London seeks to solidify its role as Europe’s Islamic finance hub

The British capital hosts the World Islamic Forum, the first time the Islamic world's Davos is held outside the Muslim world. Omar Karmi reports

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LONDON // UK efforts to secure a slice of the lucrative Islamic finance sector will step up a notch when the British capital hosts the World Islamic Economic Forum this month, marking the first time the gathering — dubbed by some the Islamic world’s Davos — is held outside the Muslim world.

Analysts expect the market in Sharia-compliant assets, now estimated at between US$1.7 trillion (Dh6.2 trillion) annually, to continue growing, making it an attractive proposition for Britain’s large financial services sector.

Successive British governments have sought to establish London as a hub for Islamic financial services, even though the financial crisis in 2008 and uncertainty accompanying Arab Spring upheavals dampened some of the enthusiasm for the market.

Nevertheless, Britain remains well positioned for an industry that has grown dramatically in the years after the global financial crisis, said Sahar Ata, an Islamic finance expert with the London School of Business and Finance.

London is already “the hub for Islamic finance in Europe”, Ms Ata said, with 22 financial institutions that offer Islamic finance products, including five that are fully Sharia-compliant, and 30 law firms that advertise expertise in the sector.

“London has a head start. The infrastructure in London is already in place. But European countries have joined lately, so there is competition.”

In March, the British government set up an Islamic finance task force under both the treasury and foreign office.

Baroness Sayeeda Warsi, the foreign office minister who leads the task force, said then that the sector looked set for ”significant growth” and Britain should be “doing more” to promote the UK’s Islamic banking industry in the Muslim world.

A higher profile for London could also attract more investment to the UK, she said, a key consideration for London, which in recent years has seen a number of marquee investments from Gulf and other Muslim countries.

A £150 million (Dh878m) Qatari investment in London’s Shard building, the tallest in Europe, was Sharia-compliant, as was a Kuwaiti buyout of luxury carmaker Aston Martin in 2007.

A Malaysian consortium, meanwhile, is leading the £8bn redevelopment of London’s Battersea Power Station, after acquiring the site for £400m last year.

Malaysia, a leader in Islamic finance, is the second largest investor in London real estate after the US.

Hosting the World Islamic Economic Forum — a three-day event that starts on October 29 — could therefore provide an important opportunity for London to tout its credentials to Islamic investors.

“We want to be the leading [Islamic] finance sector outside the Muslim world,” the deputy mayor of London, Edward Lister, said in Malaysia last month.

The 2012 forum, in Malaysia, attracted more than 2,100 participants from 86 countries, and led to the signing of contracts worth more than US$9n, according to the Financial Times.

“The conference is a good opportunity for London to take [it’s role in the market] further,” as well as an opportunity for Islamic financial institutions to promote themselves to a non-Muslim market, said Ms Ata.

Ms Ata estimated the global market for Islamic finance products to be currently worth $1.7 trillion. TheCityUK, a British finance sector pressure group, estimated the value at slightly less than $1.2 trillion in 2012, up 50 per cent from 2010, when the group valued the market at $812bn.

That represents strong growth in light of the 2008 global financial crisis, and the Islamic financial market’s ability to weather that meltdown is one of its biggest selling points, Ms Ata said.

Though the financial crisis and Arab Spring jitters caused a decline in interest on the retail level — HSBC closed its Islamic retail operations in 2012 — the corporate finance business has continued to grow.

Islamic finance conforms to the principles of the Quran and Sunnah, which forbid interest. Sharia-compliant bonds, or sukuk, are asset-based — sukuk holders are asset owners — and fixed returns cannot issue from currency speculation.

Islamic principles also forbid investment in debts and loans. Bank-to-bank investments in bad loans were a major contributor to the 2008 financial crisis.