Shubber, K. (2008), "London cements leadership slot in Islamic finance", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 1 No. 3. https://doi.org/10.1108/imefm.2008.35201caa.001
Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited
London cements leadership slot in Islamic finance
Article Type: Editorial From: International Journal of Islamic and Middle Eastern Finance and Management, Volume 1, Issue 3
How is a leadership position attained? Perhaps, even more importantly, how can such a slot be maintained in the face of international competition?
Clearly, a sound well-thought-out strategy is a must. And, once an effective strategy is evolved, plans will have to be put together and then implemented intelligently. Equally clearly, all this involves keeping a watch over the environment and taking appropriate and timely initiatives.
Judging by the sequence of events and developments over the past few years and months, this is what has been happening to London, with regard to hosting Islamic financial institutions and issuing appropriate products. The recent launch of Gatehouse Bank comes to confirm London’s leadership in the fast-growing field of Islamic banking and finance. This is in addition to the decision taken in principle by the British government to issue Islamic bonds (Sukuk), whereupon the UK will be the first country in the West to embark on this step.
While there has been some delay in proceeding with this initiative, due to doubts over costs and pricing, it now looks virtually certain that this landmark event will take place next year (2009). Despite these worries, the British Government is adamant that political and financial benefits far outweigh concerns bout costs, which stem essentially from the need to structure the sukuks in a way different from a conventional government bond (gilt-edged), in order to eschew the appearance of interest payments.
Fifth licensed bank
Gatehouse is the fifth Islamic Bank to be licensed by the London-based Financial Services Authority (FSA), thereby confirming the position of the UK capital city as leader in Islamic finance within the Western hemisphere. The event also stresses the resilience of Sharia-compliant finance, as the start-up of the new entity came during the credit crisis which has swallowed billions of dollars off the balance sheets of conventional banks.
It is noteworthy that the first Islamic financial institution to be granted a licence in Britain was the Islamic Bank of Britain, launched in 2004 as a retail bank. The Birmingham-based institution currently has branches in London, Manchester and the Midlands, with a 42,000-strong customer base at the end of 2007. On that date, total customer deposits stood at £135 m.
In 2005, the FSA granted a licence to the European Islamic Investment Bank, while the Bank of London and Middle East was launched in mid-2007. In January this year, the European Finance House started its activities, while Gatehouse began last April, making the latter the fifth in the series of Islamic banks being licensed in London.
And, the story does not end here! Britain’s first Islamic insurance company was launched in May this year. “Principle Insurance” is the first Islamic-compliant insurer in Western Europe, set up to enable Muslims to insure assets, such as cars and homes, in line with Islamic axioms.
In consequence, Middle-eastern investors are increasingly looking toward London, in the quest to diversify holdings and maintain efficient portfolios. The past few years have witnessed some healthy pieces of legislation to better the environment for Islamic finance and investment, so much so that the playing field has been levelled between Islamic and conventional branches in the financial services industry.
As the British authorities realised the potential of this market segment, London was the first (and so far only) country in the European Union to licence Islamic banks. It is quite possible that there is a political dimension to all this, in that London has probably viewed all this as a bridge towards the two million Muslims living in the UK, as well as those farther beyond its shore.
Also, competition with New York seems to be having a major role, as the two prime Western cities are vying for position as leading world-class financial centres. While a more favourable time-zone may tip the balance for Britain’s sprawling capital, a more potent factor is perhaps American antipathy towards this market, as a by-product of the September 11 attacks of 2001.