James Watkins: Labour would profit by embracing Islamic finance

TribuneUK:WHEN it comes to the City of London, the left has campaigned against the greed of the banks. For many in the Labour Party, the fact that banks had to be bailed out for the sake of keeping the economy afloat more than justifies their complaints.

However, there is one sector of the financial services industry that is doing well out of the current banking crisis: Islamic finance.

Many on the left do not even know Islamic finance exists. In fact, it is what they have been calling for. In short, Islamic finance is against interest and is focused on profit sharing. It refuses to invest in unethical products such as arms and cigarettes. And Islamic finance is not a peripheral activity.

The first $1 billion Islamic finance bond has been floated on the London stock exchange. HSBC and Lloyds TSB

have Islamic finance arms. Europe’s first regulated Islamic bank – the Islamic

Bank of Britain plc – has its headquarters in the leafy Birmingham suburb of Edgbaston. And James Bond’s favourite, Aston Martin, is still in business thanks to an Islamic finance fund.

London is now rivalling Dubai as the world’s leading centre for Islamic finance supported by key financial services operations in Birmingham.

This has implications for the left. We don’t need a vision of utopia to change the financial system. An alternative already exits. There is much we can learn from Islamic finance that can get us back on track. For instance, Islamic finance does not countenance short selling.

While Western forms of banking and Islamic finance will remain different for years to come, the latter has safeguards which could be incorporated in the new global regulatory framework now being developed by governments, including our own.

Britain’s Labour Government has led the world in supporting Islamic finance. Tax laws have been changed to make it easier to get into Islamic finance. When he was at the Treasury, Ed Balls played a key role in encouraging the Government to issue Islamic finance bonds, also known as sukuks.

There is another benefit Islamic finance can bring to all of us. For too long, Islam has been viewed negatively by too many people through the prism of religious fundamentalism. The media stereotype is wrong and, properly understood, Islamic finance has the potential to show Islam in a more positive light. It can also help to create jobs for people in all communities.

The growing importance of Islamic finance has already been demonstrated by Gordon Brown’s visit to Gulf states to seek their co-operation. Also, Malaysia’s activity in Islamic finance is becoming more significant.

We in Britain still have a lot to learn, but if we can get to grips with the lessons, we could see a more stable global financial system in the future, along with new jobs in this country.

Perhaps the utopian vision the left wants to see can be made a reality, after all.

James Watkins is the head of an economic development body and a member of the Labour Housing Group’s executive.