Update On The Development Of Islamic Finance In The UK And The Regulation Of Alternative Finance Investment Bonds (Sukuk)

Mondaq News:On 10 December 2008, HM Treasury, together with the Financial Services Authority, published a paper setting out the UK government's perspective on Islamic finance in the UK,1 as well as a joint consultation paper (the "Consultation")2 on the legislative framework for the regulation of alternative finance investment bonds ("AFIB" or "sukuk"). Together the documentation serves to demonstrate the strength of political will to "enhance the UK's competitiveness in financial services by establishing the UK as a gateway for international Islamic finance," while also suggesting some of the ways in which this might be achieved...Continue Reading

UK top for Islamic finance in the West

Ukinvest.gov.uk:The UK's Islamic finance sector is maintaining its position as a world leader, new research shows.

According to International Financial Services London (IFSL), the City has strengthened its position as a global hub for the industry over the past year and granted licences for new organisations to begin operating.

In its Islamic Finance report, the organisation notes that the sector has key bases in countries such as Saudi Arabia, the United Arab Emirates and Bahrain, with the UK ranked in eighth place - making it the leading Western nation...Continue Reading

Britain's Islamic finance sector bigger than Pakistan's, report claims

Telegraph:The study says that the UK has by far the largest number of banks for Muslims – whose products prohibit interest payments and investment in alcohol or gambling firms – of any western country.

There are now five "fully Sharia-compliant" banks in the UK while another 17 leading institutions including Barclays, RBS and Lloyds Banking Group have set up special branches or subsidiary firms for Muslim clients.

The $18billion (£12bn) in assets of Britain's Islamic banks dwarf those of some states where Islam is the main religion, including Pakistan, Bangladesh, Turkey and Egypt...Continue Reading

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.

UK looks to become a global provider of Islamic finance

Mortgage Strategy : A government organisation is looking to educate financial institutions in a bid to help the UK become a global provider of Islamic finance.
UK Trade & Investment, which incorporates the work of the Foreign & Commonwealth Office, has leant its support to a breakfast briefing hosted by the Association of Corporate Treasurers.
The aim of the briefing is to give financial companies more understanding of Islamic finance by explaining whom it applies to, how it can complement existing financial services strategy, and what the benefits are.

Sharia Islamic law forbids the practice of making money from money, such as charging or paying interest.

Sharia-compliant mortgages involve the bank buying the property with the buyer then buying it back and renting it at a slightly inflated price. Buyers also have to be sure that the money the bank is using to buy the property has come from permissible sources.

The sector is currently thought to be worth $500bn (£294bn) and it is predicted the sector will grow by a further 15% per annum over the next few years.

Andrew Cahn, chief executive of UK Trade & Investment, says: “In these tough times it's more important than ever that we make the most of growing sectors like Islamic finance.

"That's why it is important the UK's financial industry provides an open door and positions London as a leading western financial centre for Islamic finance.”

Richard Raeburn, chief executive of ACT, says: “A reduction in funding options with markets offering continually more expensive rates means that seeking alternative funding away from the traditional routes is an increasing trend.

"Islamic funding may not have been at the forefront of borrowers’ minds but the credit crunch has made an understanding of this market essential.”

Non-Muslims turn to Islamic Bank as a safe option

The Birmingham Post:Growing numbers of non-Muslims are turning to Islamic banking as customers spooked by turmoil in the Western banking system increasingly see the sector as a safe haven.

The Birmingham-headquartered Islamic Bank of Britain said it had seen significant growth in non-Muslim customers since the onset of turbulence on financial markets as Islamic banks, bound by strict religious principles, are largely seen as insulated from the credit crisis.

Islam’s prohibition on the charging or paying of interest - riba - as well as rules on the kinds of investments they can make are among the reasons Islamic banks are coming through the crisis unscathed.

Islamic Bank of Britain head of marketing Steven Amos said: “Our core business will always be Muslims but the numbers of non-Muslims are really picking up.

“We’ve had massive interest and it’s down to the number of reasons why we’re insulated from the credit crunch.

“There were two reasons for the credit crunch. The first is liquidity - banks lending to each other on the money markets - but Islamic banks do not borrow or lend on money markets because interest is not allowed.

“The second reason Islamic banks are insulated is to do with assets - everything has to involve an underlying asset or service and if you are going to trade in an asset you have to own it first.”

The explosion in complex derivative products over the last few years has left Western banks reeling from exposure to toxic assets often far-removed from their everyday activities.

In contrast the more risk-averse Islamic finance system did not embrace this kind of deal.

