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As the global market for Islamic financial services has grown three fold over the past decade to $531bn in 2006, so London is setting out its stall to be the key western centre for Islamic finance.
The cluster of expertise in London is represented by 23 banks, nine fund managers and a number of international law firms offering Islamic service while there is a secondary market in Sukuk valued at $2bn a month and a growing market for retail mortgage business according to a new report by IFSL on Islamic Finance co-sponsored by UK Trade and Investment.
IFSL’s report also found daily trading in commodity-based agreements through the London Metal Exchange is a key mechanism for the management of assets and liabilities by Islamic financial institutions and the 23 UK banks outnumber more than four times those of any other country in Western Europe: Switzerland has five and France and Luxembourg each have four.
The UK is also ahead of the rest of Western Europe in establishing fully Sharia compliant banks with three of the 23 UK banks having set up there since 2004. These are The Islamic Bank of Britain, The European Islamic Investment Bank and The Bank of London and The Middle East.
Duncan McKenzie, IFSL’s Director of Economics said “Evidence of London’s growing role in Islamic finance is shown in the UK being the only western country to feature prominently, 9th with $10bn, in a global ranking of Sharia compliant assets by country.”
Minister for Trade and Investment, Lord Digby Jones welcomed the report and congratulated ISFL for producing an in depth and informative report. He said: “London’s position as the premier Western centre and partner of choice for Islamic finance is a huge step in the right direction, but we mustn’t become complacent. UKTI is working hard in partnership with our delivery partners, including IFSL to ensure the UK’s offering in this ever expanding sector and London’s status as the global financial centre continues. The results of this report will help shape UKTI strategies to continue positioning the UK as the world leader and investment destination of choice.”
UK educational institutions are taking the lead in positioning the UK as a leading centre of learning in Islamic finance. The Securities and Investment Institute, the Chartered Institute of Management Accountants and Cass Business School have each worked collaboratively with overseas partners to offer qualifications that can be accessed by students around the world.
Background
Global market for Islamic finance: The global market for Islamic financial services, as measured by Sharia compliant assets, is estimated to have reached $531bn at end-2006, having grown by over 10% a year from about $150bn in the mid-1990s. Islamic commercial banks accounted for 75% of the assets $397bn, and investment banks 13%, $66bn. The balance is made up by outstanding Sukuk $44bn; assets of equity funds and other off-balance sheet investments $14bn and assets of Takaful providers $10bn. Standard & Poor’s has estimated that the potential market for Islamic finance could be $4 trillion, over seven times its current size.
UK ranking: The global ranking of firms with Sharia compliant assets that appeared in the November 2007 edition of the Banker included reporting from three UK firms, largely based on HSBC Amanah.
IFSL’s Islamic Finance Working Group is taking a leading role in the promotion of Islamic financial services available from the UK. The group is working closely with private sector and government, particularly UKTI and the City of London Corporation.
IFSL Research aims to raise awareness of the UK's role in international financial markets and to highlight the contribution of financial services to the UK economy. This press release, the Islamic Finance report & other IFSL publications can be downloaded at www.ifsl.org.uk.
The Government's objective for Islamic finance is two-fold:- to entrench London as a global gateway for Islamic finance; and
- to ensure that all British citizens, regardless of their faith, have access to competitive financial services.
The Government has introduced a number of changes to support the development of Islamic finance products in recent years. These include acting to prevent double taxation on Islamic mortgages for individuals and companies, thereby allowing both homeowners and companies to purchase property consistent with their faith, reforming the arrangements for issuing debt to make London a more attractive location for issuing and trading sukuk, and ensuring that the regulatory treatment of Islamic finance is consistent with the Financial Services Authority’s statutory objectives and principles.
HM Treasury is currently consulting on the potential for a wholesale sterling sukuk issuance by the Government, following the commitment made at the Pre-Budget Report in 2007. Further details are available from: www.hm-treasury.gov.uk/consultations_and_legislation/sukuk_issuance/consult_sukuk_issuance.cfm
UKTI’s Financial Services Advisory Board, set up a sub group to specifically look at promoting the UK offering on Islamic Finance and produce an Islamic Finance Strategy. The commissioning of this report by UKTI forms part of and supports this strategy.
