Islamic Finance News Portal – Bringing you the latest updates in global Shariah finance

Points of Essence:

• Newest player Salam Halaal is a pioneer Islamic motor insurance company in Britain.  Riding on the takaful concept, the customers may now enjoy protection to their vehicles and at the same time discounts on their next premium payments. All devoid of unethical elements as under the conventional insurance. Islamonlinenet has the report.

CAIRO – A London-based Islamic insurance firm has hit UK roads with a Shari’ah-compliant car insurance product that immediately attracted Muslim and non-Muslims for its ethical nature.

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Points of Essence:

• London based BLME has futher intensified its Islamic financial services business by setting up a fully Shariah compliant private banking business.  The new unit will serve  high net-worth individuals, entrepreneurs and their corporations in the UK, Europe and Middle East. Trade Arabia News Service has the report.

London: Tue, 27 Jan 2009

Bank of London and the Middle East (BLME), the UK Sharia’a compliant wholesale bank, has confirmed that it will be extending its wealth management division with the launch of a fully Sharia’a compliant private banking business.

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Points of Essence:

• Islamic banks in the UK continues to record growth while their conventional counterparts are in shambles in the aftermath of the credit crisis. Financial Times has the report.

By David Oakley, Capital Markets Correspondent

The banking community in the City of London has been hit hard by the economic crisis. But one area of the UK’s financial sector has emerged relatively unscathed from the credit crunch – the new Islamic banks.

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Points of Essence:

• The availability of key components of robust frameworks, leading advisory firms, strength and depth in capital markets and intellectual capital, makes London a natural base for Islamic finance. Zawya has the report.

Islamic Finance Council UK Executive Board Member Omar Shaikh

23 November 2008
The UK Pavilion at the 15th World Islamic Banking Conference (WIBC) in Bahrain demonstrates that despite its origins overseas, Islamic finance has found a natural home in London and the UK.

This is the second time the event has supported a UK Pavilion, hosted by UK Trade and Investment (UKTI), and reflects growth plus the diversity and complimentary skills UK companies contribute to Islamic finance.

Islamic Finance Council UK Executive Board Member Omar Shaikh said:

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Points of Essence:

• As London is emerging an international Islamic financial center, it’s vital to have someone at the core heart of the City’s administration who will appreciate the significance of Islamic finance. The city’s newly appointed mayor, Ian Luder will perhaps take this pointer forward. Times Online reported.

London welcomes new mayor Ian Luder to office

Ian Luder, whose father taught at a school in Hackney, has selected finanical education as the theme of his year as Lord Mayor of the City of London

By Martin Waller

One of Ian Luder’s childhood memories is of being taken regularly into the City to watch the Lord Mayor’s Show. This is the occasion when the latest to occupy a post that dates back to 1189 tours his constituency in his gilded coach. Today, Mr Luder will take his place in the coach, the 681st to serve as Lord Mayor. One has to ask if that little boy ever contemplated this.

“All little boys dream. My parents brought me to the show. My mother made me learn the names of the lord mayors from a very early age.” Not all the way back to 1189? No, but “I had a penchant for remembering things. I liked history, facts and statistics. I think the little boy who watches the show and doesn’t dream that one day he might be in that golden coach is a very strange boy.”

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Points of Essence:

• UK is poised to become an international provider for Islamic finance training under an education scheme to be provided by the UK Trade & Investment.

Gov’t organisation seeks to educate on Islamic finance

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

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Points of Essence:

• Natwest Business Banking is the latest institution in the  UK to engage in Shariah financing. It will roll out commercial property mortgage products under the Shariah principle of Murabahah.

NatWest Business Banking is entering the Islamic financial services market with the launch a shariah-compliant commercial property mortgage product.

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Points of Essence:

• UK based Gatehouse Bank recently announced the appointment of Mufti Muhammad Nurullah Shikder as its head of the Bank’s Shariah advisory and Shariah compliance. Shikder will oversee the day to day transactions of the Bank to ensure compliance with the Shariah as well as provide training in the related areas. He was previously with Dubai Islamic Bank and currently sits on on the Shariah Board of other financial institutions.