“Conventional banks didn’t know what they were buying in these derivatives but we have no exposure to subprime as we just don’t deal in it full stop.

“That is one of the fundamental reasons we are insulated.”

Stipulations that you must own the asset you are trading in also mean practices such as short-selling are not a feature of Islamic banking.

Mr Amos also said the principle of partnership underlying Islamic finance means banks would never enter into the subprime-style agreements behind the current crisis.

“For the benefit of the customers and the bank themselves, we enter into a partnership agreement. “Islamic banks don’t just enter into any agreement, we make sure the agreement is right for both partners.”

The growth in ethical investment in the UK over the last few years has also spelled an increase in interest from non-Muslims attracted by the strong ethical tenets of Islamic banking.

“We guarantee you we won’t invest customers’ funds in alcohol, tobacco, pornography or in any form of gambling.

“These factors are often in keeping with the ethical products that we’ve seen growing in the UK over recent years,” said Mr Amos.

The Islamic Bank of Britain is the UK’s only stand-alone fully Shariah-compliant retail bank.

In July it launched its Home Purchase Plan, billed as “the mortgage alternative,” which enables customers to purchase their homes in an ethical and Shariah-compliant manner.

The plan is based on the Islamic financing principles of Ijara, which means leasing, and Diminishing Musharaka - partnership.

For example, the bank contributes 80 per cent of the purchase price and the customer puts in 20 per cent.

Over a period of up to 30 years, the customer will make monthly instalments buying back the bank’s share of the home and with each instalment paid the bank’s share decreases.

Many of the big conventional UK banks have entered into the Islamic finance market in recent years, with big names such as Lloyds TSB offering a Shariah-compliant home finance product.

Islamic finance poised for massive growth as London becomes key hub outside the Middle East

Property Wire:London is emerging as the key centre for Islamic finance outside of the Middle East as financial institutions clamber to become part of a growing market. Currently it is estimated that Islamic banking manages funds of $200 billion. It is predicted to increase by up to 15% a year and be worth a trillion dollars by 2010.

Although Sharia-compliant finance has existed in some form for hundreds of years the world's first Islamic bank was founded in 1975 and it is only in the last five years that this area of finance has surged.

Regarded for many years as outside the mainstream, Islamic finance has been boosted by a number of factors. Firstly, at a very basic level, there are more Muslims in the world seeking mortgages, investments, bonds and specialist finance products.

What used to be a sector for high net worth individuals is now open to the fast growing Muslim middle classes.

Secondly, economic growth in the Middle East, fuelled by high oil prices, has created an increased demand which local financial markets have been unable to keep up with. As a result Middle Eastern investors are looking for suitable alternatives.

Global banking giants such as HSBC, Barclays Capital, Royal Bank of Scotland, BNP Parabas and Deutsche Bank, are putting their weight behind Islamic finance as they realise many products have a wider appeal than the immediate Muslim community.

But it is London that has taken a lead for various reasons. It has been a major financial centre for centuries and is regarded as open to innovation and ideas. The UK was the first member of the EU to authorise Islamic banks.

English law is highly regarded throughout the world. It is the preferred jurisdiction for many Islamic transactions.

Also the UK government is actively encouraging the growth of Islamic finance. It has introduced a number of changes to support the growth of Islamic finance. Most notably it acted quickly to introduce changes so that Islamic mortgages would not be subject to double taxation.

The latest figures from the International Financial Services London show there are 23 banks, nine fund managers and a number of law firms in the city now offering Islamic compliant services.

'When you look at London what you have is a global financial centre that makes it easier to trade with other markets. Taxation issues have been dealt with, the regulatory authorities are sending out encouraging messages and there is good co-operation with other banks, particularly in the Middle and Far East,' said Mohammad Shafique of the Institute of Islamic Banking and Insurance in London.

The UK government has also created an Islamic Finance Expert Group with representatives from the industry, the City and Muslim organisations to advise on future opportunities.

Further evidence of London's growing role in Islamic finance is shown by the UK being the only western country to feature, at number 10, in the IFSL global ranking of Sharia-compliant assets by country.

The UK's first stand along Islamic Bank, Islamic Bank of Britain, opened in 2004 and there are now five totally Sharia-compliant banks registered by the Financial Services Authority, the UK's banking regulator.

Indeed the FSA is taking a leading role and actively encouraging expansion. 'Islamic finance is a fast growing force in the world economy. The FSA has an open and principle-based approach to regulation that offers the right environment for it to flourish in the UK. There is huge potential for expansion,' said FSA chairman Sir Callum McCarthy.

