History of Islamic Finance in the UK

Transcription

1. ISLAMIC FINANCE IN THE UK History of developments Islamic Finance first came to the UK in the 1980s , with the introduction of Murabaha transactions. The first UK Islamic bank, Al Baraka International, launched in 1982. This was followed by the growth of bespoke Sharia-compliant products in trade finance, leasing and project finance. In the early 2000s the UK Government started to take a serious interest in Islamic Finance, and developed a work programme to make the UK’s financial services regulations compatible with the growth of Islamic Finance. Changing the tax treatment, to ensure that Islamic and conventional finance transactions with an equivalent purpose resulted in equivalent tax bills, was also an important step to allow the market to grow. At the same time, there has been significant growth in the offer of retail Islamic Finance services, providing choice to more than 2.5 million Muslims resident in the UK. At the present, there are five fully Sharia-compliant banks in the UK, with twenty institutions offering Islamic Finance services. To service this growing industry, a widescale programme of professional education and training in Islamic Finance developed. At present, four professional institutes and nearly 70 universities and business schools offer qualifications in Islamic Finance. The Islamic Bond (Sukuk) market in the UK started in 2007, and has continued to grow. By 2015, 57 Sukuk had been listed on the London Stock Exchange, with a total value of $51bn. In 2014, the United Kingdom Government became the first Western government to issue sovereign Sukuk, over 11 times oversubscribed. With strong Islamic insurance, fund management and banking sectors, the UK has also developed expertise in the ISLAMIC FINANCIAL TERMINOLOGY Common Sharia-compliant financial contracts include: • Consumer loan (Murabaha): Asset purchased by the bank and sold on to the customer with an agreed mark-up; • Leasing agreement (Ijara): Asset purchased by the bank and leased to the customer over a specified period; • Joint Venture Agreement (Musharaka): Investment partnership in which profit sharing terms are agreed in advance and losses are attributable to the sum invested. • Equity financing (Mudaraba): Partnership financing contract under which one party provides the labour whilst the other provides the capital; • Advance payment (Salam): A contract in which advance payment is made for specific goods to be delivered later. 4 Islamic Finance in the UK •G  radual financing (Istisna): A kind of Manufacturing Finance where payments are made in stages to facilitate gradual progress in manufacturing, processing or construction. • Agency Agreement (Wakalah): A contract where a person authorizes another to do a certain well-defined legal action on his behalf. Other commonly practised financial products: •B  ond (Sukuk): Islamic type of bond representing the ownership by the Sukuk holders in the underlying asset; • Insurance (Takaful): Mutual insurance. Takaful is a risk sharing entity that allows for the transparent sharing of risk by pooling individual contributors for the benefit of all subscribers.
2. supporting professions , with business advisory and legal forms building up bespoke Islamic Finance practices. In 2015, the UK did a world-first: our export credit guarantee department provided guarantees for a $913m Sukuk to finance the purchase by Emirates Airlines of 4 Airbus A380 aircraft. How has the UK benefitted? We have a strong network of professionals who are skilled at creating innovative deals that are Sharia-compliant. The UK Government also plays a significant role in facilitating delivery of these deals. This has signalled to the world that if investors want to make Sharia-compliant investments, and benefit from the highest product standards, then the UK is the place to come. London is the largest Islamic Finance centre outside of the Muslim world. It isn’t just our finance professionals that have benefitted. Confidence in the UK’s Islamic Finance offer has attracted investment in prestige infrastructure and regeneration programmes, including iconic buildings such as the Olympic Park, the Shard and Battersea redevelopment. Recently, Gatehouse Bank, a Sharia-compliant bank based in Kuwait, committed to develop a programme of social housing offered for rent. The recent Airbus deal shows how a strong Islamic Finance offering can lead to significant export wins. What are we doing now? We continue to examine the UK’s Islamic Finance landscape, looking at ways to make it work even better. An example of this is work the UK’s Central Bank is undertaking to provide Sharia-compliant liquidity facilities, to ensure that Islamic Banks operating in the UK can work on a solid footing. How does the UK approach fit with others? A feature of Islamic Finance around the world is the variety of approaches taken in different countries. The UK Government is often asked which of the approaches it favours. The UK has built a framework for Islamic Finance that allows all schools of thought to thrive. Our approach is to be make sure that any Islamic Finance product is financially sound. We want those who are involved in deals to decide whether any particular product or service fits their values. Because of this, our professionals and regulators are able to work with all of the different approaches to Islamic Finance. ISLAMIC BANKS IN THE UK Fully Sharia-compliant Abu Dhabi Islamic Bank Al Rayan Bank Bank of London and The Middle East Gatehouse Bank QIB UK Conventional banks offering Islamic financial services ABC International Bank Ahli United Bank Bank of Ireland Barclays BNP Paribas Bristol & West Citi Group Deutsche Bank IBJ International London J Aron & Co Lloyd’s Banking Group Royal Bank of Scotland Standard Chartered UBS United National Bank Source: TheCityUK Islamic Finance in the UK 5