By: Staff Writer

Mufti Muhammad Nurullah Shikder previously spent three and half years with Dubai Islamic Bank in the Shari'ah Coordination Department and worked closely with Dr. Hussain Hamid Hassan, Chairman of the DIB Shari'ah Board.

Gatehouse Bank, a Shari’ah-compliant wholesale investment bank based in the UK, has appointed Mufti Muhammad Nurullah Shikder as head of Shari’ah advisory and Shari’ah compliance.

Gatehouse Bank said its Shari’ah Advisory and Shari’ah Compliance Department will be providing Shari’ah services in the following core areas:

Shari’ah Advisory:

• Assisting with the structuring of Shari’ah compliant products and offerings and issuing the relevant Fatwa;

• Reviewing transaction documentation in accordance with the principles of Shari’ah;

• Providing general Shari’ah consultancy/advice on an on-going basis.

Shari’ah Audit & Compliance:

• Providing Shari’ah audit services;

• Reviewing executed transaction documents to ensure continuous Shari’ah compliance;

• Preparation of Shari’ah auditor’s reports.

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Points of Essence:

• Though Islamic financial institutions are largely spared from the current credit crunch, they are also exposed to the crisis as they operate in the money markets where the tightening of liquidity is in full force. Sukuk market has begun to face the brunt of the financial crisis. These will hamper the development of Islamic finance in Europe.

KUALA LUMPUR: The rise of Europe’s nascent Islamic banking sector will be slowed as paralysed credit markets dampen demand for Sharia bonds and weak property prices hurt the industry, European Islamic Investment Bank said yesterday. A slowing global economy would also weigh on the sector, the London-based lender said, reinforcing a growing view that Islamic finance – despite its strict lending rules – may prove to be more vulnerable to the global downturn than earlier thought.

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Points of Essence:

• Gatehouse Bank has appointed Michael Clarke as their director of Capital Markets. He was formerly with Abu Dhabi Islamic Bank.
• Michael was instrumental in winning numerous mandates for syndicate financings and was also behind a series of strategic product initiatives. An Islamic Finance News Award earlier this year for Best Kazakhstan Deal was a testimony of his expertise.

By Catherine Murray

The recently FSA approved Shariah-compliant wholesale investment bank Gatehouse have just announced the appointment of Michael Clarke as their director of Capital Markets. David Testa, CEO, Gatehouse Bank, comments that “Michael fits our model of hiring those rare people who combine first rate investment banking skills with a proven track record in Shariah-compliant finance. His long experience in international roles, and specifically in syndicated Islamic financings, will prove a great asset and further strengthens a highly credible team.”

Clark is equally keen to have joined the team, saying “The Gatehouse Bank Capital Markets team is at the forefront of the UK Islamic finance industry and is ideally positioned to play a key role in the growth of the industry. I am truly excited about working with the team.”

Michael joins Gatehouse from Abu Dhabi Islamic Bank where he spent the last seven and a half years in a number of roles, most recently as Assistant Vice President of Financial Institutions.

During his time there, Michael was instrumental in winning numerous mandates for syndicate financings and was also behind a series of strategic product initiatives. Furthermore, Michael was awarded an Islamic Finance News Award earlier this year for Best Kazakhstan Deal.

With a banking career spanning more than twenty years, Michael was previously at Jordan International Bank and NatWest Bank in London, Hong Kong and New York.

Michael has a BSc in Banking & International Finance from Cass Business School and was formerly on the United Arab Emirates Steering Committee for PRMIA.

Points of Essence:

• The global credit crisis had investors turned to Islamic finance.
• Islamic finance is an old-fashioned banking which is asset-backed and asset-based. It is not the infinitely leveraged model which is disaster-prone.

Stable and conservative Islamic finance is attracting investors scared off by the global credit crisis, the chief executive of new UK Islamic bank Gatehouse said.

Islamic finance, which bans the payment of interest and restricts the use of some derivative instruments, has been growing rapidly in the past few years.

Islamic assets total around $1 trillion, the Asian Development Bank estimates, with annual growth of 10 to 15 percent a year.

Islamic bonds, or sukuk, are structured as profit-sharing or rental agreements which are underpinned by physical assets.

