The UK is facing a unique double whammy calamity of Brexit and the post-Covid economic slump. As Britain looks to claw its way out of the impending recession, Islamic finance could offer the boost the country needs.
That’s according to veteran Islamic financier, Iqbal Khan, CEO of sovereign-backed private equity firm, Fajr Capital. “The UK’s budget deficits are very high and facing [a double issue],” he said. “The deficit will soon balloon and needs to be brought under control.”
Khan, who runs a $700 million fund which focuses on strategic high-growth sectors in key Organisation of Islamic Cooperation (OIC) markets, said the UK’s pensions funds are under particular pressure.
“We need to create an enabling environment for Islamic finance to access growth sectors,” Khan said, speaking at the London-based launch of the annual State of the Global Islamic Economy (SGIE) report. “There are huge opportunities for the UK to create a supportive regulatory infrastructure. The future is huge providing the government moves in this direction.”
Iqbal Khan, CEO of sovereign-backed private equity firm, Fajr Capital
In the SGIE report’s Global Islamic Economy Indicator that covers 81 countries this year, Malaysia, Saudi Arabia, the UAE, Indonesia, and Jordan lead the rankings. The UK came in at number 27 for the quality of its Islamic economy ecosystem.
Britain has a “rich history” of trade and commerce with the Middle East and is yet to harness the full potential of Islamic finance, Khan added.
“I hope the UK will tap Islamic finance to allow the Middle East and Muslim countries to invest in UK,” the CEO said.
However, Britain’s $19 billion Islamic finance market is facing a slew of challenges and is being held back by weak consumer awareness, said Omar Shaikh, an advisory board member for the Islamic Finance Council UK (IFCUK) in London.
“There is a need for the government to realise its previous legislative commitments – former UK prime minister David Cameron said every government needs to consider Islamic finance loans,” Shaikh recently told Arabian Business. “The Bank of England still needs to deliver on its pledge to create a liquidity tool for Islamic finance so it can operate on a level playing field.”
In October 2013, then UK PM Cameron announced that London would assume a position of significance in the Islamic finance market. The leader said he wanted “London to stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world”.
The UK capital now has more than 20 international banks operating in Islamic finance – five of which are fully Sharia-compliant. London is also home to more than 20 law firms that are supplying legal services relating to Islamic finance for global and domestic markets.
Islamic finance mechanisms have been used to finance a range of iconic London projects, like The Shard, the Olympic Village, and the redevelopment of the Chelsea Barracks and the Battersea Power Station sites.
In a welcome fillip for the industry, the UK is set to invite banks to join a syndicate for the country’s second sale of sovereign sukuk or Islamic bond later in the coming months. Britain became the first Western country to issue an Islamic bond in 2014, raising £200 million ($260 million) from a five-year deal that was 10 times oversubscribed.
Stella Cox CBE, managing director at financial market intermediary DDCAP Group, government lobbyist and a leading figure in global Islamic finance, assured the Islamic finance community that the decision on the second sukuk “has been made” and its issuance is imminent.
The expert, also speaking on the SGIE report panel, said the UK government is in the “final stages of completion” for its Bank of England facility which will allow Islamic banks to compete on a more level playing field with conventional finance players.
“The UK doesn’t have the biggest range of Islamic finance offerings right now but this [issue] has been top of mind for some years now,” she said.
As the UK breaks away from the legislative shackles of the European Union next year, Brexit offers a reset opportunity and the chance to forge new trade and Islamic finance relationships, Cox added.
“The UK already plays a prominent role in the global Islamic finance ecosystem and it has achieved this due to its supportive government framework,” she said.
“The build out of the UK’s Islamic finance ecosystem is ongoing. Our Islamic finance footprint is greater than any other Western nation. We have to be very conscious of keeping our government aware of what a contribution this sector can make.”
Fajr Capital’s Khan urged the UK government take an all-party approach to Islamic finance.
“Foreign investors like continuity and consistency,” he said. “An all-party approach will lead to Islamic finance policies that have longevity and not linked to parties.”
5 things we learned
Islamic finance offerings could offer boost the UK’s post-Brexit economy
Britain needs to create an enabling environment for Islamic finance to promote growth
The British Islamic finance market is facing a slew of challenges, including being held back by weak consumer awareness
The UK is set to invite banks to join a syndicate for the country’s second sale of sovereign sukuk or Islamic bond later in the coming months
Experts recommend an ‘all party’ government approach to Islamic finance