UK Islamic banks to double in five years

David Sapsted

• Last Updated: August 16. 2008 8:06PM UAE / August 16. 2008 4:06PM GMT

LONDON // Islamic banking in London, unencumbered by the woes of subprime mortgages and the credit crunch, is undergoing an unparalleled boom.

With the Sharia-compliant market growing by up to 15 per cent a year and estimated to be worth a trillion dollars (Dh3.67tn) by 2010, the number of Islamic investment banks in the UK is predicted to double within five years, said Samer Merhi, the executive director of the Gatehouse Bank, an Islamic finance house based in the UK.

“It has the potential to grow because of the high demand and the interest to make the UK the international heart of Islamic finance business,” Mr Merhi said at an Islamic finance forum in Kuala Lumpur last week.

Gatehouse, a subsidiary of the Securities House of Kuwait, which started operating in London in April, is one of five Islamic investment banks based in the UK.

There is also one fully fledged retail bank, the Islamic Bank of Britain, which became the first independent Islamic bank in Britain to register with the Financial Services Authority (FSA) in 2004.

It was an institution established with considerable input from the Abu Dhabi Islamic Bank to give the two million-plus Muslims in the UK a bank of their own, although now more than 20 other conventional UK banks are offering customers Sharia-compliant products.

With active encouragement from the government – and, particularly, then-chancellor Gordon Brown – the UK became the first EU member state to authorise Islamic banks. Though the French are now doing their best to catch up, it has maintained its lead by adopting a level regulatory playing field for both traditional and Sharia-compliant banks.

“When you look at London, what you have is a global financial centre that makes it easier to trade with other markets,” said Mohammad Shafique, of the Institute of Islamic Banking and Insurance in London. “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 GCC and Far East.

“Worldwide competition is growing, but this is not a niche market. The size of the cake is growing all the time – there might be more competition but there is also growing demand.”

Noor Islamic Bank, which is 25 per cent owned by the government of Dubai with another quarter in the hands of Sheikh Ahmed bin Saeed Al Maktoum, is already eyeing a UK acquisition as part of its self-declared bid to become the world’s largest Sharia-compliant lender within five years.

HSBC Amanah was the first UK bank certified for regulated home financing after helping the FSA draw up the regulations under which the London market now operates.

At the moment, HSBC in the UK is involved in Islamic retail banking, but not in investment banking or commercial financing. This, though, looks certain to change next year with the finance house already drawing up plans for the commercial sector.

“The opportunities are growing,” said Nader Kamel, a senior manager with HSBC Amanah. “The UK government is really committed to making this market flourish in order to make London the hub for Sharia banking in Europe.”

Mr Kamel said that the increasing number of products from a rising number of providers has not only enabled Muslims not to feel penalised in their banking, but is also proving to be attractive to non-Muslims because of the value of the products and ethical assurances associated with Shariacompliant investments.

Sir Callum McCarthy, the chairman of the FSA, had made it clear that the UK would actively encourage future expansion. “Islamic finance is a fast-growing force in the world economy and the FSA’s open and principle-based approach to regulation offers the right environment for it to flourish in the UK,” he said.

“There is huge potential for an expansion of Islamic offerings in the UK’s financial markets, which will in turn boost London’s position as an international financial centre.

“We believe in a ‘no obstacles, no special favours’ approach when authorising new financial institutions and welcome the development of this market as it provides certain UK consumers with financial products that are in line with their beliefs.”

One of the attractions of London is that all institutions are authorised by the FSA and are subject to the same standards – an approach that contrasts with the likes of Bahrain, Malaysia and Dubai, which have separate authorisation and regulation for Islamic banks.

Last month, Britain got its first dedicated Islamic insurance provider, the Salaam Halal insurance company, which was established with financial backing from the UAE, Saudi Arabia, Bahrain, Kuwait and Malaysia.

Even the British government is thinking of getting in on the act with talk of an issue of its own sovereign sukuk – a Sharia-compliant bond – in a rolling programme worth about £2 billion (Dh7.34bn).



dsapstead@thenational.ae