The lack of exposure to some of the riskier markets of which investors have fallen foul in the past year makes Islamic finance attractive, and not just to those investors requiring Islamic sharia-compliant transactions, Gatehouse CEO David Testa told Reuters in an interview.

“It’s actually quite old-fashioned banking. It’s asset-backed and asset-based, it’s not the infinitely leveraged model. It’s a good story in these stricken times.”

Gatehouse, a subsidiary of the Securities House of Kuwait, started operating in April and says it is the fifth Islamic bank to open in the UK, which market participants say has taken the lead in Europe in welcoming Islamic banking.

Note: View related report here.

Points of Essence:

• Birmingham is poised to become a key European centre for retail Islamic finance.
• It is acknowledged to have developed expertise in this emerging market and a very well-rooted, successful Muslim community.
• It aims to make a substantial retail presence and penetration in the UK Muslim community.

By Alastair Sharp

LONDON, July 11 (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. (Editing by Peter Apps and Gerrard Raven)

Source: Reuters.

Points of Essence:

• UK Trade & Investment (UKTI) pledged commitment to Islamic banking upon seeing its growth potential and resilience from the sub-prime debacle.

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.

Islamic finance and the UK

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.

Source: UK Invest.

Points of Essence:

• The UK government’s planned launch of a multi-billion dollar Sukuk programme may take a backseat due to the lack of commitment from the State Treasury.
• analysts believe a government issue could be the fillip the UK needs to cement its place as an Islamic finance centre in Europe.
• IFSB said that “high-grade” sovereign issuances by the likes of the UK would create wider international acceptance of Islamic bonds as they would provide institutions that offer Islamic financial services with good quality assets critical for their investment and liquidity management operations.
• However, the delay by the UK government is seen as a cautionary measure to allow Shariah compliant financial instruments to operate in the country without any hitch as adjustments will have to be made to the stamp duties and taxes requirements. Further, they need to look carefully into the impact of having these Shariah financial rules co-existing with their current financial and monetary system.

Governments, including the UK, Japan and Hong Kong… will have to work on a number of structuring, regulation and taxation issues before a Sukuk issuance can proceed. Moreover, for the time being, the status of the credit market conditions delay immediate issuance plans

by Richard Agnew on Thursday, 03 July 2008

In an exclusive report from the 2008 Sukuk Summit in London, Richard Agnew profiles the UK’s capital’s bid to become the Islamic finance capital of Europe.

The City of London has had a rough time recently, with markets being hit by the credit crunch and growing pessimism over the economy. But for the city’s Islamic financiers, the outlook looks rosier.

At last month’s Sukuk Summit in London, which focused on the nascent Islamic bond industry, headhunting firms were out in force and were offering top dollar to those with the right skills.

The centre of gravity in capital markets is shifting eastward.

“A few people raised their eyebrows when I said I was studying Islamic finance,” said one delegate. “But I definitely don’t have any regrets.”

With confidence high, it’s not a surprise that the sector is keen to see movement on the UK government’s planned launch of a multi-billion dollar Sukuk programme – an idea it has been considering since early last year, but is yet to move decisively on.

Sukuk – bonds that are structured to circumvent Sharia restrictions on the charging or payment of interest – have seen rapid uptake in recent years as more and more businesses and governments have used them to raise financing.

Much of this activity has taken place in the Gulf and South East Asia so far, and analysts believe a government issue could be the fillip the UK needs to cement its place as an Islamic finance centre in Europe.

Mindful of the benefits that would bring to financiers, frustration at the government’s reluctance to make a concrete commitment was evident at the Summit.

In his speech, Darko Hajdukovic, international product manager at the London Stock Exchange (LSE), “strongly encouraged” the UK Treasury to press ahead with the issuance. He urged officials “not to lose track of time” while making their deliberations.

And speaking on the sidelines, one senior executive from a Middle East bank went further, accusing the government of “grandstanding” when it announced its intention to look into the idea in early 2007.

Michael Ainley, head of the Financial Services Authority’s International Firm Department, which regulates the Islamic banking market in the UK, was forced to defend the perceived hold-up, saying it was necessary to work through all the legal ramifications before making a final decision.

“There has been a lengthy process of consultation, and I know there is some feeling that things should be moving faster,” he said.

