Financial centres outside the traditional Islamic banking heartlands of the Gulf and Malaysia are eager to attract the rapidly growing industry, but so far progress has been slow.
A small technology company in the northeast of England is an unusual place for a finance revolution to start. Particularly one related to the complex world of Islamic banking.
The deal to raise $10m for International Innovative Technologies (IIT) in August through a sukuk (Islamic bond) was a landmark transaction, despite its small size. It was the first ever sukuk raised by a company in the UK.
Its significance stretches well beyond its value and serves as the real beginning of the battle to attract Islamic finance business away from its traditional heartlands of the Gulf and Malaysia. The transaction serves as proof that sukuk can be done in London, and that regulatory changes over the past few years have opened the door for further issuance.
The path to this particular deal has been a long one, with many disappointments along the way. The UK government has been looking at the possibility of issuing a sovereign sukuk for the past five years, gradually tweaking regulations and tax rules, only to establish the regulatory environment that allowed IIT to get there first. In 2008, the UK Treasury published the results of a consultation paper on sovereign issuance of sharia-compliant debt. It was expected to be followed by a government issuance that was rumoured to be more than £1bn ($1.58bn). That has never occurred, in part because attentions have instead had to focus on the financial crisis and the change in the UK leadership in mid-2010. The new government, in place since May, is expected to look again at the sovereign sukuk, but has so far been concentrating on more pressing issues.
France has also noticed the opportunities in attracting Islamic banking to its financial centre in Paris. Politicians, regulators and the promoters of the Paris financial district have spent the past few years trying to set the framework for Islamic finance in the country. Finance Minister Christine Lagarde has talked about making Paris “the capital for Islamic finance”.—Agencies