In April this year the London Stock Exchange listed its maiden Sukuk, a Sharia-compliant bond. There are now at least eight and the government is expected to sell its own Sukuks soon. 'The UK has taken some commendable steps to allow Sukuk financing,' said Arul Kansasamy, head of Islamic Banking at Barclays Capital.

The FSA describes London as 'a centre of choice for listing Sukuk by establishing the world's first secondary market for Sukuk.' Sukuk trade volumes in London now exceed $2 billion.

Islamic finance is based on the principles of Sharia law and operates without the use of interest. So the products offered are structured in a different way to those provided by conventional banks and financial institutions.

There are also laws regarding the type of business financial institutions can deal with. Investment in business involved with arms, pork, tobacco, drugs, alcohol and pornography are not permitted.

Although they cannot charge interest, they can profit from customers buying a property using different schemes whereby the customer is charged rent, for example. They are structured so that they retain a clearly differentiated status between shareholders' capital and clients' deposits to make sure profits are shared.

A key issue, according to James McDonald of international legal firm Lovells, is the interpretation of Sharia law. Each bank has a Sharia Supervisory Committee or Board who advise on Sharia law.

But according to McDonald, and this is backed up by the FSA, there is a shortage of scholars. Also the interpretation of Sharia law varies with some scholars more strict than others. 'We need Sharia scholars that are flexible and open to the needs of investors,' he said.

Lovells, a major player in the sector that advises on the structuring, regulation and tax implications of Islamic finance, has seen a huge surge in demand for its services and has an office in Dubai. McDonald, a partner in the funds team based in London, believes Sharia-compliant investment funds are a major growth area and large funds cannot ignore this. 'If your investment fund is not Sharia-compliant then you have no chance of tapping in to the huge amount of wealth in the Middle East,' he said.

A sign that Islamic finance is edging towards becoming more mainstream is the range of products now on offer. IBB launched the UK's first completely 100% Sharia compliant home purchase plan earlier this year. It is not just aimed at Muslim customers.

'As lenders withdraw many of their products, customers uncertain of what their options are as a result of the credit crunch will find this offers a new way of financing a home purchase. A growing number of non Muslims are turning to more ethical products,' said Sultan Choudhury, commercial director of IBB.

Indeed IBB has always marketed its services and products beyond the Muslim community.

Although banks like HSBC are involved in Islamic retail banking, they have not yet moved into investment banking or commercial financing. But it is only a matter of time. 'The opportunities are growing. The UK government is really committed to making this market flourish in order to make London a hub for Sharia banking in Europe,' said Nade Kamel, of HSBC.

Islamic insurance, or Takaful, is another growth area. London now has its first Islamic insurance provider. The Salaam Halal company is backed by finance from the United Arab Emirates, Saudi Arabia, Bahrain, Kuwait and Malaysia.

Not only is London becoming the key centre outside the Middle East, it is also acting as a global gateway for Middle East banks into Europe. By having offices in London they can, under EU agreements, offer products in other EU countries without the need for separate authorisation, or even a presence, in each country.

This also offers opportunities for investment companies. Global Securities House, a Sharia-compliant international property firm based in Kuwait, has opened an office in London to establish a UK investment arm.

'We were attracted by the UK government's policy to attract more Islamic financing to London. The city is increasingly popular with Muslim investors because of the favourable regulatory regime. The UK is well known for its innovative financial products and also for the deep pool of professional talent,' said managing director Richard Thomas.

Gatehouse Bank, a subsidiary of the Securities House of Kuwait, was approved by the FSA in April this year. Samer Merhi, executive director, believes the potential for growth is massive. 'The UK has the potential to become the international heart of the Islamic finance business because of the high demand,' he said.

Other European nations are envious and indeed anxious to catch up. France, in particular, is trying to attract more Islamic finance. Recently Rudolf Bohmlet, executive board member at Deutsche Bundesbank, praised London.

Next year sees the world's first conference fully focused on exploring the financial relationship between Europe and the Middle East. Islamic Investment World 2009 next May in Geneva is taking place as a result of demand.

'Investors globally are seeking a safe haven from sub-prime debt, excessive volatility, out of control inflation and central bank meddling. Private equity, structured products, hedge funds and other alternative opportunities are rapidly emerging and catching the eye of the biggest investors in the Middle East,' said a spokesman for the event.

Islamic Finance Attracting Ethical Investors

Money UK:provider of Islamic finance in the UK has indicated that non-Muslims are becoming increasingly attracted to their alternative approach to banking.