“However, it took us a couple of years of good natured and intense negotiations to get there when we were licensing our first Islamic bank. We do not want to get this wrong. Personally, I am very happy it is taking this length of time.”

For the UK government and wider Sukuk industry, much is at stake. The market for Islamic bonds has not been immune to global economic difficulties in recent months, having reportedly experienced a slowdown in new issues this year.

But ratings agency Moody’s predicts that it will expand by about 35% a year to be worth US$200bn by 2010, helped by new sales in countries like the UK.

Although the UK has already attracted several Sukuk issuances (the Central Bank of Bahrain launched its sovereign Sukuk in London in March, taking the total number of such bonds on the LSE to 18), analysts say a large show of support by the government would help it attract a bigger slice of this new business.

Observers also put forward further reasons for quick action. Governments, they point out, often support the development of new capital markets, such as Sukuk, by being the first to participate in them. By doing so, their issues provide secure assets that the private sector can turn to when structuring their own investments.

A sovereign issue could also potentially galvanise secondary trading in Islamic bonds and help create a wider range of financial services for the UK’s estimated 1.4 million Muslim adults.

Theoretically, Sukuk have even been mooted as a fund-raising tool for infrastructure projects like the London Olympics in 2012 (although the Treasury denies that this has been considered).

Professor Rifaat Abdel Karim, secretary general of the Islamic Financial Services Board (IFSB), which sets worldwide Islamic banking standards, says “high-grade” sovereign issuances by the likes of the UK would create wider international acceptance of Islamic bonds: “These issues would provide institutions that offer Islamic financial services with good quality assets, which are critical for their investment and liquidity management operations.

“Such issuances will also assist in providing sufficient market breadth and depth for secondary trading.

This will contribute to increasing the efficiency of Islamic financial markets. Also, they will provide benchmarks for the pricing of other Islamic financial instruments and the measurement of the performance of Islamic banks.”

As interest in Sukuk increases, more countries are lining up to compete to host new corporate Islamic bond issues. The UK is not the only non-Muslim government to be doing so. A significant proportion of international Sukuk issuance to date has been in US dollars, but 14 different countries have performed them in 10 different currencies so far.

The likes of Thailand, Japan and Singapore have raised the prospect of sovereign issuances, while experts are also hoping for the development of a Euro-based Sukuk market, helped by greater activity in the UK.

Edmond Lau, director of monetary management at the Hong Kong Monetary Authority (HKMA), says the country is part of a growing group seeking to introduce Islamic services into their mainstream financial systems.

He hopes to have the necessary regulatory framework ready “within months… The Islamic financial services industry, however substantial it already is, has not been growing fast enough to match growth in Islamic wealth. It therefore calls for new entrants into the market.

“Our objective is to make Hong Kong a platform for wholesale Islamic financial activities. We are trying to nurture a level playing field so that Islamic financial transactions can take place in Hong Kong.”

By preparing the ground for Sukuk issues, countries like the UK and Hong Kong hope to tap into Middle East wealth and regional investors’ ongoing need to diversify their investments.

As evidence of growing ties between the Gulf and Far East, Lau cites an Economic Intelligence Unit (EIU) survey of Middle East financial service professionals, in which over a fifth said they expected Asia-Pacific to account for the largest portion of equity investment from their clients within three years.

The HKMA aims to use Sukuk to provide Gulf investors with better access to China’s growth market, particularly the numerous ‘red chip’ companies from the mainland that are listed in Hong Kong. Lau points to the success of a recent Malaysia-based issue that was linked to some of these firms.

Nasser Al Shaali, CEO of the Dubai Islamic Financial Centre Authority (DIFCA), which has partnered with Malaysia and Hong Kong on Sukuk rollouts, argues that “the centre of gravity in capital markets is shifting eastward”. He says: “There has been tremendous wealth accumulation in the last 10 years and multinational companies are locating in the Middle East and Asia in reverse globalisation.

“More and more countries are putting their hats in the ring to compete in the Sukuk market. This competition between cities is generally very good. It will help develop the industry, innovation in products and services and it will help foster more work in standardisation.”

