Islamic finance, which is systemically important in many jurisdictions including the Gulf Cooperation Council and Malaysia, is now growing throughout the Middle East, Asia and Africa. Islamic finance has also expanded its global footprint to the United Kingdom, Luxembourg and Hong Kong in recent years largely through the issuance of Sukuk.
The UK in particular has carved out a pivotal role in growing its footprint in Islamic finance over the past several years. With Brexit having no discernible impact on either the market’s expansion or its central role, the UK’s position in the international Islamic finance industry will continue to be pivotal for the foreseeable future. Also helping its position is the London Stock Exchange’s role as a key global venue for Sukuk listing; London’s position as a global financial hub where many Islamic banks access international markets; and the importance of UK-based legal services due to the use of English law for the majority of international Sukuk and Islamic finance transactions.
Brexit is not posing any impediments to the UK’s Islamic finance stronghold. Nations like Canada are helping to establish a template for other sovereigns in embracing alternative and “socially conscious” forms of investing like Islamic finance. Additionally, the Islamic finance market is hoping to expand on “socially conscious” investing through the use of green bonds, the issuance of which has picked up in Europe and Asia and is making ripples in the United States as well.
The chief reasons for the poor adoption of Islamic finance appear to be that the industry, despite its strides, has no international or regional standardisation. Moreover, the boarder global universe neither has a suitable regulatory environment in place nor awareness of the industry around the world. No doubt clearer regulatory and legal frameworks will boost the industry. However, this will not be easily achieved on a global level at least in the medium term. One of the areas, however, that could change that is Takaful or Islamic insurance. Its target: non-Muslim markets.
Takaful is an important part of Islamic finance markets that could expand meaningfully to other parts of the world if it manages to find an appropriate way to cross over to non-Muslim markets. This could be achieved by finding commonalities between Takaful and other forms of insurance. For instance, friendly societies and other forms of cooperative or mutual insurance can act as vehicles that help propel Takaful into wider markets.