London could capture a trillion pounds' worth of the burgeoning global Islamic finance market, according to a Shariah-compliant asset management firm in the city.
Ethical Asset Management Chief Executive Saadat Khan said the
UK could lure the lucrative Islamic investment by encouraging a market
with truly Shariah-compliant financial products, because much of what is
on offer at the moment does not suit Muslim investors' strict
Under Shariah finance rules, the charging of interest on lending is
regarded as usury and forbidden. Investors must also avoid investments
linked to certain things, such as pork and alcohol, which Muslims are
barred by their faith from consuming.
"There are tens of billions of dollars looking for a suitable home
that are doing nothing at present due to the structured nature of many
Shariah-products currently available on the market," said Khan, whose
firm was the UK's first Shariah-based asset manager when it was created
"Several of these are described as Shariah-compliant or even
Shariah-inspired. However, a significant number of investors are not
interested in them because they are very similar to conventional
products in all but name.
"Some of these are effectively conventional bonds, which are
basically a promise to pay. An investment (loan) is made based on the
strength of the balance sheet of borrowers who make huge profits and
share a disproportionate amount of these profits with the investor.
"This model is against the true principles of Shariah Law, which
encourages wealth distribution and that risk and reward is divided
London Deputy Mayor Sir Edward Lister has already been touting the city around the world as the western hub for Islamic finance.
A task force on building the UK's Islamic finance industry has been
at work since early 2013 and London will host the World Islamic Economic
Forum in October.
"The task force has just started and its aim is to make it easier for
banks in London to have Islamic products, which is still quite a new
concept to any of them," Lister told a press conference in Kuala Lumpur,
"Only now people are beginning to understand what the products
actually mean and how they comply ... What you will see is a lot of
companies introducing those products."
Globally, the Islamic finance industry is forecast to be worth $2.6tn
(€1.9bn, £1.6bn) by 2017. It has grown by around 30% each year since
the millennium and consultancy firm Oliver Wyman predicts that there
will need to be at least 150 Islamic finance institutions by 2020 to
meet the ever-growing demand.
There are more than 20 UK banks offering Sharia-compliant products,
such as HSBC and RBS. There are also three Sharia-only institutions,
including the Islamic Bank of Britain (IBB).
By increasing the number of Sharia-compliant financial services in
London it will be easier to facilitate investment in the UK from Islamic
Ethical AM's Khan, who has given evidence to the task force, argues
that for a financial product to be Shariah-compliant there can be no
guaranteed return on investment, such as coupon payments on bonds.
Instead, any investment should be based on risk-sharing through
shared ownership of the asset, with profits or losses split between the
"The purpose of the Shariah system is the same as all the Abrahamic
faiths, which is not to benefit onesself only but to ensure the
betterment of all," he said.
"We can make a huge positive contribution to society by operating in
this manner and make a good return ethically on investments without any
loss of profit. We must consider people before profit."