According to alburaq, around ten percent of total customers interested in their products are not Muslim. Instead, the firm claimed today, they are attracted to Islamic finance for its "ethical" aspects.

The alternative financial system, developed in the mid-20th century from precepts laid down by Shariah law, came about due to the difficulties some people of faith were having with using mainstream investment and savings products. This is because giving or receiving interest - known as Riba in Arabic - is strictly forbidden in Islam.

Moreover, Islamic financiers claim that the system's investments also reflect the religion's ethical concerns, by not putting money in to products, services or activities which are considered cruel or unjust.

A spokesman for alburaq commented: "We do believe that there will be some interest from non-Muslims, maybe as high as ten per cent, because as well as being Islamic we are also an ethical option that will appeal to anyone who has concerns about the way their money is being invested in conventional savings accounts or savings bonds.

"Our investment decisions are based on strict Islamic ethical criteria – which are, in some ways, much stricter than principles applied by non-Islamic ethical finance."

UK's Birmingham seeks chunk of Islamic finance market

Reuters -- Once an industrial powerhouse, Britain's second largest city Birmingham is eagerly rebranding itself as a key European centre for retail Islamic finance.

Britain sees itself as the European leader in providing sharia-compliant financial services, aiming to serve both domestic Muslim markets as well as tapping into the vast wealth of Gulf investors keen to access Western assets.

London dominates Britain's financial sector but, with a growing Muslim population of about 250,000 and two flights a day to Dubai, Birmingham seems well-placed for the new sector.

"It's like in America's Silicon Valley -- you will get clusters of expertise in certain areas," said Stephen Amos, spokesman for the Islamic Bank of Britain (IBB).

"The two areas of expertise are always going to be London ... and hopefully Birmingham."

The IBB -- which holds 130 million pounds ($256 million) and was the first stand-alone Islamic retail bank in the European Union -- has been based in Edgbaston, a suburb of Birmingham, since its inception in 2004.

At a conference on Islamic banking this week in London -- where the British government again repeated its intention to issue its own sukuk Islamic sovereign debt in future -- promoters from the region were pushing the city's case. "Birmingham is generally acknowledged to have developed expertise in this emerging market, and we have a very well-rooted, successful Muslim community in the city," said Mike Loftus, from Locate in Birmingham, a government body promoting investment in the city.

The IBB's Amos agrees.

"It's an excellent location for an Islamic bank," he said.

"Outside of London, Birmingham has the largest professional services sector, and it is a growing financial services centre."


'A DIFFERENT THING'

Others were more realistic about Birmingham's reach.

"Birmingham has potential, especially when you are talking about retail Islamic finance and especially when you talk about the UK," a spokeswoman for Bank of London and the Middle East said.

Professor Rodney Wilson, head of the Islamic finance programme at Durham University, said Birmingham's firms were not competing with Gulf investment subsidiaries based in London.

"They're doing a different thing," he said. "What they're aiming at long term is to have a substantial retail presence and penetration in the UK Muslim community. There's a place for that," he said.

Britain's Islamic mortgage market alone is worth 500 million pounds ($1 billion). Under an Islamic mortgage, rather than making a loan with interest the bank owns the property and the buyer gradually pays for it through rent payments.

By comparison, the total value of global assets held under Islamic finance principles -- which forbid interest and investment in industries such as alcohol and pornography -- is estimated at $1 trillion and is growing at 10-15 percent a year, the Asian Development Bank said.

Two thirds of the worldwide Islamic sukuk bond market -- an estimated $100 billion -- is based in Malaysia, but Singapore and Hong Kong are growing and rising oil prices are boosting demand and market involvement from Gulf oil stake investors.

Britain dominates the European market, with London's secondary sukuk market worth some $6.5 billion.

London… Ethical-Islamic Investment Hub

IOL — - More than 200 high-profile delegates from across the world of finance and investment came together Thursday, July 10, in London to explore the relationship between ethical investment and Islamic finance."As London is one of the global capitals of economic investment growth, the rise of ethical investments, especially from the Muslim world, provides an opportunity for London to benefit from Shari`ah-compliant investments," Ismail Patel, executive director of IslamExpo, Europe's biggest Islamic culture event, said.

Speaking at the opening of the Ethical Investment in Britain Conference (EIBC), IslamExpo's financial sub conference, Patel said Shari`ah-complaint finance industry rose by 30 percent in 2007 to stand at $ 500 billion.

"Accordingly, the potential for further growth remains substantial."

