By David Oakley, Capital Markets Correspondent
The French like nothing better than to outshine the English.
Although the ideal platform for this is usually the rugby field, the French see an opportunity to challenge their counterparts on the other side of the English Channel by developing Paris as a centre for Islamic finance in Europe.
France, which has a Muslim population of 3.5m – twice that of the UK – is looking into legislation to allow the issuance of sukuk, or Islamic bonds, and would like to see more Islamic financial products developed in Paris.
Paris has made progress in the past two years – but in recent months the challenges of overtaking London have become clearer, as Muslim investors have increasingly shown a reluctance to switch their investments to the other side of the Channel.
Farmida Bi, a partner at Norton Rose, one of the leading law firms in the Islamic finance sector, says: “The headscarf issue [in France, headscarves are banned from public places such as schools and workplaces] is emotive. That has discouraged some Muslim investors from Paris.”
The scale of the challenges in developing the infrastructure in terms of financial and legal expertise has also become more apparent, as London is a much bigger and more sophisticated financial centre, offering an ideal gateway to the rest of Europe.
London has five Islamic banks, while most of the conventional global banks in the City have Islamic sections that offer expertise on structuring financial derivatives, underwriting sukuk, and developing trade finance.
They also can offer the know-how for drawing up property deals and buying equity, which is extremely popular with Islamic investors.
London had a significant advantage, too, as it started introducing legislation much earlier than Paris. Since 2003, a number of finance acts have passed through parliament to help Islamic finance develop.
This addressed a variety of tax and regulatory barriers, such as making changes on stamp duty for the buying of property and the ironing out of tax problems in connection with the issuance of sukuk.
Jervis Rhodes, head of corporate banking at the Bank of Middle East and London, says: “You cannot compare any other European centre to London. It is where all the expertise is. It is ahead in terms of legislation and many Muslim investors want to buy property in London.”
Certainly, the UK market continues to see strong demand for property.
Deals in Britain include the purchase of the UK headquarters of Procter & Gamble from Prupim, the property investment arm of Prudential, for a syndicate of Gulf investors, the purchase of BT’s regional headquarters in Leeds from LaSalle Investment Management and the purchase of InterContinental Hotel Group’s global headquarters in Uxbridge for a group of Gulf investors.
In other areas of finance, such as sukuk, there have also been encouraging developments, with International Innovative Technologies, a technology company based in the north-east of England, issuing the first UK corporate sukuk in the summer.
Bankers and lawyers hope this might be the first of many other corporate sukuk deals in the UK.
There are also hopes that the UK government will revive plans to issue a sovereign Islamic bond, which would make Britain the first western country to do so.
Plans for this were announced with much fanfare before the financial crisis, but were put on hold because fears that such a bond might be difficult to price because of the uncertainty over the health of the global economy.
“We have not seen much progress of late on this,” says Ms Bi. “But at some point, we are hopeful the government will again look at plans to issue a sovereign sukuk. It makes sense and would give London even more profile than it has today.”
Elsewhere in Europe, Turkey is also seeing growth in Islamic finance.
Given that 99 per cent of its 70m-plus population is Muslim, the expansion of Islamic finance seems almost inevitable, particularly now that companies are allowed to issue debt in accordance with sharia-based rules. This prompted the issuance of the country’s first corporate sukuk in the summer from Kuveyt Turk Katilim Bankasi, one of the country’s leading banks.
For some investors, Germany, too, could prove a fertile market for the asset class because of the size of its Muslim population, which is more than 4m.
However, there is little evidence to suggest that London can be knocked off its perch as the capital of Islamic finance in Europe and the western world.
As Mr Rhodes says: “London is now the hub of Islamic finance in Europe and the main centre outside the Muslim world. “It is difficult to see any other centre challenging the City.”
Bankers in Paris will continue to push for legal and financial reforms to enable the growth of the sector there, but for now – and in this regard – the French must accept the superiority of the English.
Although the ideal platform for this is usually the rugby field, the French see an opportunity to challenge their counterparts on the other side of the English Channel by developing Paris as a centre for Islamic finance in Europe.
France, which has a Muslim population of 3.5m – twice that of the UK – is looking into legislation to allow the issuance of sukuk, or Islamic bonds, and would like to see more Islamic financial products developed in Paris.
Paris has made progress in the past two years – but in recent months the challenges of overtaking London have become clearer, as Muslim investors have increasingly shown a reluctance to switch their investments to the other side of the Channel.
Farmida Bi, a partner at Norton Rose, one of the leading law firms in the Islamic finance sector, says: “The headscarf issue [in France, headscarves are banned from public places such as schools and workplaces] is emotive. That has discouraged some Muslim investors from Paris.”
The scale of the challenges in developing the infrastructure in terms of financial and legal expertise has also become more apparent, as London is a much bigger and more sophisticated financial centre, offering an ideal gateway to the rest of Europe.
London has five Islamic banks, while most of the conventional global banks in the City have Islamic sections that offer expertise on structuring financial derivatives, underwriting sukuk, and developing trade finance.
They also can offer the know-how for drawing up property deals and buying equity, which is extremely popular with Islamic investors.
London had a significant advantage, too, as it started introducing legislation much earlier than Paris. Since 2003, a number of finance acts have passed through parliament to help Islamic finance develop.
This addressed a variety of tax and regulatory barriers, such as making changes on stamp duty for the buying of property and the ironing out of tax problems in connection with the issuance of sukuk.
Jervis Rhodes, head of corporate banking at the Bank of Middle East and London, says: “You cannot compare any other European centre to London. It is where all the expertise is. It is ahead in terms of legislation and many Muslim investors want to buy property in London.”
Certainly, the UK market continues to see strong demand for property.
Deals in Britain include the purchase of the UK headquarters of Procter & Gamble from Prupim, the property investment arm of Prudential, for a syndicate of Gulf investors, the purchase of BT’s regional headquarters in Leeds from LaSalle Investment Management and the purchase of InterContinental Hotel Group’s global headquarters in Uxbridge for a group of Gulf investors.
In other areas of finance, such as sukuk, there have also been encouraging developments, with International Innovative Technologies, a technology company based in the north-east of England, issuing the first UK corporate sukuk in the summer.
Bankers and lawyers hope this might be the first of many other corporate sukuk deals in the UK.
There are also hopes that the UK government will revive plans to issue a sovereign Islamic bond, which would make Britain the first western country to do so.
Plans for this were announced with much fanfare before the financial crisis, but were put on hold because fears that such a bond might be difficult to price because of the uncertainty over the health of the global economy.
“We have not seen much progress of late on this,” says Ms Bi. “But at some point, we are hopeful the government will again look at plans to issue a sovereign sukuk. It makes sense and would give London even more profile than it has today.”
Elsewhere in Europe, Turkey is also seeing growth in Islamic finance.
Given that 99 per cent of its 70m-plus population is Muslim, the expansion of Islamic finance seems almost inevitable, particularly now that companies are allowed to issue debt in accordance with sharia-based rules. This prompted the issuance of the country’s first corporate sukuk in the summer from Kuveyt Turk Katilim Bankasi, one of the country’s leading banks.
For some investors, Germany, too, could prove a fertile market for the asset class because of the size of its Muslim population, which is more than 4m.
However, there is little evidence to suggest that London can be knocked off its perch as the capital of Islamic finance in Europe and the western world.
As Mr Rhodes says: “London is now the hub of Islamic finance in Europe and the main centre outside the Muslim world. “It is difficult to see any other centre challenging the City.”
Bankers in Paris will continue to push for legal and financial reforms to enable the growth of the sector there, but for now – and in this regard – the French must accept the superiority of the English.
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