July 1, 2016, by Lindsay Brooke
What Brexit means to London’s aspiration as an Islamic Finance Hub
Dr Nafis Alam is an Associate Professor of Finance and Director for the Centre for Islamic Business Finance and Research (CIBFR) at University of Nottingham Malaysia campus (UNMC). Here he writes about the implications of Brexit on London’s aspiration as an Islamic Finance Hub.
When Manchester, under the patronage of the Foreign and Commonwealth Office Minister for State Hugo Swire, hosted the third annual meeting of the Global Islamic Finance and Investment Group (GIFIG) on 28 April 2016 to discuss the Islamic finance growth, Brexit was far from the reality.
During the forum, the Economic Secretary to the Treasury, Harriett Baldwin, emphasised that the government was determined to cement the UK’s status as the leading Western hub for Islamic finance. This aspiration emanated from UK Export Finance guaranteeing its first Sukuk bond last year. This guarantee was for the 10-year US$913 million Sukuk (Islamic bond) issued by Emirates Airlines and was used to finance the acquisition of 4 Airbus A380 aircraft. It was the largest ever capital market’s offering in the aviation sector with an export credit agency guarantee.
Currently, the UK is home to over 20 international banks offering Islamic Finance products and the UK has the largest legal services market in Europe, with over 20 law firms supplying legal services relating to Islamic Finance for global and domestic markets.
The question is, what will be the future of Islamic finance in the UK in the wake of Brexit?
The UK has always benefitted from huge Islamic real estate investment – where investors from the Gulf Cooperation Council (GCC) and South East Asia (SEA) own a huge portion of the UK skyline. In the last year alone, HSBC Tower, New Scotland Yard have attracted major investors from the gulf market. Due to slow economic growth in the GCC region as a result of the falling oil price, investors are looking to diversify their investment in the places such as London – which boast the position of number one ranking in the Global Financial Centre Index. Brexit could deal a serious blow to the investment profile of the UK and more specifically London.
In recent times, the UK has become the first country outside the Muslim world to issue sovereign Sukuk and list them on the London Stock Exchange giving UK, the Islamic finance crown for the EU region. Using London as an Islamic finance hub for the EU, Islamic investors have gained access to other EU markets such as Germany and France.
After the referendum, London might lose its jewel in the crown and Islamic investors may look for a more favourable hub such as Paris, Frankfurt or Berlin. Before the referendum, authorised financial institutions including Islamic finance providers had the right to carry out their activities in any other EU state with or without a physical branch once the single market regulations were met. Leaving the EU could mean restricted access to the UK financial instructions/institutions? which may derail the growth of Islamic finance in the UK.
GCC banks have a big coverage in the UK financial industry by virtue of Islamic banking subsidiaries such as Qatar Islamic Bank, Alburaq Bank, Mashreq, Abu Dhabi Islamic Bank etc. With news coming out that major conventional banks such as JP Morgan, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley may look for new legal home base after BREXIT, this might prompt Islamic bank subsidiaries to follow suit.
The UK has been ranked as the global leader in Islamic finance education with more than 60 institutions offering Islamic finance courses and 22 universities offering degree programs specialising in Islamic finance. This caters for the needs of Islamic finance graduates for the financial sector. These Islamic finance programnmes attract students from many EU countries and with changes due to happen to the education sector after Brexit this might seriously going to dent the UK position as global leader in Islamic finance education. Additionally, given the number of people engaged in the UK Islamic finance sector, Brexit could also lead to a brain drain towards other EU financial centers.
It might be too early to assess the damage of BREXIT shattering the overall UK economy and its impact on Islamic finance future in the country but BREXIT could seriously “Wreckit” the UK aspiration to be the global leader in Islamic finance outside the Muslim world.
*Dr. Alam is an Associate Professor of Finance and Director for the Centre for Islamic Business Finance and Research (CIBFR) at University of Nottingham Malaysia campus. He can be reached at firstname.lastname@example.org or follow him at twitter @nafisalam