Anas Altikriti, director of IslamExpo, agrees.

"London is the right and safe place for investments, tourism and students from all over the world," he said.

"Regardless to gaps between the West and he Muslim communities that are based on some political decisions, London used to be a model for multi-culturalism, harmonized co-existence."

Tikriti said that Islamic finance was the theme of EIBC in 2006.

"But this time we are tackling an issue that goes beyond the Islamic finance and the Shari`ah financial rules which is the ethical investment."

Common

Attendees agreed that the Islamic finance and ethical investment have a lot of common grounds.

"There is no real difference between ethical investment and Islamic finance," said Penny Shepherd, chief executive of the UK Social Investment Forum (UKSIF).

"The right terminology should be ethical-Islamic investment."

In recent years, London has established itself as a hub of Islamic finance with increasing number of London banks offering Islamic banking services to borrowers and savers.

There are four licensed wholesale Islamic banks - the only ones in the European Union.London is also home to 21 conventional banks offering Islamic products, the newest of which is Gatehouse, which has received its license late April.

"The Islamic finance and the ethical investment are both a new phenomenon in UK nowadays," Mohamed Malik, who lives in France, said.

"They have proved a very positive impact on the UK finance and that is why the government usually supports them."

Over the past five years, the British government has been introducing legislation to nurture Islamic finance.

The government has amended finance acts to ensure that Shari`ah-compliant transactions are not exposed to multiple stamp duty tax breaks granted to certain kinds of interest.

The government is also planning to issue sovereign Islamic bonds.

"Not only Muslims in London are getting interested in the Islamic finance," said Thomas, who works as lawyer in London.

"For me, I believe that with saving my money in an Islamic bank, the stability and the increasing profits are guaranteed.

UK 'committed to Islamic banking

UK Trade & Investment (UKTI) has highlighted Britain's commitment to Shariah-compliant banking at an event in London.Speaking at the World Islamic Banking Conference, UKTI chief executive officer Andrew Cahn noted the recent growth in Islamic finance and pointed to its resilience through the ongoing economic slowdown and turbulent market conditions.

The sector, he noted, is currently worth £250 billion worldwide, but has annual growth of 15 per cent predicted for the near future.

Mr Cahn explained: "The huge financial flows currently coming out of the Gulf and some Asian countries are driving growth in the Islamic finance industry.

"Investors want and expect their investments to be Shariah compliant and this demand is only going to become more prevalent in the near future.

In the first half of 2008, the UK's fifth Islamic bank, Gatehouse Bank, was opened its door to business, while a Shariah-compliant insurance company, Principle Insurance, began trading.

The Financial Services Authority has previously said London is becoming a global hub for Islamic finance and pledged to support the growing sector.

Islamic Finance Lunch Briefing in London

Alarab-London -The UK is the largest centre of Islamic Finance in the Western World and has been described as Europe's capital of Islamic Finance. There is a huge demand by foreign investors including Gulf investors, sovereign wealth funds, Muslim and non-Muslim retail investors for Sharia-based UK banking products.

However, issues such as a lack of trust in the nature of these products, a lack of standardisation, a dearth of Islamic banking practitioners (human capital) and issues regarding transparency have stifled the growth of Islamic Finance in the UK.

In conjunction with Dow Jones, the Middle East Association and The Wall Street Journal Europe, Financial News' Islamic Finance Lunch Briefing conference will provide a platform for key players to discuss the pertinent topics, learn about new developments and network in a relaxed atmosphere.

Top-level speakers include:

Michael Thomas, Director General, Middle East Association
Brian Kettell, Course Director,Islamic Banking & Finance Training Courses. (Former Adviser to the Bahrain Monetary Agency, now the Central Bank of Bahrain)

Waheed Qaiser, Managing Director, Qatar Consulting Co. and Amanah Banking Consultants (Former Head, Islamic Investment Unit, United Bank of Kuwait).
For further information:
www.efinancialnewsevents.com/islamicfinance08

British government says it favors stepping into Islamic finance

LONDON: Britain's treasury announced Monday that it favored wading into the world of Islamic finance, saying it wanted to eventually raise some 2 billion pounds (US$4 million; €2.6 million) through Shariah-compliant bonds.

But it warned that some obstacles would still have to be overcome before the government made a final decision on the matter.

The British government has been looking for ways to tap into the market for Islamic finance, whose rapid expansion has been driven by soaring energy revenues in the Persian Gulf and Muslims' preference for the growing range investment products allowed under the Shariah, an Islamic code of law drawn from the Quran and other sources.
London — already home to the largest Islamic finance market in the Western world — is particularly interested in consolidating its head-start in the area.

