Whilst the financial crises from 2008 slowed down growth in the global economy, Islamic finance has in fact picked up further speed; assets have doubled since the economic downturn. Business confidence is returning for the sector globally, especially in the UK. SAMINA AKRAM takes a look at the burgeoning Islamic finance sector in the UK.
According to the 2013 report by TheCityUK’s UK Islamic Finance Secretariat, Islamic finance assets worldwide have continued to grow at a phenomenal rate estimated to reach US$1.46 trillion in 2012, and to have reached US$12 trillion by 2014.
However, the Ernst & Young (EY) World Islamic Banking Competitiveness Report 2013-14 stated that the Islamic banking assets globally are expected to grow to US$3.4 trillion by 2018. Most industry practitioners agree that the sector is growing at an impressive rate of 15-20% annually.
The UK has been providing Islamic financial services for the past 30 years and was the first member of the EU to authorize Islamic banks. A report on the ‘Top 500 Islamic Financial Institutions’ recognized the UK as the number one western destination for Islamic finance which is in the eighth position globally with Shariah compliant assets of US$19 billion in a global country by country ranking.
The UK government’s support and encouragement for Islamic finance has attracted business, capital and investment to the country. UK regulators have made it clear that companies providing Shariah compliant financial services will be treated the same as those offering “western” products — with the same expectations on prudence, governance, ethical behaviour, capital adequacy and treatment of customers.
This support was evident at the recent World Islamic Economic Forum (WIEF) which took place for the first time outside of the Islamic world. London was chosen as the proud host. At the event, the prime minister, David Cameron in his keynote address made several commitments to further promote UK as the key international center for Islamic finance.
One of these was an announcement made by the prime minister to issue a Sukuk worth GBP200 million (US$334.51 million). This Sukuk was listed on the London Stock Exchange on the 30th June 2014, making the UK the first non-Muslim country to issue an Islamic bond. Investors placed GBP2.3 billion (US$3.84 billion) of orders, more than 10 times the amount of bonds on offer.
On the day of the issuance UK’s economic secretary to the Treasury, Andrea Leadsom, said: “Today’s listing of Britain’s sovereign Sukuk, the first outside the Islamic world, is great news for our financial services. The strong demand for the Sukuk not only delivers good value for money for the taxpayer, but also cements Britain’s position as the western hub of Islamic finance and is a part of our long-term economic plan to make Britain the undisputed centre of the global financial system.”
Abradat Kamalpour, partner at Ashurst, noted that: “The UK sovereign Sukuk is a signal of confidence in the Islamic finance market by the government of the UK. It will no doubt lead to other sovereign and non-sovereign issuers, conventional or Shariah compliant, coming to the market. This will hopefully lead to more depth in the Sukuk market.”
Harris Irfan, the managing director of the European Islamic Investment Bank and founder of Cordoba Capital, agrees, and believes: “Although official statements suggest the UK sovereign Sukuk is a one-off, we are quietly hopeful that not only will its success encourage the British government towards a program issuance, but also some of our suggestions on UK infrastructure and public sector financing might be looked at favorably.”
Fara Mohammad, the director of Islamic finance at Foot Anstey, is also very optimistic about the issuance. “Following the inaugural Sukuk issuance by the UK government, it is believed that this will prompt other Sukuk issuances by other European countries who will want to take the lead from the UK. This will indeed be a catalyst for the development of Sukuk issuances internationally and in particular, in Europe.”
A new task force, The Global Islamic Finance & Investment Group, has been put together chaired by UK’s former senior foreign office minister, Baroness Warsi. This group brings together members from key Islamic finance centres, including senior figures such as CEOs and central bank governors from Kuwait, Qatar, the UAE and Malaysia. The group meets on a regular basis with an aim to identify and tackle important factors related to driving the global Islamic finance sector for the next five years.
All the above steps are hugely encouraging to further help establish London as the key Islamic finance center of the world.
The prime minister told the delegates at WIEF: “I don’t just want London to be a great capital of Islamic finance in the western world; I want London to stand alongside Dubai as one of the greatest capitals of Islamic finance anywhere in the world.”
The steps which are being taken, certainly suggest the UK government is delivering on its promises. The city of London is most definitely well positioned to be a leading hub for Islamic finance. Coupled with its reputation, long-standing expertise and the political will to encourage further growth, rival centers will certainly feel the competition in coming years from one of the most dynamic, diverse and fast paced financial centres of the world.
Samina Akram is the managing director of Samak Consultants. She can be contacted at
[email protected]
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