Economics » Investment » How Islamic Finance creates new international opportunities

The City of London and the UK are pioneers in creating suitable legal and regulatory frameworks and we provide the vast majority of professional and financial services to the global Islamic financial services industry. Most of the Islamic financial transactions are governed according to English common law with English law firms providing the bulk of the legal transactional, advisory and dispute resolution expertise. I have witnessed this first hand especially in my current role as partner and global head of Islamic Finance at McCarthy Denning.

The UK regulatory approach in the form of Finance Acts and regulatory standards of the FCA and PRA (formerly the FSA) are the benchmark for most of the well-renowned regulators in the Islamic financial markets. Most issuers prefer the London Stock Exchange for issuances of their Sukuk, the UK was the first Western and European sovereign to issue a Shariah-compliant government bond which was heavily oversubscribed. Moreover, the UK has the most variety of Islamic financial academic and training programmes which is assisting with the human capital requirement for the execution of Islamic financial deals.

The current and next opportunity for the UK and indeed the City of London is to focus more on establishing a niche such as Islamic FinTech (for which we already have the Islamic FinTech Panel), Islamic sustainable and green finance in line with the UN Sustainable Development Goals and the development of next generation of Shariah Scholars, who are the real gatekeepers, with expertise as multi-disciplinary professionals.

This will help in innovation without compromising the value proposition and bridge the gaps to make Islamic Finance a much bigger piece of the mainstream offering. There is a opportunity to provide a complete solution which looks at the entire value chain from micro and SMEs to wholesale corporate and governmental challenges.

In terms of niche areas, Islamic FinTech solutions can improve the access to Islamic financial services through technology and contribute to a socially responsible development according to the Islamic finance principles. This can be for both the retail market and the corporate world. There is a huge demand for innovative solutions for car financing, home financing and related insurance policies as well as for the fast-growing SME sector.

This space allows small start-ups to enter into the market with relatively small capital injection provided the value proposition and the cost-base are attractive. Islamic FinTech has equally offered the Islamic financial institutions means for utilizing smart contracts and blockchain-based technology as well as other innovative methods which remove a lot of the inefficiencies in the system and provide up-to-date and competitive solutions.

Increasingly more and more Islamic financial institutions are partnering with Islamic FinTech providers in order to tap into new markets with the Islamic Development Bank (IDB) last year signing an agreement with Tunisian I-Fintech Solutions to develop several blockchain-backed digital tools. In fact the IDB has a special focus through its science, technology and innovation strategy on Islamic FinTech.

Global appetite

Islamic green and sustainable financing is another avenue for rapid development and another unique value proposition which is in line with the UN Sustainable Development Goals. There is a growing interest around the globe in Islamic green financing including Green Sukuk. The Climate Bonds Initiative, the Clean Energy Business Council and the Gulf Bond and Sukuk Association have jointly established the Green Sukuk and Working Party to develop and promote Islamic financial products to invest in climate change solutions.

The eligible assets for Green Sukuk as per the Climate Bonds Standards Certification include wind energy, solar parks, biogas plants and others. In March 2018, the very first sovereign green Sukuk was issued by the Indonesian Government. The five-year issuance raised US$1.25 billion and reached a broad range of investors including conventional, Islamic and green investors. The sovereign issuance was oversubscribed which demonstrates the growing market demand for sustainable and responsible investments. Here the UK has an opportunity to take the lead with a sovereign green Sukuk.

In both Islamic FinTech and Islamic green sustainable financing, the City of London has the opportunity to work with key strategic partners in emerging markets given its expertise and experience in this space. One of the new emerging markets is the Central Asia and the Chinese Belt and Road Initiative for which the Astana International Financial Centre (AIFC) is already a key partner.

The AIFC is based on English common law principles with an independent court, an international arbitration centre and an international stock exchange with Islamic finance being a strategically important pillar. The AIFC provides access to a strong 500 million market and in my capacity as the AIFC Chief Islamic Finance Officer, I am keen to help facilitate opportunities for British financial institutions and ancillary service providers to tap into this market by registering their entities at the AIFC with a special focus on Islamic FinTech and Islamic green finance. The AIFC offers favourable legal, tax and visa regimes together with all necessary requirements for ease of doing business.