By IMTIAZ AZMI |INNLIVE
“I want London to stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world,” David Cameron, the British prime minister, told 1,000 delegates at the ninth annual World Islamic Economic Forum in London on October 29th, where he announced plans to issue sovereign sukuk, or Islamic bonds, as early as next year.
Not so long ago, such a declaration would have been seen as a bold political stroke. These days, it represents little more than the logical next step in Britain’s embrace of Islamic finance. A host of London landmarks, including the Shard (the skyscraper pictured above), the Olympic village and Harrods, have been financed by so-called sharia-compliant investments in recent years.
The convention this week—attended by heads of state from Jordan, Afghanistan, Pakistan and Malaysia—marks the first time the event has been held outside the Muslim world. That is a testament to the rising global clout of Islamic finance, which adheres to sharia principles such as a ban on interest, offering depositors a stake in investments instead.
It is growing 50% faster than conventional banking and weathered the financial crisis far better than its traditional counterparts. Islamic finance is a $1.2 trillion market; this is expected to rise to $2.6 trillion by 2017 as more people in the Muslim world obtain bank accounts.
In the Middle East, the Gulf states have been at the forefront of the boom. What was for years a sleepy industry has been jolted to life by economic growth in the region, coupled with the demand for sharia-compliant banking. Islamic-banking assets in Saudi Arabia account for more than half the market. Roughly $21 billion in sukuk were issued in Gulf Co-operation Council (GCC) states in 2012, three times as much as 2011. Investors in these countries are increasingly looking to put their money to work overseas. Fahed Faisal Boodai, the chairman of Gatehouse Bank, one of five sharia-compliant banks in Britain, reckons that the GCC accounts for 60-70% of investment in Gatehouse. Other countries are emulating the Gulf model. Recep Tayyip Erdogan, Turkey’s prime minister, has emerged as a leading champion of Islamic finance.
The prospects in the wider Middle East, however, are less clear. Plans by the Muslim Brotherhood when it was briefly in power in Egypt to raise desperately needed cash by selling sukuk foundered in the face of political opposition. In Libya, post-revolution pressure on banks to issue only sharia-complaint loans has stalled conventional lending. Mr Boodai thinks the Arab spring has been a godsend for business.
Spooked by the turmoil in large swathes of the region, investors have diverted assets from those places to safer shores. Despite Islamic finance’s being the toast of the town in the City of London this week, the struggle to make it work in the heart of the Muslim world continues.