THE RISE OF THE NEXT GLOBAL HUB
The United Kingdom (UK) signalled its ambition to become a global hub of Islamic finance with the launch of its maiden sovereign Sukuk in June, 2014. WAYNE EVANS, Senior Adviser International Strategy at TheCityUK – a membership body representing the UK-based financial and related professional services industry – shares his thoughts with Islamic Banker on what makes the UK an appealing destination for Islamic finance in Europe, and the prospects that lie ahead.
ISLAMICBANKER (IB): What makes the UK an attractive Islamic finance market for investors and what gives it the edge over other European and non-Muslim countries?
WAYNE EVANS (WE): London has been an international financial centre for over 300 years. The depth and experience of the sector combined with a strong credit rating and respected rule of law makes the UK an attractive destination for investors – conventional or Islamic. For Islamic investors, no other non- Muslim country can match the UK’s experience and expertise. The first Islamic financial institution opened in London over 30 years ago. Now more than 20 banks located in the UK offer Islamic financial services or products, six are licensed for Shari’a complaint transactions. This is substantially more than in any other Western country. Many foreign banks access Islamic finance through the London markets or their London based teams for specific initiatives, i.e. Treasury funding, trade finance, property finance, agency desks for corporate financing/lending. The UK is one of the largest global locations for managing Islamic finance assets. In addition to banking, fund management and capital markets activity, UK based firms provide the supporting service infrastructure to the Islamic financial industry The London Stock Exchange (LSE) is a global venue for Sukuk issuances – over US$38 billion has been raised through 53 issues. Seven exchange traded funds and two exchange traded products are also quoted on the LSE. The LSE launched its Islamic Market Index in 2013. More than 25 legal firms supply services to the Islamic financial industry from the UK. Advisory services are provided by the four largest professional services firms plus the major accountancy companies.
IB: At the 9th World Islamic Economic Forum 2013 in London, Prime Minister David Cameron made a statement of intent to elevate London alongside Dubai and Kuala Lumpur as one of the hubs of Islamic finance. Can London realistically pose a formidable challenge to the traditional giants of Islamic finance? What are the regulatory challenges faced?
WN: London is the global international financial centre and it has grown through the cluster of expertise that exists across the financial and related professional services industry. It has also involved co-operation and much of TheCityUK’s focus is on how we can work with our international partners. Part of this is to discuss the regulatory issues that hamper the growth of cross-border Islamic finance. These issues are well rehearsed but easy wins could be obtained by international co-operation on market unification, standardisation of documents and product guidance.
IB: In June 2014, the UK became the first non-Muslim nation to launch its first sovereign Sukuk. Do you think this will produce the desired impact and encourage further Sukuk issuances from London and the region as a whole?
WN: The UK sovereign Sukuk proved that Sterling Sukuk are viable. The fact that it was nearly twelve times oversubscribed also proved demand
for the product. Other countries – Luxembourg, South Africa etc. quickly followed. The challenge now is for Sukuk to be taken up by corporates to meet their funding requirements. This is where the UK can learn from countries such as Malaysia.
IB: How do you think advancement in Islamic finance influence the UK’s ties with the Middle East and other Muslim countries, especially in trade, security and other areas?
WN: The UK is a major trading nation with financial services being our largest net export. We have historic trade and investment relations with the Middle East and other Muslim countries. Up until now the bulk of these have used conventional finance products. By offering Islamic financial products and services we can maintain and broaden our relations with traditional and new trading partners. Global prosperity brings global security.
IB: On one hand we have institutions like BLME, EIIB and Al-Rayan Bank (formerly Islamic Bank of Britain) showing indications of growth in this alternative financial model in the country, while on the other hand we have banks such as Al Ahli Bank and HSBC shutting down their Islamic finance businesses in the UK. What do you think will be the future of retail and institutional Islamic financial products in the UK?
WN: In the UK, retail Islamic products have potential but have yet to take off. Companies have to make a profit on their investments, every business has to monitor its income stream – particularly in tight financial markets. Where conventional finance is more attractive then business will flow to it. That is one of the challenges that all of us promoting Islamic finance have to face. Reluctantly, some have moved out of the sector in the UK but HSBC, for example, remain a major global player in Islamic finance.
IB: There are many commentaries on how conventional finance can take cues from Islamic finance, especially to avert another massive economic crisis similar to what we witnessed a few years ago. What in your opinion are the essential lessons that can be learnt from Islamic finance for the European and the UK markets?