Economic Secretary Kitty Ussher said the British Treasury was leaning toward the idea of issuing sukuk, or Islamic bonds, through the government's conventional bill program.

Normal bonds pay interest and are therefore forbidden by Shariah, which condemns usury. But sukuk work like investment certificates, giving buyers a proportional share of an underlying physical asset, such as leased land, as well as the income that it generates. The process is normally blessed by a board of religious scholars affiliated with a bank.

Ussher said that the sukuk would be fully integrated into the Treasury's bill program, which issues interest-bearing bills at one, three and six month maturities, and could raise 2 billion pounds (US$4 million; €2.6 million) "over time."

But she added that "outstanding issues" to the issuance of sukuk were still to be resolved. She did not elaborate, saying a government strategy paper on Islamic finance would be published within the next year.

Dar eyes UK Islamic banking unit

Kuwaiti Islamic firm Investment Dar said on Monday its proposed British bank unit might start with capital of up to 100 million British pounds ($197 million).

Investment Dar, which owns 50% of British luxury maker Aston Martin, has said it planned to set up a bank in London to offer advisory services compliant with Muslim law for Gulf investors doing business in Europe.

"Initially, the capital could be between 50 and 100 million pounds," Chairman Adnan Al-Musallam told newswire Reuters on the sidelines of an economic conference.

He declined to say when Dar Capital would be launched in Britain, saying only a study to evaluate the project would be finished by year-end.

Investment Dar had previously said it wanted to set up the firm this year and turn it later into a fully-fledged Islamic investment bank.

Britain has taken steps to attract the world's booming Islamic finance industry - estimated to be worth $1 trillion in assets by 2010 - including new legislation to make Islamic transactions easier and also plans to issue a sovereign Islamic bond.

Kuwaiti firm opens Islamic investment bank in London

LONDON-Kuwait’s Securities House said it had launched an Islamic investment bank in Britain, allowing Gulf-based firms to access capital markets and Western borrowers to diversify portfolios.

The unit, Gatehouse Bank Plc, will focus on Islamic capital markets, institutional wealth management, Islamic treasury business and advisory services, it said on Tuesday. “London looks well placed to become the Western centre of choice for Islamic finance,” Gatehouse Bank Chief Executive David Testa said in a statement.

Muslims are increasingly seeking banking and investment products that comply with their faith, and experts say assets managed by Islamic lenders are set to hit $1 trillion by 2010. “With predicted annual growth of 15-20 percent globally, the demand for sharia-compliant products amongst investors, Muslim and non-Muslim alike, is growing at an unprecedented rate,” Testa said in the statement.

Britain is home to 1.8 million Muslims. Kuwaiti company Investment Dar, which owns 50 percent of carmaker Aston Martin, is also setting up an Islamic investment bank in Britain, an executive told Reuters in February. “We see a huge potential ... everybody knows the UK will be the Islamic finance hub of Europe,” Adham Charanoglu, business development manager at Investment Dar, said at the time.

Other Islamic investment banks, such as Bank of London and the Middle East and European Finance House, operate in London. Islamic banking complies with Islamic religious law. It does not lend on interest and offers investments that avoid activities such as dealing in pork, alcohol or gambling. From Islamic banking’s origins in the Gulf and Malaysia, there are now over 300 Islamic financial institutions spread among 75 countries, from very few 30 years ago, Kuwait’s Global Investment House said in a January report.

UK’s fifth Islamic bank to tap demand growth

London takes a further step in its push to become the leading western financial centre for the fast-growing industry of Islamic banking, with the launch Tuesday of the fifth Islamic bank to be awarded a UK licence, reports the FT on Tuesday.

The launch of Gatehouse Bank highlights the resilience of Sharia-compliant finance amid a credit crisis that has wiped billions off the balance sheets of conventional banks.

Britain is the only EU country to have licensed Islamic banks - reflecting the government’s realisation of the potential of the Sharia finance market for the City’s further development as a financial centre. It has also seen the development of Islamic finance as a way of building bridges with the 2m Muslims who live in the UK, notes the FT.

Current Islamic banking assets are currently estimated at $500bn - about 20 per cent above the estimate during last summer’s credit squeeze, according to Moody’s.

The five Islamic banks in Britain comprise one retail bank, the Islamic Bank of Britain, launched in 2004, the European Islamic Investment Bank, given a licence in 2005, the Bank of London and Middle East, launched in July 2007, the European Finance House, set up in January this year, and Gatehouse.

