The three claimants to the title of leading Islamic financial hub of the world are Bahrain, Kuala Lumpur and London. I would nominate Bahrain, as it has more Islamic banks than the two other centers and hosts important international institutions such as the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Islamic Liquidity Center. Kuala Lumpur of course hosts the Islamic Financial Services Board (IFSB), but most Islamic finance in Malaysia is denominated in local currency, much of the business is retail, and even the Islamic investment banking and securities issuance is primarily domestic. Bahrain, in contrast, plays more of an international role, vis-à-vis not only other Gulf states, but also Europe and South Asia, notably Pakistan. London has long played an international role, and is certainly the pre-eminent center for Islamic finance in the west. Initially its role was in managing liquidity for Islamic banks from the Gulf in a Shariah compliant manner, but its role has extended to fund management, Shariah compliant investment in commercial property and more recently retail finance for the Muslim community in the UK. In the future all three hubs might be expected to develop further, with Dubai perhaps challenging Bahrain, but not London or Kuala Lumpur because of geography, although Singapore could grow to rival Kuala Lumpur. Hubs are needed for investment banking business and securities trading, whether conventional or Islamic, and as this grows, so business in the hubs will further strengthen. There is enough business worldwide for three hubs in different time zones, but probably not more. Competition will ensure which are the long-term winners and losers. PROFESSOR RODNEY WILSON: VP – Director of Postgraduate Studies, Durham University
In answering these questions we need to consider three factors: 1. What features are required to make a city into a hub? 2. What benefits/advantages does a hub bring? 3. What are the prevailing trends in the conventional financial markets? A hub is created where there is a natural draw of the necessary framework to facilitate an industry’s growth and development. This framework includes a complementary legal and regulatory environment, a pool of qualified and skilled professionals and a critical mass of participants. As a hub is the focal point of activity in an industry or industry segment, it facilitates the establishment of a critical mass of transactions. As a result, participants can take advantage of market efficiencies and economies of scale. Additionally, the emergence of hubs is a sign of the continuing maturity of an industry. Within the conventional financial markets a number of cities have valid claims to be international or regional hubs – New York, London, Hong Kong and Tokyo to name a few. Each of these has the necessary framework to support their claim. A number of cities have emerged as Islamic finance hubs. In the Middle East, Bahrain has taken the lead with the highest number of Islamic financial institutions and quasi-regulatory bodies (AAOIFI, IIFM, ICRA). Similarly, Malaysia has taken on the role of the Islamic finance hub for Asia. These hubs cannot be established spontaneously and require active legal and regulatory support. Clearly this needs to be enhanced in the GCC where specific enabling infrastructure needs to be put into place to support Islamic financial institutions. Looking to the future, Pakistan is showing signs of emerging as a regional hub for Islamic finance. The demand for Islamic financial products is robust across both the retail and corporate levels. Additionally, there is a plethora of Islamic finance professionals with links to Pakistan, many working in the GCC. Finally, the State Bank of Pakistan is supportive and proactive in promoting the growth of this industry. Yavar Moini: Investment Banking, Dubai Bank
The world financial hub, whether of Islamic or conventional finance, is Basel in Switzerland – the home of the Bank of International Settlements, whose Basel Accord sets the capital requirements underpinning our “deficit-based” global monetary system configured around Central Banks. There is as yet no acknowledged “center of excellence” – as good a phrase as any for “hub” in this context – for Islamic financial and economic thinking. Achieving the acknowledged pre-eminent status as the leading such center is the Holy Grail for which most of the Middle Eastern financial centers compete. However, London, although a late starter in this race, and despite being in large part an “ethics-free zone,” has the advantages of a flexible legal and regulatory system, immense depths of human resources of expertise and ingenuity and the presence of virtually every serious financial institution on the planet. While in a networked world it is not strictly necessary for such a hub to have a physical presence, I believe that we will see two or perhaps three centers which will become acknowledged as hubs in terms of the presence of expertise: London, Dubai and perhaps Kuala Lumpur. All of this is irrelevant, however, unless the deficit-based financial hub of Basel is superseded by an “asset-based” alternative. One cannot “make a silk purse out of a sow’s ear” and Islamic finance is perched unsteadily on the global pyramid of debt-based money. The GCC, in its efforts to create a single currency analogous to the Euro, and the Asian states, similarly examining an Asian single currency, can and should forsake all thought of a deficit-based system analogous to the European Central Bank. They should instead create a “clearing union” – as advocated by JM Keynes at Bretton Woods in 1944 – as a platform for a common currency – a “Petrodollar” – based upon an agreed unit of energy. Then, and only then, would a true Islamic finance “hub” come into being. CHRIS COOK: Principal, Partnership Consulting LLP
A hub is a place where all meet (money and know how) and from where all is dispersed again like through the spokes of a wheel. The aviation world is talking about “focus cities,” “hubs,” and “fortress hubs” to distinguish importance of the different centers. Islamic finance is talking too much about the standardization of products and the creation of hubs, instead of guided, organic growth. “Hub” is “hype.” Everyone wants to be a hub, even whilst the industry is just learning to walk – as a figure of speech. “Hypes” tend to end in over-rated expectation and “bursting bubbles.” Since centralization can work like a facilitator and enhancer, it makes sense to have the existing “focus cities” (most of them still in early stages) develop some more. Competition creates growth. If there is one “hub,” it can be found in Malaysia. PAUL WOUTERS: Of Counsel, Bener Law Office
The jury is not in yet as to the world Islamic hub, and may not be in for a while. Recent announcements from Riyadh, looking to establish Riyadh Financial Center, and statements from Gordon Brown about London being the gateway of/to Islamic finance are exciting developments, and will add heft to Islamic finance. I do not believe we can speak about a world Islamic hub for industry that is only 40 years old, with the tripartite of Islamic finance – Islamic banking, Islamic insurance, and Islamic capital markets – still emerging. If comparison is to be made to conventional banking, there is no world banking hub – there is New York, London and Tokyo. However, the consensus for the Islamic hub in Asia is Malaysia, its efforts and results speak for themselves. Singapore has made an initial aggressive effort to become an Islamic hub (asset management), but it is a long journey. It would be interesting to see a Singapore Sukuk, as the other Islamic hub jurisdictions, Dubai, Bahrain, Qatar and Malaysia, have issued Sukuk that are in the DJ-Citi Sukuk Index. I believe there will be regional centers of excellence in Islamic finance going forward, and they will co-ordinate efforts to bring value for producers and users of Islamic products and services. RUSHDI SIDDIQUI: Dow Jones Indexes |