing
musharakah: Joint partnership
qard hasan: Interest-free financing
riba’ : Usury
sharikat al-‘aqd: Contractual partnership
sharika al-milk: Proprietary partnership
sukuk: Islamic bonds
tahawwut: Hedging
takaful: Islamic insurance
wadiah: Safe custody
wakala: Investor entrusts an agent to act on his behalf
zanniyyat: probabilistic evidence

http://www.theguardian.com/news/datablog/2013/oct/29/islamic-finance-for-beginners

 

Cameron: London can be a world capital for Islamic finance

British PM announces Islamic index on LSE and first ever Islamic bond from a non-Muslim country
British Prime Minister David Cameron speaks on stage during the Leaders Panel at the 9th World Islamic Economic Forum at ExCel on Tuesday in London.

Cameron: London can be a world capital for Islamic finance

Cameron: London can be a world capital for Islamic finance

London is not content with its status as the leading capital of Islamic finance in the West and wants to compete with powerhouses in the Muslim world, British Prime Minister David Cameron declared at the World Islamic Economic Forum (WIEF) Tuesday in London, where he announced the launch of a new British Islamic Market Index and the first ever Islamic bond, or sukuk, issued by a non-Muslim country.

Calling London “the biggest center for Islamic finance outside the Islamic world,” Cameron said Tuesday that the U.K.’s ambition is to boost its reputation among Islamic investors with these forays into Islamic finance, unprecedented for a non-Muslim country like Britain.

“I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world,” he told an audience of international political and business leaders — including King Abdullah of Jordan, Afghan President Hamid Karzai and Pakistani Prime Minister Nawaz Sharif — gathered in London for the first ever WIEF summit held outside the Muslim world.

Though still a fraction of the global investment market, Islamic investments, which mandate stringent rules in accordance with Islamic law, are projected to constitute $2 trillion by 2014, a 150 percent increase from their 2006 value, according to consultancy Ernst & Young.

Malaysia’s capital, Kuala Lumpur, has long been considered the stalwart of Islamic finance but London counts among a rising number of cities vying to overtake it.

London is the European headquarters for several major Middle East banks and a base of operations for the continent’s Middle Eastern investors, whose assets include London’s iconic Harrod’s department store and the Manchester City soccer team. Islamic investment has financed London’s Shard skyscraper — the tallest building in the European Union — and the 2012 Olympic Village.

The British government has encouraged a diverse range of capital, especially from China and the Middle East, to diversify Britain’s investment landscape. Cameron has said that Islamic finance is expanding at a 50 percent faster rate than conventional banking, and analysts say these latest steps are designed to spur Islamic finance even further.

Jamie Durham, a partner in International Capital Markets at the law firm Allen and Overy in London, said the steps Cameron announced on Tuesday were a long time in the making.

“Britain has been looking to do this for some time now to showcase its Islamic finance industry,” Durham told Al Jazeera. “I would see these moves as a symbolic way of highlighting the quantitative steps the U.K. has taken to support Islamic finance in the U.K. more generally.”

The burgeoning field of Islamic finance has largely been fueled by Gulf investors who hope to tap into oil revenue, much of which is controlled by pious Muslims. Growing demand across the globe for retail Islamic banking services has similarly propelled Islamic investment.

In keeping with Islamic law, or Sharia, Islamic finance forbids charging interest and requires that deals be based on tangible assets. Gambling is prohibited by Islam, and so dealing in futures, which Islamic scholars say is akin to speculation, is not permitted.

Unlike conventional bonds, sukuk are described as investments rather than loans, with the initial payment made from an Islamic investor in the form of a tangible asset such as land. The lender of a sukuk earns money as profit from rent, in the case of real estate, rather than traditional interest.

Britain’s $200 million sukuk is one-fifth the size first announced five years ago but is nonetheless expected to boost London’s reputation as a center of Islamic finance — if not draw new investors into the market. Though Britain has established itself as a minor sukuk marketplace, bonds have rarely been issued from local firms — and never from the government.

“For years people have been talking about creating an Islamic bond, or sukuk, outside the Islamic world. But it’s never quite happened,” Cameron said on Tuesday. “Changing that is a question of pragmatism and political will. And here in Britain we’ve got both.”

The investment-grade sukuk has been welcomed by local lenders who could use it as a liquidity instrument, said Richard Williams, finance director at Bank of London and the Middle East, the U.K.’s largest standalone Islamic bank.