UK paves way for sukuk issue

The latest budget by the UK government, announced on 12 March, includes changes to the tax regime that lay the groundwork for the issue of a sovereign-backed sukuk in the next 12 months, according to a government adviser.
Junald Bhatti, director of Islamic finance consultancy Ballencrieff House, which is advising the government on a potential sukuk issue, says: "The budget lays the foundations for the UK government to issue a sovereign sukuk within the next year."

Alistair Darling, the Chancellor of the Exchequer (finance minister), announced measures to ensure Islamic financial products are not taxed differently to conventional financial products, such as bonds.

The move is part of the UKs efforts to promote itself as a global centre for Islamic finance and to become the first major non-Arab government to issue a sukuk.

Islam Gives London Finance Markets Edge

By JANE WARDELL – 11 hours ago

LONDON (AP) — After taking a battering from the global credit crisis, London has a potential ace up its sleeve as it seeks to restore its reputation as a global financial center — its premier position in the Islamic banking industry.

The British government will decide next week if it will issue a sovereign Islamic bond, or sukuk, a new avenue into a market that's estimated to eventually reach $4 trillion by Standard & Poor's.

"It will further underline London as an international Islamic financial center," said Humphrey Percy, the chief executive of the Bank of London and the Middle East, one of four Islamic banks in the British capital.

"It will be the first hard currency, highly rated, government sukuk to be issued. These are all milestones," Percy said at BLME's headquarters in the capital's financial district, where the bank opened for business just six months ago.

Islamic financing is increasingly seen as a key support to London's reputation as a financial center, which took a beating recently due to the failure of Northern Rock PLC and criticism of proposals to raise taxes on wealthy expatriates living here.

"Islamic finance is a tool that the government realizes it has in its hand, which it can utilize to re-establish some clear blue water between themselves and Wall Street," said David Testa, chief executive officer of Gatehouse Capital PLC. Gatehouse is expecting to receive its license to become the fifth standalone Islamic bank in London within weeks.

As the fallout from the U.S. credit crisis continues to take its toll on banking, interest is rising on banking which conforms to Shariah, or Islamic law. It forbids interest and requires deals to be based on tangible assets, which have provided some insulation from credit turbulence.

Shariah compliant products attempt to replicate the concept of interest through cost-plus transactions, leasing arrangements or by linking payments to returns on underlying assets. The process is normally blessed by a board of religious scholars affiliated with a bank.

While more than two-thirds of Islamic finance business is currently originated in the Middle East, the region is increasingly looking to international capital markets to finance the grander development projects. A $1.5 billion sukuk issue from Dubai Ports World and arranged by London-based Barclays Capital last year allocated 60 percent of its bonds to Western buyers.

A British government sukuk — which could be announced in next week's annual budget — would increase liquidity in the market and expand the secondary commercial market in the takaful, or Islamic insurance, sector.

"Sukuk and other bonds would absolutely explode," David Lewis, the Lord Mayor for the City of London, the capital's financial district, told leading Islamic bankers at a meeting this week. "If we in London could promote such a market, there would be huge international interest."

Unlike conventional bonds, a sukuk gives investors a share in an underlying physical asset, such as leased land, as well as the income that it generates. Takaful, where resources must be pooled, benefits because a sukuk offers a tradable fixed income component that was previously lacking.

The global sukuk market grew by 75 percent to reach $85 billion in the first half of 2007, the most recent figures available. The $24.5 billion raised in the first half alone nearly surpassed 2006 new issuance of $26.8 billion, according to the Islamic Finance Information Service.

The potential of the commercial sukuk market was demonstrated in December by the launch of a $300 million convertible bond for Tamweel, the second largest mortgage lender in the United Arab Emirates. Tamweel said its bond issue, managed by Barclays Capital, was oversubscribed within hours.

Rodney Wilson, chairman of the London-based Institute of Islamic Banking and Insurance, noted that some other deals had been put on hold — UAE-based Dana Gas postponed its $1 billion sukuk until September due to credit market weakness, while First Gulf Bank of the UAE and Bahrain's Ithmar Bank deferred their issues.

"On the other hand, there is no Islamic financial institution which is in trouble," said Wilson.

Wilson added that the British government is likely to go ahead with the sukuk even after a furor earlier this year over comments from Rowan William, the archbishop of Canterbury and the head of Britain's Anglican Church, that a limited application of Shariah in Britain was inevitable.

