Focus On Europe World

European Islamic Banks- Unlocking the Full Potential

When walking through the heart of London’s financial district, it is impossible to not look up and see one of the most iconic buildings of London’s skyline; The Shard. Since its inauguration in 2012, The View from the 78th floor of The Shard has become one of the most famous points to admire London from. While enjoying the landscape, many fail to notice that The Shard is actually a symbol of the success of Islamic Finance in terms of financing infrastructures in the UK. “When it comes to Islamic Finance, Britain thinks big”, former Prime Minister David Cameron once said.

While enjoying the landscape, many fail to notice that The Shard is actually a symbol of the success of Islamic Finance in terms of financing infrastructures in the UK. “When it comes to Islamic Finance, Britain thinks big”, former Prime Minister David Cameron once said.

The Kingdom thinks so big that to this day it is well known that Britain is unquestionably the western leader of Islamic finance. If London is considered the European center of Islamic finance, it is not only due to its commitment to promote the development of the industry, but also to the lack of competition from the rest of Europe. While countries such as Luxembourg, Germany and France have made an effort to promote progress in accommodating Islamic financial products, the presence of the Islamic finance industry is almost insignificant, and this is not because of a lack of potential. The industry offers a great potential for growth in Europe, both at the wholesale and retail banking level.

At a wholesale level, the Islamic finance industry has developed in Europe mainly through the capital markets. Sukuk’s potential as an instrument for sovereign debt issuance has been demonstrated following the successful experiences of the United Kingdom and Luxembourg in 2014. But probably the greatest potential in Europe for sukuk comes from its ability to finance infrastructure. “The asset-backed nature of Islamic financial instruments make sukuk well suited to infrastructure assets”, states a G20 and an OECD note. This note considers sukuk as one of the alternative sources of funding to invest in European infrastructure. This therefore, makes sukuk perfect for working with other financing instruments with the same purpose, such as syndicated loans or the structuring of project finance operations. Sukuk could also be an additional source of funding for European companies. According to Reuters, Italy has begun to study the possibility of adapting its “mini bonds” legislation in order to provide Italian companies with Shariah-compliant funding options as an alternative to bank lending. It is of great importance that regulatory authorities value the benefits of the issuance of sukuk so that they make the effort to promote reforms that adapt the regulation. The potential of sukuk can only be realized through a level playing field.

 

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