“This challenge will now be resolved and is one of the final measures in creating a truly level playing field for the U.K. Islamic banks,” Williams told Reuters on Tuesday.

Cameron also announced at the Forum that the London Stock Exchange will launch an Islamic index that filters companies by their adherence to Islamic principles, much in the same way that social responsibility indices classify companies to guide potential investors.

The prime minister cited mutual benefits for Islamic investors and Britain in launching these two initiatives, framing them as consistent with Britain’s historical commitment to free trade.

“Investing in London is good for you, and opening London up to your investment is good for us,” he told the Forum.

http://america.aljazeera.com/articles/2013/10/29/cameron-london-canbethenextdubaiofislamicfinance.html

London first out of the blocks with WIEF as Islamic finance becomes a world force

London has been riding a wave of Islamic investment in the past few years and is keen to attract more dollars from the fast-growing economies in Asia and the Middle East.

The idea for hosting the first World Islamic Economic Forum (WIEF) outside Asia in London goes back to the late Sir Simon Milton, a Conservative politician who was one of the London mayor Boris Johnson’s advisors.

London first out of the blocks with WIEF as Islamic finance becomes a world force

London first out of the blocks with WIEF as Islamic finance becomes a world force

London officials approached the WIEF organisation’s leaders who were keen to turn the forum into a genuinely global event where Muslims and non-Muslims could meet to talk business and economics.

“We staunchly believe that when people get together for business, they forget their political, religious and ideological differences because there is one compelling commonality that matters most before them – and that is the impetus to be peaceful and prosperous,” says Tun Musa Hitam, the chairman of the WIEF Foundation.

David Slater, the director of international business development at London & Partners, which works to promote the capital, says the forum will attract big players. “We have always promoted London as the city where people from across the world are welcome to come and do business. This is a major event and will see the largest number of heads of state here since we hosted the G20 in 2009.”

The 9th WIEF begins in London’s Docklands exhibition centre on Tuesday, under the banner “Changing World, New Relationships”.

Businesses attending the event will include PricewaterhouseCoopers, Coca-Cola, Thomson Reuters and the Battersea Power Station Development Company.

The Prince of Wales will speak at the events’ gala dinner, addressing the summit’s many dignitaries, which will include 19 heads of state and five central bank governors. The British prime minister is also expected to address the event.

Mr Johnson, just back from courting Chinese investment, will certainly be present and is likely to be noisy in his vigorous promotion of his city to the visitors.

“We are bringing people together to talk about economic and business issues,” Mr Slater says.

At last year’s forum, deals worth an estimated £5.8 billion (Dh20.43bn) were struck and it is expected more will be announced at this year’s conference.

“There are deals in the pipeline, that have been in discussion for a long time, which we hope will be announced next week, many of which will be of benefit to London and the UK,” Mr Slater says.

In the past few days it has emerged the sovereign wealth funds of Qatar and Kuwait could invest in the United Kingdom’s first new nuclear power station in a generation. That is the sort of deal the British government would love to cement at WIEF.

In the past few days it has emerged the sovereign wealth funds of Qatar and Kuwait could invest in the United Kingdom’s first new nuclear power station in a generation. That is the sort of deal the British government would love to cement at WIEF.

The conference will also be an opportunity for British small and medium-sized businesses to promote themselves to Asian and Islamic markets through the British Business Pavilion, which is being sponsored by UK trade and investment, an arm of the British government that aims to help UK firms to export.

“It is an immense honour that the World Islamic Economic Forum has chosen London for its first gathering outside of Asia,” says Mr Johnson.

“Hosting this prestigious conference presents huge opportunities to promote London as a world beating business hub, highlighting our status as a major centre of Islamic finance and as a compelling destination for foreign investors.”

The global Islamic finance sector is estimated to be worth US$1.46 trillion last year and could top $2tn by 2015.

According to the latest figures, the UK benefited from a globally buoyant sukuk market in recent years, with issuance up two thirds last year to $139bn

Britain has the largest Islamic banking sector outside the Middle East and Asia, with 22 Sharia-compliant banks or banks with Islamic windows.

“Considerable potential exists for expansion of the Islamic finance industry worldwide,” says Chris Cummings, the chief executive of TheCityUK, which promotes the financial services industry in London.