Britain to lead the world in Islamic finance

London has set its sights on becoming the world centre for the Islamic finance industry according to the UK's foreign office minister for Middle East.

Speaking at The Telegraph's Middle East Congress on Wednesday, Tobias Ellwood, under secretary of state at the Foreign Office, said the capital had ambitions to stand alongside Dubai and Kuala Lumpur as a global hub for Islamic finance.

Britain became the first country outside the Muslim world to issue an Islamic bond, known as Sukuk, last year.

The £200m bond attracted healthy investor interest and was the first step in encouraging wider investment from the region to the City of London.

Britain was also committed to promoting a "peaceful and prosperous" Middle East and expanding trade ties with the region, which topped £35bn last year, said Mr Ellwood

"A long-term security strategy must have prosperity at its heart."

Islamic finance products comply with religious rulings, known as sharia, to pool risk and prohibit traditional interest payments.

There are currently six Islamic banks in Britain, while another 20 lenders currently offer Islamic financial products and services, more than any other Western country.

Chancellor George Osborne has said promoting the Islamic finance industry, which is worth nearly $2 trillion, would help make Britain “the undisputed centre of the global financial system".

Mr Ellwood also celebrated notable sharia-compliant investments that have been used to fund some of the capital’s largest developments, including The Shard and the Olympic Village.

The sovereign Sukuk market, which makes up only 0.1pc of global financial assets, is predicted to expand by 20pc a year, according Robert Gray, chairman of debt finance at HSBC.

Sukuk provide fixed returns from underlying assets, thus bypassing the Islamic prohibition on receiving interest.

Mr Gray added the recent fall in oil prices would not hinder the industry and could stimulate the issuance of Sharia compliant debt from the likes of Saudi Arabia.

With a depth of reserves, Gulf nations have a “strong capacity to accept more debt and a strong inclination to use Islamic capital markets”, said Mr Gray.

(The Telegraph / 25 February 2015)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

New initiatives help widen Britain’s Islamic finance market

The scope of Britain’s Islamic finance market is widening with several initiatives from the government and private sector, although the country is about to lose one of its six full-fledged Islamic banks.

In June, Britain became the first Western country to sell sovereign sukuk (Islamic bonds), helping boost its industry credentials as competition intensifies among global financial centers for a slice of Islamic business.

Britain has 22 firms that offer sharia-compliant financial products and they held an estimated $19 billion in assets last year, according to a report by lobby group TheCityUK. These include six full-fledged Islamic banks such as Bank of London and the Middle East, European Islamic Investment Bank, Gatehouse Bank and the Islamic Bank of Britain (IBB).

Last week a government official said the Central Bank would look into developing a liquidity management tool for use by Islamic banks, while Britain’s export credit agency expects to guarantee sukuk for the first time next year, an issue by a customer of European plane maker Airbus.

In May, the Bank of England widened the types of sharia-compliant debt instruments that Islamic banks can use in their liquidity buffers, under a policy statement known as PS4/14.

Islamic banking accounts for only a tiny fraction – less than 1 percent – of the British banking sector, far below the share of roughly a quarter seen in the Gulf.

But taken together, the new official initiatives seem likely to create a more benign environment for Islamic finance, allowing banks to operate more flexibly and efficiently, and therefore more cheaply. Depending on how quickly it moves ahead, the plan for the liquidity management tool could conceivably put Britain ahead of some Gulf countries in providing options in this area.

“PS4/14 is a strong enabler... this is very powerful for us,” Sultan Choudhury, chief executive of Birmingham-based IBB, said on the sidelines of an industry conference in Dubai.

The new rules allow Islamic banks to hold a variety of instruments, ranging from sukuk issued by the Qatari government to those issued by Saudi Arabian firms, Choudhury said.

The IBB, a unit of Qatar’s Masraf Al Rayan, is now moving into the wholesale business and plans to change its name to Al Rayan Bank in December, subject to regulatory approval, as it looks to appeal to a wider customer base.

Alternatives

Despite this, London-based European Islamic Investment Bank is now in discussions with regulators to relinquish its banking license, the lender said in a regulatory filing.

Under a 2012-2016 strategy, EIIB is exiting legacy private equity investments, seeking more stable income from its asset management and advisory services.

Dropping its deposit-taking license would remove cumbersome capital and reporting requirements. In July, EIIB failed to secure regulatory approval to appoint a chief financial officer.

Other banks are also adjusting their strategies. London-based Gatehouse Bank aims to generate more deals outside the domestic property market, its recently appointed chief executive told Reuters in August.

Bank of London and The Middle East, Britain’s largest Islamic bank, is developing private banking services with Malaysia’s Bank Muamalat.

Non-banks are also spotting opportunities, such as asset management firm London Central Portfolio (LCP), which has launched two sharia-compliant property funds since December.

“We have every intention of rolling this out across all future funds,” said Naomi Heaton, chief executive of LCP. “With the Islamic finance industry growing rapidly and far quicker than the conventional fund sector, we wish to continue to capitalize on this market.”

Last week, London’s Battersea Power Station project announced it had secured a 467 million pound ($754 million) Islamic syndicated loan, one of the largest Islamic transactions ever conducted in the country. 

(Al-Arabiya News / 02 November 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com