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Islamic Finance In London: A Rising Star in the West

High on London’s wish-list is the aspiration to become a leading Islamic finance hub in the world. The recent 9th World Islamic Economic Forum (WIEF), which was held in the historical city of London from 29 to 31 October 2013, has worked to firmly engrave this aspiration into the country’s woodwork and put London on the spotlight for Islamic finance – closing the gap between the west and the Islamic world. Britain’s Prime Minister, David Cameron, has this to say. “Already London is the biggest centre of Islamic finance outside the Islamic world, but today our ambition is to go further still.” As a proof of his commitment to the development of Islamic finance industry in Britain, he was proud to announce a major milestone, which is the launch of the Islamic Market index on London’s Stock Exchange, which will take root next year.

Islamic finance in London
With the rapid growth of Islamic finance, and the growing Muslim population across the world, London is keen on embarking on Islamic finance on a global scale and is pushing to promote itself above its major competitors,namely Malaysia and the Middle East. According to a report by Ernst & Young, the global Islamic banking industry is set to rake in USD1.8 trillion by the end of 2013 – fuelling keen interest amongst large Western banks that have their eyes firmly set on wealthy Gulf economies.In fact, several Middle Eastern banks have made the United Kingdom their central European base, attracting scores of Middle Eastern investors. London’s ability to handle Syariah-compliant finance is indeed solid, especially since the UK has been managing Islamic finance since the early 1980s. In fact, London has long been present at the forefront of business and investment in the Islamic finance spectrum. In the 1990s, London was providing more structured and enhanced Islamic services, as investors and businesses became savvier in Islamic finance. Legal firms also gained better knowledge of regulatory frameworks, thus strengthening their ability to support the growth of Islamic finance in the UK.
In its efforts to establish itself in the world of Islamic finance, Britain has gained tremendous traction, in that, the country now has more Syariah-compliant financial institutions than any other western European country and a growing number of universities and business schools that offer executive courses in Islamic finance. In London, the Shard skyscraper and the Olympic Village are testament to the prowess of Islamic finance as they were born out of Islamic investments. In March this year, the British government launched an Islamic task force under the purview of the Treasury Minister, Greg Clark and Baroness SayeedaWarsi, a Foreign Oce Minister.

Further solidifying London’s active play in Islamic finance, the city now boasts of close to 25 city law firms offering Islamic finance expertise. The United Kingdom is also home to three licensed Islamic banks whilst 22 traditional banks are now offering Islamic banking products and services. These banks include HSBC, the Royal Bank of Scotland, Barclays and Citigroup London, among others.

Building the future
In July 2013, after meeting Malaysian Prime Minister Datuk Seri NajibTunRazak, Boris Johnson, mayor of London, iterated that there were “huge opportunities” to strengthen the capital’s position in Islamic finance. The enthusiastic leaders gave their strong support to London as the host of the forum, which is the first to be held outside the Muslim world. The end of October this year saw the convergence of more than 1,000 investors from 100 countries at the 9th World Islamic Economic Forum, pushing London further into the spotlight of Islamic finance. In recent years, London has successfully maintained the Islamic finance industry, and in last year alone, generated close to USD18.5 billion in Syariah-compliant assets, the 9th highest in the world. With the UK’s increasing awareness of the benefits of Islamic finance, London is set to tap on this vast potential whilst setting itself at the forefront as an international financial centre that has no barriers and accepts both traditional and Islamic finance in entirety. According to a report by Reuters, London has long been the default centre for international firms to issue Syariah-compliant bonds, which is part of a rapidly growing Islamic finance industry that is set to be worth approximately USD2 trillion globally in 2014. However, as much as London is optimistic about these prospects, Dubai and Kuala Lumpur are expected to be challenging competitors, who have set their navigational beacon on the same course.
What makes these two competitors so strong? Being at the heart of the wealthy Gulf, Dubai recently announced its thrust into Islamic finance supported by its entrepreneurial culture which has made it a top Islamic banking playerin the Middle East boosted by large state-run firms who are expected to push the government’s strategy forward. Malaysia, on the other hand, has a reputation for strong regulatory and legislative frameworks, effciently fuelling the Islamic finance industry. Malaysia offers huge promise especially with the large domestic market for local-currency Islamic bonds, which have begun to attract scores of foreign investors.
Who actually emerges the winner of this rivalry may not be known just as yet, but one thing is certain, the Islamic finance sector is expected to create thousands of new job opportunities further igniting robust economies in these countries.

Sukuk in London
At the 9th WIEF, British Prime Minister David Cameron announced to 1,000 delegates, “I want London to stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world.” Cameron divulged Britain’s plans to issue sovereign Sukuk, or Islamic bonds, from as early as next year. The UK announced in October that it will be issuing 200 million sterling pounds of Islamic bonds, or Sukuk – comparatively insignificant in size against Jeddah-based Islamic Development Bank’s (IDB) Sukuk launched in Dubai worth USD10 billion. This is in line with Britain’s aspirations to become the first Western country to issue a sovereign Sukuk. It is indeed a major step up in the UK’s dream to spearhead Islamic finance, not only in Europe but globally. Farmida Bi, European Head of Islamic finance law at Norton Rose Fulbright in London was quoted as saying that the `UK sukuk announcement has really helped to galvanise the market.” The issuance of Sukuk has paved the way for London to grasp a tighter hold of the market and to offer value to the current global economy. During the WIEFand the issue of Sukuk, London’s Chancellor of Exchequer, George Osborne singled out the many cases where Islamic finance has funded several of Britain’s prestigious projects. In fact, scholars have indicated that Sukuk may be a potent solution to the wide-ranging problems of modern capitalist societies. Research studies go way back to the Ottoman Empire of 1775 where it is believed that Sukuk was issued for the first time, when the empire borrowed a certain amount of money against future customs’ income.

Outlook on Islamic finance
London is a mature market that holds a treasure trove of potential for the growth of the Islamic finance industry. With an increasing deluge of investors, a growing Muslim population and the increasing awareness of the non-Muslim segment, Islamic finance is expected to grasp a fair amount of market share in the years to come.

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