Issue 813, 21 September 2007

London lures Islamic financiers, other Europeans will follow

The UK government is working hard to include Islamic finance in its regulatory framework as a means of attracting petro-dollars from the Gulf, as well as catering for Muslim domestic consumers. Other European countries have been slower to seize the opportunity, but this could change as Islamic markets go world-wide. GSN looks at the globalisation of Islamic finance – a trend the Gulf cannot ignore.

The promotion of Islamic finance as an asset class has been given a big push by the UK’s new Prime Minister Gordon Brown, who as a long-time chancellor of the exchequer knows all about global markets. According to Economic Secretary to the Treasury Kitty Ussher, speaking at a London Islamic finance conference in July, the rapid growth of Islamic finance world-wide made it inevitable that London, as a global centre, would respond. “This market has been growing at 10-15% a year, with Islamic finance assets world-wide now estimated to be worth over £250bn – and with 300 Islamic finance institutions in over 75 countries… “That presents real opportunities, which we want to make sure we seize.”

British regulator the Finance Services Authority (FSA) recently extended regulation to cover Islamic home finance. In the 2007 Finance Act, the British government created new tax framework for Islamic bonds pushed by the listing of two sukuks on the London Stock Exchange earlier this year. Ussher’s predecessor, Brown’s close ally Ed Balls, set up a new consultative forum, the Islamic Finance Experts Group (Ifeg), which is undertaking a feasibility study into opportunities for the government to issue Islamic financial instruments in the wholesale sterling market, and has asked National Savings and Investment to look at the possibility of the government issuing retail Islamic products. Ifeg held its first meeting in August to discuss the potential for issuing sovereign sukuks.

The UK now has two retail Islamic banks, the Qatari-backed Islamic Bank of Britain, and recently opened Bank of London and Middle East, backed by Kuwait’s Boubyan Bank with a 20% stake. Two more banks have applied for licences from the FSA, including Europe Finance House, backed by Qatar Islamic Bank (QIB), and Kuwait’s Securities House Group. QIB expects to receive its licence by end-year. European Islamic Investment Bank (EIIB) is the UK’s first sharia-compliant investment house. By October, the UK is also expected to have its first takaful company, British Islamic Insurance Holdings.

Slow on the uptake

The Dutch government has recently expressed interest in introducing Islamic banking to its financial markets. “Dubai and London are developing into the international centres for Islamic banking. The Netherlands is fit to also play a role here,” said Finance Minister Wouter Bos in a July letter to parliament. The Netherlands has over 1m Muslims living among its population.

France has a much bigger Islamic population still, but Banque de France (central bank) has yet to grant a licence to what could be its first Islamic bank. Tayssir Bank, brainchild of Syrian-born entrepreneur Fehmy Saddy, who is president of Geneva-based investment advisory company FS International Partners, has been waiting on its licence for months. But Banque de France is still working on the legal framework for Islamic finance. Saddy has adopted a pragmatic tone, saying last year that “Tayssir Bank will operate in a true spirit of ‘laïcité’ as originally conceived in the French system, and will provide services to all individuals, companies and institutions, irrespective of their nationality, ethnic origin, creed or religious preference.”

The market for Islamic banking undoubtedly exists in France, with Europe’s largest Muslim population, consisting mostly of immigrants and their offspring from former colonies Morocco and Algeria, many of them in lower income strata. Saddy said it took some time to convince the French government that Islamic banking was not related to terrorist financing, but that instead it could be used for social and economic purposes. “The government then woke up to the fact that its large Muslim community is deprived of employment and services like banking, so their position shifted dramatically,” he told one interviewer.