Opportunities & Trends in Islamic Finance - Euromoney

London acts as globalgateway for Islamic financeAs a global financial centre, London could be expected to play a part in the development of Islamicinvestment products. The London Stock Exchange’s markets are increasingly attractive to thosewishing to invest or raise funds in a Shariah-compliant wayGiven London’s place at the heart of the international financial marketsit is not surprising that a significant part of the recent, rapid growth inIslamic finance has taken place there. The London Stock Exchange playsa key part in the City’s development as a global gateway for Islamic financeand now offers Islamic investors from Britain and beyond accessto a growing range of Shari’ah-compliant products.Since the start of 2006 the exchange has admitted14 sukuk to tradingon its markets, raising in excess of £5 billion. This year it welcomedthe UK’s first Shari’ah-compliant exchange-traded funds (ETFs). Theexchange’s capital markets are also playing an important role in financingthe development of companies from around the world, includingthe Middle East.Capital poolIslamic issuers are drawn to London for a variety of reasons. While thedesire to access the world’s most international pool of capital is crucial,the City’s principles-based approach to regulation and the wide rangeof expertise offered by London-based professionals are also importantattractions.The prospects for the future development of the Islamic financialindustry in the UK are good. London’s deep and liquid markets, excellentskills base and single financial services regulator, which is regardedinternationally as responding flexibly and pragmatically to new ideas,all help to create an environment sympathetic to the needs of Islamicfinance. This is being recognized by a number of international banks,such as Citibank, UBS and HSBC, which have chosen to set up theirIslamic banking and advisory activities in London.Government supportIn addition, with Muslims accounting for 3% of the UK’s population, thegovernment has since 2000 introduced a series of tax and legislativechanges designed to remove obstacles to the development of Islamicfinance, in a bid to create an inclusive financial system. In 2004 the UKbecame the first country to authorize a wholly Islamic retail bank in acountry where most of the population is non-Muslim. That bank, the IslamicBank of Britain, along with the European Islamic Investment Bank,is now quoted on AIM. The government’s tax and legislative frameworkhas also established a level playing field for a variety of other Islamicproducts, including mortgages, bonds and insurance.The exchange’s markets offer flexibility: international companies canchoose to issue a wide variety of different security types in London,including shares, depositary receipts, sukuk and debt. Internationalissuers also have a choice from a number of markets, including theexchange’s flagship main market; the Professional Securities Market,which is designed for the needs of professional investors; or the AlternativeInvestment Market (AIM), for smaller growing companies.Nearly 40 companies from the Middle East have opted to raise capitalon the London Stock Exchange’s markets, including a number of banksand financial services companies.Good news for investorsThe growth of Islamic finance in London is not just good for the City. Itis also excellent news for the growing number of Muslim investors fromaround the world now accessing the exchange’s markets. In December,iShares chose to issue its first Shari’ah-compliant ETFs on the LondonStock Exchange’s main market, for the first time allowing these investorsto benefit from the low-cost, instant diversification offered by arange of ETFs while investing in a way that is consistent with Shari’ahprinciples. With a typical total expense ratio of 0.85%, the iShares MSCIWorld Islamic; the iShares MSCI Emerging Markets Islamic and theiShares MSCI USA Islamic ETFs offer a cost-effective way to build anIslamic investment portfolio.The London Stock Exchange is part of HM Treasury’s Islamic Finance ExpertsGroup, which was established in April 2007 to advise the governmenton opportunities to support the development of Islamic financein the UK. The group is examining the feasibility of the UK governmentbecoming the first national government in Europe to issue a sovereignsukuk. With the government and the City actively promoting Islamicfinance, the foundations for the further development of the industry inthe UK have been firmly laid.For further information, please contactDarko HajdukovicProduct Manager – Main Market and Professional SecuritiesMarketThe London Stock ExchangeTel: + 44 (0) 20 7797 3306Email: dhajdukovic@londonstockexchange.com