London is winning the race to be the hub of Islamic finance outside the Muslim world – but enthusiasm for the product has waned amid turbulence in the eurozone and the aftershocks of the global financial crisis.
The decision by the UK government to put on hold plans for the first Islamic sovereign bond from a western country is also seen as a big setback.
Such an instrument would have provided investors and banks with a highly rated, potentially liquid security that might have sparked more bond issuance.
Even mainstream names such as Tesco, the UK retailer, might have been encouraged to launch these type of bonds had the UK government gone ahead with an initiative that was launched with much fanfare in 2006.
Farmida Bi, partner at Norton Rose, the law firm, says: “It would certainly help the UK market if the government decided to go ahead with a benchmark sukuk. It could galvanise the market and would lead to more interest in Islamic finance in London and [continental] Europe.”
The UK put the plans on hold because of the financial crisis, as it was feared a new instrument, which would have been the first Islamic bond to be issued by a western government, might struggle to attract demand in difficult market conditions that have been made worse by the troubles in the eurozone.
However, London still remains the main arena outside the Muslim world for Islamic finance.
Elsewhere in Europe, progress has stalled. France was possibly the best placed to compete with London. It has a population of 7m Muslims compared with the UK’s 2m and changed its tax and legal codes to help Islamic investors. However, problems over banning the face veil and burka, which incorporates the veil, in public places have put off investors.
The UK is the only country in the European Union to have Islamic banks. It is also developing its takaful market for Islamic insurance. The advantage of the UK for Muslim investors is the country’s positive attitude to new forms of business, which many banks and institutions in the City see as a way further to diversify an already mature financial market.
The UK also has a strong foothold in developing products such as commodity murabaha – Islam’s version of interbank short-term lending and syndicated loans. More money in this product flows through London than any other centre in the world.
On top of this, London has established the first secondary market in sukuk outside the Islamic world, albeit small. In addition, Islamic investors are seeking to buy property and assets in the UK in a way that fits in with their religion, which bans earning interest, speculating or risk-taking.
Not only does London have the expertise from its established Islamic banks, but the leading conventional banks in the City all have so-called Islamic windows. These provide investors with a range of products, including commodity murabaha, and expertise on syndicating sukuk.
London is also advanced in Islamic retail services, with institutions offering a range of Islamic banking products, such as mortgages and car loans. The Islamic Bank of Britain which, when it was granted a licence in August 2004, became the first Islamic bank in the UK, has continued to attract customers for mortgages, for example.
Still, there is a feeling among many bankers that for the market to move to the next stage, the government must launch a sovereign sukuk.
The UK’s 2006 sukuk plan captured the imagination of many Muslim investors in the Middle East and met with a great deal of interest from investors at the time – and would likely do so again, say bankers.
One banker at a big City institution says: “I think it has been a mistake by this government not to revive the idea of an Islamic government bond. They worry about price and demand, but the UK gilts market is a haven.
“We are confident there would be strong demand for this product, as it is Islamic and would be denominated in sterling, which is what investors want, as there are so many problems in the eurozone.”
Other bankers agree, saying London has the edge in Islamic finance outside the Muslim world because of its history of financial innovation.
A sovereign sukukwould be the next inevitable step, in their view, to cement London’s position for good as the hub of Islamic finance in the west.
Source : http://www.ft.com/intl/cms/s/0/e51013ac-2029-11e1-9878-00144feabdc0.html#axzz1gfGn7VRF - Dec 16, 2011
No comments:
Post a Comment