London Becomes Islamic Finance Hub

  By Heide B. Malhotra
Epoch Times Washington D.C. Staff

WASHINGTON—The United Kingdom is the European leader in providing Islamic financial services to the Muslim population, according to a recent study, "Islamic Finance 2008," by International Financial Services (IFS), a London-based financial service company.

"London's position as the premier Western center and partner of choice for Islamic finance is a huge step in the right direction, but we mustn't become complacent," said Lord Digby Joes, the U.K. Minister for Trade and Investment, in a press release.

The U.K. provides Islamic financial services through 23 banks, the majority of which are in Europe. It is followed by Switzerland with five banks, France with four, and Germany with only three. In comparison to the U.K., the United States has 20 Islamic banks to serve its large Muslim community, including the Lariba American Finance House and global banking giant Citigroup Inc.

Islamic—or Sharia-compliant—banks cannot charge interest, and the bank itself cannot be involved in businesses that are considered tainted by Muslims, such as gambling, pornography, arms, alcohol, or pork production.

Around 270 financial institutions provide Islamic banking products worldwide, according to "The Islamic Finance Blog."

The Islamic Bank of Britain, European Islamic Investment Bank, The Bank of London, and The Middle East Plc, and Barclays Bank all provide Sharia-compliant products in the U.K. Additionally, there are nine fund managers and a number of law firms specializing in Islamic finance.

A vibrant secondary market exists for Sukuk—an Islamic form of bonds—which reached $2 billion a month in 2007.

U.K.'s Financial Products Hub

The U.K.'s education system, such as universities and business schools, is one of the only systems in Europe offering classes and training in Islamic financial products. Its Chartered Institute of Management Accountants (CIMA) is the only one worldwide that has a Certificate in Islamic Finance.

The U.K. Treasury and Britain's Financial Services Authority (FSA) actively provide legal and regulatory venues for the growth of Islamic financial products and monitor for compliance within U.K law. In 2003, U.K. tax authorities removed double taxation on Islamic mortgages and began offering tax relief for Islamic mortgage companies and consumers.

The Sukuk market also found a partner in British regulators. U.K authorities established "arrangements for issues of bonds so that returns and income payments can be treated as 'as if' interest," said the researchers.

Accounting firm Deloitte & Touch LLP recently announced that they hired Sharia Scholar Mufti Hassan Kaleem.

"London represents a key location for Islamic Finance, as the principal based governance and regulation is more adaptable to accommodate innovation such as Sharia compliant products," said Maghsoud Einollahi, global head of Islamic Finance at Deloitte, in a press release.

Lloyds TSB Bank Plc, a U.K. bank that takes it roots back to 1765, opened a window for global Sharia-compliant money transfers called, "The Islamic Nostro Account." Lloyds entered the Islamic financial market in 2005 and claims that an independent, globally accepted board of Islamic scholars has sanctioned all Islamic products it offers.

"The new Lloyds TSB account is designed to ensure that the U.K.'s two million Muslims and 100,000 Muslim firms can make and receive international payment without compromising their faith," said Lloyds in its press release.

Hurdles for Islamic Financial Communities

Gtnews, an online news portal, says that "the ethical concepts of Islamic finance are perhaps not well understood in the U.K. and European financial markets."

The Muslim world may be comfortable with fully Sharia-compliant financial products, but may have reservations about Sharia-based Islamic financial products.

A bank that is fully Sharia-compliant does not offer conventional finance products and operates only within Sharia-defined precepts. On the other hand, Sharia-based Islamic products are provided through "Islamic windows and Islamic branches," according to gtnews.com. Muslims may feel that conventional banks' Islamic products may be tainted, given their other non-Islamic products.

The Arabic media suggests that the Islamic financial sector is in dire need of a standardized global and regional regulatory framework. There are many interpretations of Sharia laws, and so far, no common ground has been found.

Furthermore, as Islamic financial products grow in demand, there are not enough Sharia scholars to interpret Sharia law and oversee compliance.

"The training of scholars essential for the Islamic banks' supervision may not be able to keep pace," with the demand and growth for Islamic financial products and services, reported Reuters.