Islamic financial practice has evolved from the financial and economic principles of Sharia'a Law revealed within the Holy Qu'ran. During the past four decades the global Islamic financial system has emerged, underpinned by its values of equity, fairness and justice, and was estimated to encompass total Sharia'a compliant assets of approximately USD 1.3 trillion at the end of 2012*, having tripled in size over a five year period.
Today there are more than 500 established Islamic banks and financial institutions worldwide, plus a growing number of conventional banks that have their own Sharia'a compliant subsidiaries or segregated business units known as "windows". Banks presently account for the bulk of global Islamic assets but, with assets under management in funds representing less than 5 per cent of the total and takaful (insurance) premiums just a third of that, there is significant potential for further expansion.
From its established hubs in the Middle East (which represents more than two thirds of Islamic assets) and SE Asia (where Malaysia is deemed to lead in terms of maturity), Islamic financial practice has moved beyond its historic territories, reaching across the Middle East from the GCC, into Africa, the Asian subcontinent, Europe and other international markets including the US, Canada and Australia.
In Europe the Islamic banking footprint is presently concentrated in the UK, where 6 fully Sharia'a compliant banks have already been authorised. In the UK there is no separate regulatory framework for Islamic financial services however, for more than a decade, the relevant authorities have been engaged in initiatives to review and remedy impediments to the further development of Sharia’a compliant financial structures.
Milestones reached as a result have included the passing of legal and tax reforms to ensure that Sharia’a compliant financing contracts and certain capital market instruments (Sukuk) can be offered, or issued, on an equal playing field with conventional alternatives. The first Sukuk with a face value in excess of US$1 billion was listed on the London Stock Exchange (“LSE”) where over US$34 billion has been raised through 49 listed issues and where 7 Sharia’a compliant exchange traded products are also quoted. Another ground breaking development this year has been the launch of Cobalt Underwriting, which is the first underwriting agency in the world to provide Sharia’a compliant commercial insurance and reinsurance cover to a global client base.
Following the creation of the UK Islamic Finance Secretariat (UKIFS) in 2011 to support the domestic promotion and development of Islamic finance, earlier this year the Islamic Finance Task Force (“IFTF”) was convened by the Government. IFTF is a ministerial-led Task Force established to promote the UK as an Islamic financial centre and to raise global awareness of its Islamic financial infrastructure. The UK is home to the Islamic financial sector strategy of a growing number of international banks and, with the largest legal services market in Europe, has over 25 law firms supplying related legal services. Similarly all of the UK’s largest firms of accountants and consultants offer advisory services to the industry and professional qualifications are offered by four UK institutes.
In October, London will be the first city outside of the Islamic world to host the World Islamic Economic Forum (“WIEF”). We look forward to the momentum that WIEF will bring to our rapidly expanding Islamic financial services industry and to having the opportunity to demonstrate to our visitors the advantages that the UK, and its firms, can offer as a global partner of choice. The Islamic financial marketplace in the UK evidences what can be achieved through a collaborative relationship between government, financial sector regulators and participants and compliments the similar, positive interaction within other industry hubs that has been instrumental in enabling the successful emergence of the system in each of its key markets.
*Source: KFH Research