Back in the UK, the government is grappling with the complications of enabling its Sukuk market to flourish amid this level of competition. It has been encouraging the development of Islamic financial services for years, and recently assumed powers to introduce new guidelines to encourage corporate Sukuk issuance.

But discussions continue around issues such as stamp duty and VAT. Any changes, experts say, are likely to be introduced in the UK’s Finance Bill 2009.

Some have suggested that political concerns have persuaded the government to back-pedal on the Sukuk issue, but this was denied by a Treasury spokeswoman: “We’re not suggesting that Britain will be ruled under Islamic law. We are working towards creating a Sukuk issuance that would allow people, regardless of their faith, to have access to financial services.

“We see it as an opportunity to enhance London’s position as a global financial centre. We see it as an opportunity and a challenge. There are a number of barriers in place, legislative and otherwise, and we need to remove those to create the right environment for the issuance.”

Opinion seems to be divided on when the UK government might declare it is ready to do so.

In June, one indication came from the state-owned National Savings & Investments (NS&I), which offers retail banking services based on government bonds.

It pulled back from launching a Sharia-compliant savings product on the back of sovereign Sukuk scheme, saying it would revisit the issue in 18 months “to allow for the launch of the UK government Sukuk, the development of a secondary market for the Sukuk, and to gauge its impact on the development of the Islamic retail savings market”.

Some observers say an announcement could happen sooner; at the UK’s Pre-Budget Report in August, while others say it may not take place until early 2009. Already, some industry players are said to be preparing strategic alliances to win management contracts for the Sukuk.

But some say the government should delay the move until there is more clarity over the potential depegging of GCC currencies from the dollar, or until international economic conditions improve.

Faisal Hijazi, an analyst at Moody’s, says: “Governments, including the UK, Japan and Hong Kong… will have to work on a number of structuring, regulation and taxation issues before a Sukuk issuance can proceed. Moreover, for the time being, the status of the credit market conditions delay immediate issuance plans.”

In public, however, the government says it remains committed to the Sukuk scheme. Kitty Ussher, the Economic Secretary to the Treasury, who is overseeing the consultation process, says there are “lots of issues to think about” but that the government is “proceeding as fast as we can”.

The Treasury spokeswoman adds: “Some people think that things aren’t happening, but they are. We do have to go through the process of creating the right environment and we have some work still to do.

“But Kitty Ussher is very supportive of the sovereign issue,” she continued. “She wants to go all the way.”

Sukuk success

In 2007, there were an estimated 180 Sukuk and Islamic certificate issuances worldwide, while 18 Sukuk have been issued on the London Stock Exchange so far, at a value of around US$26bn.

The UK government says it is erring towards the launch of a rolling sovereign Sukuk programme of up to around US$4bn. This would be fully integrated with its conventional Treasury bill programme and would probably favour a ‘plain vanilla’ Ijara-based structure.

Although last year saw a wave of Sukuk issuances from governments and businesses, 2008 did not get off to the same kind of start.

Zawya.com data suggests the first quarter of this year saw an 80% drop in the value of Islamic bonds launched. Delays were announced, while observers reported that drops in the value of underlying assets affected some existing Sukuk investments.

So what’s up? Although things are reported to have recovered slightly, many blame the global economic environment, which has knocked investor and issuer confidence worldwide. But greater scrutiny on the Sharia-compatibility of Sukuk is also thought to have had an effect.

Providers of Sukuk have come under fire from scholars in recent months, with the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) stating in March that up to 85% of Sukuk did not conform to Islamic principles. This has forced issuers to relook at the way they structure their issuances.

Experts also point to an urgent need for work on the compatibility of Islamic finance rules across different countries – an issue that has reportedly contributed to a delayed Sukuk launch by the Japan Bank for International Cooperation this year.

To help solve this problem, Nasser Al Shaali, CEO of the DIFCA, says there is a need for the industry to create a “multi-plexed environment for Sharia compliance” which would help resolve differences between different nations.

Beyond religious issues, several industry figures have also called for more data to be made available to aid the development of the Sukuk market. Recent months have seen the launch of indices by the likes of Dow Jones and Citigroup, and HSBC and the Dubai International Financial Exchange (DIFX), but investors still say that information flows are limited.

Source: Arabianbusiness.com