WN: I have heard many times that if all finance adhered to Islamic principles then there would not have been a global economic crisis. I am not totally convinced of this as there were many factors behind the crisis. While the non-speculative, asset based, more overtly ethical practices of Islamic Finance would have provided a strong bedrock, there is always room for improvement in innovation, regulatory and governance and transparency and
financial literacy in the Islamic and conventional sectors.
IB: According to Pew Research, Muslim population in the UK will swell up to 8.2% in 2030 from 4.2% in 2010. Do you think this will drive up the demand for more Islamic financial institutions to cater to the needs of the projected Muslim population?
WN: Yes, in the UK (and globally) the Muslim population is under served in Islamic financial products. As young populations grow and become more
prosperous there will inevitably be increased demand for Islamic products additional to banking covering mortgages, insurance, pensions etc.
IB: What are the key initiatives taken up by the industry to create greater awareness of the overall growth and long-term prospects of Islamic finance in the UK, not just catering to smaller segments such as students, etc. but also by the mainstream financial marketers?
WN: TheCityUK and one or two other smaller associations are very active in promoting and developing Islamic Finance in the UK and internationally. There are also a number of events taking place across the UK promoting the sector. TheCityUK, through an agreement we have with HM Treasury, is also actively engaged with Whitehall Departments, the Bank of England and the Regulator on a number of initiatives to develop the sector and showcase London as the western hub for Islamic Finance.
IB: Last year, the UK government announced Shari’a-compliant student loans to make higher education more accessible to Muslim students. So should students in Britain, regardless of their faith and ethnicity, be allowed to choose which financing option works best for them? Do you think such type of loans could promote double
standards in the British education system?
WN: It is laudable that the Government announced the Shari’acompliant student loan scheme. The British Government’s policy relating to Islamic finance is that there should be a level playing field and that nobody should be financially penalised because of their faith. I have not seen a similar commitment from any other country. I believe this is the first scheme globally for Islamic student finance, however, we have some concerns relating to presentation and possible Shari’a compliancy of the scheme as proposed. Once these are resolved, the loans will be available to Muslim and non-Muslim students so there will not be any accusations of double standards.
IB: In your opinion, will the rise of anti-Islamisation movements such as PEGIDA UK and vocal far-right groups impede the growth of Islamic finance in the country?
WN: No, because if one only does the minimum of research it is apparent that Islamic finance has nothing to do with the agenda of the groups you mention. The UK’s involvement in the market is focused on it becoming a hub for Islamic finance which ultimately create jobs and growth across the country.
IB: Risk-sharing, fairness and transparency are some of the ground-principles that Islamic finance is built upon. Do you think the word ‘Islamic’ itself hinders this business model for people to embrace it?
WN: This also relates to your previous question. People who are unfamiliar with Islamic Finance often link the name but not the concepts to terrorism or fundamentalism, this is particularity so in the USA. Some countries with a much larger Muslim population refer to ‘participatory’ or ‘alternative’ finance to avoid the use of ‘Islamic. Changes in UK legislation have used ‘Alternative Finance Investment’ rather than ‘Islamic Finance’ mainly to avoid any confusion over what constitutes
’Islamic Finance’. But any finance that requires Shari’a approval is, by its nature, ‘Islamic’. It is better to use the title ‘Islamic Finance’ and educate the doubters and uninformed rather than change the name and risk diluting the strengths of the underlying principles.
IB: One of the major problems for Islamic finance is its ‘perception’ in the minds of the general population. How do you think we can counter this challenge to make Islamic financial products more friendly and accessible?
WN: Governments and practitioners need to communicate that Islamic finance may be regarded as an ethical and socially responsible alternative to conventional finance. The principles of Islamic banking will appeal to many non-Muslims too. Islamic banking products need to be more visible. Many ‘High Street’ banks have Islamic products but do not actively promote them – even as alternative or ethical investments. As the visibility and profile of Islamic products increase, there will be less suspicion of the sector. An interesting parallel is with the growth of the halal food industry in the UK. In the not too distant past you had to seek out halal meat suppliers. Now all of the major food retailers carry halal products as part of their mainstream business.
IB: The right talent mix is the pre-requisite for the growth of this industry. Does shortage of qualified Shari’a scholars and Islamic finance professionals in the UK hamper the industry growth?
WN: The UK leads in qualifications in Islamic finance with four professional institutes, 25 universities and more than 30 businesses engaged in providing training and educational advisory services. So there are sufficient Islamic finance professionals