"The sukuk would look very good in the interest of the Islamic finance altogether and U.K. Muslim community in particular," said Wilson.

Britain has worked to position London to take advantage of the rapid growth in wholesale Islamic banking. It is the only Western country among the top 15 for Shariah-compliant assets, ranking ninth, according to industry group International Financial Services London.

Both retail and wholesale services have grown rapidly since the Islamic Bank of Britain became the first domestic bank to cater exclusively to the country's 2 million Muslims just four years ago. There are now also some 23 conventional banks, including Lloyds and HSBC, offering Islamic products.

In contrast, France, with a Muslim population of more than 5 million, has just four conventional banks offering Islamic products.

The United States is the only other country that comes close to Britain, with around 20 Islamic banks, but those are so far predominantly focused on domestic retail operations instead of high finance.

London is also far ahead in training for the industry. The Islamic Finance Qualification offered by its Securities and Investment Institute is recognized around the world and the Chartered Institute of Management Accountants' Certificate in Islamic finance is the first offered by a professional chartered accountancy body.

The burgeoning market is not without its problems, however. Shariah scholars disagree about what constitutes compliance with Islamic law.

One of the world's leading scholars, Sheik Mohammed Taqi Usmani, recently rattled the market by saying 85 percent of sukuk are not Shariah compliant because they were too much like conventional interest-bearing bonds.

Wilson said that a consensus would likely evolve with time.

"I don't really see any huge problems ahead," he added. "I expect it will expand into other areas and more conventional institutions will join which is what we are seeing now."

Bank raises capital base to $496m

The Bank of London and The Middle East (BLME) has completed its scheduled private placement of £75 million ($149.1m).

This takes the London-based wholesale Sharia-compliant bank to a fully paid-up capital base of £250m ($496m).

The additional capital was provided by existing and new investors from a range of international jurisdictions.

The fund raising, which was oversubscribed, will provide BLME with a greater capacity to meet clients' financing requirements, enabling the bank to underwrite, syndicate and distribute a higher volume of business and further develop its strong balance sheet as the Islamic financial market continues to grow in the UK.

"At a challenging time for global financial markets, demand for Islamic finance in the UK remains robust to the extent that it has exceeded our initial growth projections over the past year," said BLME chief executive officer Humphrey Percy.

Since receiving its banking licence in July last year, BLME has established a dynamic deal pipeline, completing a variety of deals resulting in total assets of £297m at the end of last year.

Islamic Loan Funds London Real Estate

CAIRO — A £1bn Shari`ah- compliant loan will turn a landmark military property at the heart of London into a luxurious residential compound, a groundbreaking project for Islamic finance dealings with real estate in Britain.
"This is the most important redevelopment scheme in London in the last 50 years," Christian Candy, co-owner and founder of the property developer firm (CPC), told the Guardian on Monday, March 3.

Candy's firm will use a £1.3bn loan from the Qatari Investment Fund to transform the historic Chelsea barracks in central London into a residential compound.

Under the scheme, the 12.8 acre of concrete army buildings in the ritzy Chelsea neighborhood will turn into luxury flats, a hotel and health spas, with the help of Qatari Diar, the giant real estate company and the property arm of the fund.

The 3.5-year-loan will comply with Islamic finance rules as it is structured in an Ijara structure, or lease agreement, whereby rent is paid on the borrowings, rather than interest payments.

Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Islam forbids Muslims from receiving or paying interest on loans.

Islamic bankers and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Groundbreaking

The project is seen as breaking new ground for Islamic finance in Britain.

Developers say the deal would be the largest Shari`ah-compliant financing on a property in the UK.

"The financial structure developed here has allowed us to deliver a truly innovative financing solution for the global real estate sector," said Patrick Chenel, chief financial officer for Qatari Diar.

"We have broken new ground with our advisers by creating and setting up Islamic financing of a scale not seen before in a major real estate acquisition in [the] UK."

Mark Payne, partner at the international law firm Clifford Chance which structured the deal, agrees.

"This will open people's eyes to the possibilities for Islamic financing to help business in the UK," he told the Financial Times.

He believes the deal will show that Islamic financing is "possible on a wide range of assets.

"We will certainly see more of these types of deals."

Islamic finance is one of the fastest growing sectors in the global financial industry.

Beginning almost three decades ago, it has made substantial growth and attracted the attention of investors and bankers across the world.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

Britain, home to nearly two million Muslims, is seeking to become a hub for Islamic finance.

It is already home to the world's first qualification center — the Islamic Finance Qualification (IFQ) — which covers all aspects of the industry.