A World Centre For Islamic Finance

According to a recent report from International Financial Services London (IFSL) on Islamic business practices, London’s expertise lies with 23 banks, nine fund managers and a number of international law firms offering Islamic-compliant services.

London – the European capital

The UK is also leading Western Europe in establishing banks that are fully compliant with sharia (Islamic law) - three of the 23 UK banks have set up here since 2004. These are the Islamic Bank of Britain, the European Islamic Investment Bank, and the Bank Of London & The Middle East.

Sharia-compliant products prohibit the making of money from money - such as earning interest - in accordance with beliefs of the Muslim faith.

Duncan McKenzie, the 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 - ninth with 10 billion US dollars - in a global ranking of sharia-compliant assets by country.”

Regulatory changes

The UK Government wants to develop this market by reinforcing London as a global gateway for Islamic finance and ensuring that all UK 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 financial products in recent years. These include acting to prevent double taxation on Islamic mortgages for individuals and companies, thereby allowing both home-owners and companies to purchase property consistent with their faith.

The UK has taken some commendable steps to allow sukuk financing

Arul Kandasamy

Head of Islamic banking

Barclays Capital

Other changes involve ensuring that the regulatory treatment of Islamic finance is consistent with the Financial Services Authority’s statutory objectives and principles, and reforming the arrangements for issuing debt to make London a more attractive location for issuing and trading “sukuk”.

The UK government’s plan to sell its own sukuk would position it well in the flourishing sharia market in London. Much of the legal groundwork needed to turn the idea of UK companies selling sharia bonds into a reality has already been done by working committees and focus groups.

Arul Kandasamy, head of Islamic banking at Barclays Capital, the investment banking arm of Barclays bank, said: “The UK has taken some commendable steps to allow sukuk financing.” And, while the sukuk market in the capital has been slow to get started, Kandasamy concedes that the “intellectual and human capital” in London is being put to good use in the growing markets in the Middle East.

A wider appeal

Many high-street banks have sharia-compliant products, including HSBC and Royal Bank of Scotland. But bankers are realising that these products have a wider appeal than the two million-strong UK Muslim community.

Global Securities House (GSH), a sharia-compliant international property firm, is a Kuwaiti-based company that moved to London to establish a UK investment arm.

Our company is living proof that the UK government’s policy to attract more Islamic financing to the capital is working

Richard Thomas

Managing Director

GSH

Richard Thomas, GSH’s managing director, said: “Our company is living proof that the UK government’s policy to attract more Islamic financing to the capital is working.

“London is increasingly popular with Muslim investors because of the favourable regulatory regime and its liquid capital markets for Muslim finance. The UK is well known for its innovative financial products and also for the deep pool of professional talent from both the Muslim faith and other religions.”

Communication and understanding are other factors pushing the market forward. Thomas added: “With increased understanding for the need of sharia-compliant financial services, several British and Islamic banks are in the process of gaining fully sharia-compliant recognition, along with a number of investment houses.”

Anne Foster, a solicitor at Lovells, one of the major players in the sector at the moment that advises clients on the structuring, regulation and tax implications of Islamic finance, said the next five years will see several UK operations offering takaful, a mutual insurance built around the concept of donation.

Market innovation

Ms Foster said: “London markets are known for their innovation and there is a potentially huge market in the UK for takaful.”

“I can see takaful products being developed in three possible ways in the UK,”said Ms Foster. “Existing British companies could come up with opportunities to offer them; new operations may start up - such as British Islamic Insurance Holdings; or companies from overseas will be looking to open an operation in the UK.”

A new insurance business set up to comply with Islamic beliefs has appointed outsourcing Capita. From April, Capita will sell car and home insurance products for British Islamic Insurance Holdings. The initial launch will be followed by life insurance, investment, savings and ethical financial products later in the year.