UK Sustains its Islamic Finance Initiative With Ministerial and London Lord Mayor Visits to GCC

The traction in the UK’s Islamic finance initiative continues unabated with two important high-level visits to the Gulf Cooperation Council (GCC) Region in February 2014.

First it was British Foreign Office Minister Baroness Warsi of Dewsbury, who is also the Co-Chair of the UK Government Task Force on Islamic Finance, who visited Saudi Arabia towards the end of the month, where she had talks with Dr Ahmad Mohamed Ali, President of the Islamic Development Bank (IDB).

Baroness Warsi told the IDB President during a meeting at the IDB Headquarters that significant progress has been achieved by the UK Government in making London not only the centre of Islamic finance in the Western world, but one of the great capitals of Islamic finance in the world – a point that was first highlighted UK Prime Minister David Cameron at the World Islamic Economic Forum held in London in late 2013.

“I am pleased to inform you that the UK is close to issuing its first sovereign Sukuk and work on the practicalities is currently being carried out by leading financial institutions appointed by the UK Government to arrange this issue possibly by mid-2014”, said Baroness Warsi.

She revealed that Dr Ali had accepted an invitation from the UK Treasury to serve as a member of the Global Islamic Finance and Investment Group (GIFIG), which was established by the UK Government last October and his headed by Sajid Javid, Financial Secretary to the Treasury and the Minister in charge of overseeing the issuance of the proposed debut UK£200 million sovereign Sukuk.

This Group brings together Central Bank Governors and CEOs of major Islamic banks from across the world to identify and address the critical factors that will drive the global Islamic finance market over the next five years. “The Global Islamic Finance and Investment Group will be perfectly placed to pick up on developing trends and will have the expertise to help Islamic finance grow globally, as well as developing London as one of the world’s leading Islamic finance centres,” explained Sajid Javid at the launch of GIFIG.

Dr Ali and the Minister reiterated their commitment to the growing IDB-UK partnership in the area of development assistance and the economic empowerment of women through the work of the new Arab Women Enterprise Fund. “We have a strong relationship with the UK Department for International Development, and we are very satisfied with this exemplary partnership,” stressed Dr Ali.

The two sides also discussed potential partnership opportunities in the development of Awqaf (endowment trusts), an area with tremendous growth potential. The UK Government, according to Frances Guy, until former Head of the Engagement with the Islamic Countries Unit at the Foreign Office and currently UN Representative for Women in Iraq, is looking at introducing measures to institutionalise Muslim charitable organizations and schemes such as Zakat, Waqfs and Sadaqah.

A few days later Dr Ali also met the Lord Mayor of the City of London, Alderman Fiona Woolf, at the IDB Headquarters in Jeddah, during which they agreed to join forces to support the growing role of Islamic finance in international finance and business. The Lord Mayor was leading a financial services and business delegation from the City of London on a visit to key GCC markets including the UAE, Saudi Arabia and Bahrain.

According to an IDB statement, the Islamic financial services industry is estimated to be worth around US$1.8 trillion globally, with growth rates of up to 15 per cent each year. The UK is becoming an increasingly important global player in Islamic finance, and London is home to a growing number of banks, law firms and other service providers with expertise in Islamic finance. “The UK’s legal system, regulatory framework and track record of innovation make the UK a partner of choice and an important financial market for IDB’s own Sukuk issues, which are listed in London”, said Dr Ali.

The Lord Mayor stressed that the UK was determined to play its part in the development of the Islamic finance market, which is why the UK Prime Minister David Cameron announced that the UK will be the first country outside the Islamic world to issue sovereign Sukuk. The two sides also agreed to organise a Roundtable meeting in London this year to discuss the development of the Sukuk market (and the growing role of Sukuk in project finance) under the new Basel III rules, which set out new regulations on bank capital adequacy, stress testing and market liquidity risk.

In a recent comment in City AM financial daily, The Lord Mayor reiterated that the City plays a crucial role in underpinning the wider UK economy through job creation, investment, trade and exports.

The UK and the GCC countries have long-established historical ties and partnerships. “We also have many common areas of interest, especially Islamic finance, education, and innovative ways of raising new capital for infrastructure development. When it comes to Islamic finance, we are already moving ahead: nearly 30 higher education and professional institutions offer courses and qualifications in Islamic finance, which will be crucial in expanding the role of the sector in the UK and internationally. Further, Islamic finance is one of the fastest growing areas in the global financial services market, playing an essential role in helping individuals and institutions engage with the financial system in a way consistent with ethical Shariah principles. Activity in the sector has risen by around 150 per cent since 2007,” she explained.

It is also increasingly an element in major infrastructure projects in the UK, including the Shard and the Olympic Village – showing the scope these instruments have to transform infrastructure finance in the UK.

Indeed, during her visit to Dubai, the Lord Mayor, a former top City lawyer with extensive experience of working in the Gulf, emphasised that in London “there is immense scope for growth and innovation in infrastructure finance. Islamic banks will be in a position to finance infrastructure projects in the UK. We have an enormous need for investment in infrastructure and a very big national infrastructure plan. So there’s a lot of talk about using Islamic financing for that infrastructure.”

Of the 250 foreign banks in London, 25 offer Islamic finance, and the UK is the leading non-Muslim country and Europe’s premier centre for Islamic finance, with US$19 billion (UK£11.4 billion) of estimated assets.

“The City has always been at the forefront of new market developments and Islamic finance can play a major role in this story in the future. As the Chancellor George Osborne has highlighted, we need to export our way to recovery and the City can help to achieve this,” she reminded.

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