BankingIslamic Finance Heads to Europe

Islamic Finance Heads to Europe

There are approximately 15 million Muslims living in Europe, of which 2 million are in the UK. This provides a real growth potential for Islamic banking. There is an obvious need to provide the people and businesses in this community with financial services that do not compromise their religious beliefs. The UK is at the forefront of Islamic finance, allowing financial institutions here to take the lead into Europe.

Islamic banking services are not available in France for example, where the 6.12 million Muslims make up about 10% of the population. It is time that European Muslims are catered for in a similar way to Muslims in the UK.

The UK market continues to evolve and the Arab Bank Corporation itself has approved over £100m-worth of mortgage business in the past 12 months and is set to see the total market grow to over £1bn by 2009. The UK has a young and dynamic Muslim community, who are driving the market in their demand for Shari’a compliant financial services. The UK has a sound legal infrastructure, which has allowed flexible Islamic financial products to be made available, which both respect UK and Shari’a law. The UK is now an obvious choice as the European hub for Islamic Finance.

The demand from the Muslim community has been watched carefully by a British government that is committed to help establish the UK as the centre for the world’s rapidly growing Islamic finance industry. To date, the government has introduced new legislation that has enhanced that position and London already sees some of the world’s largest Islamic deals routed through the city’s banks.

The Financial Services Authority (FSA) and the UK Treasury have worked closely with financial institutions to enable products to be made available here. These measures have helped broaden the scope and availability of Islamic finance products and the FSA and Treasury continue to give their support although there is still much to do. For example, changes to the UK tax system last spring to make Islamic financial products more fairly taxed has encouraged growth and the UK government is committed to ongoing legal and regulatory changes to see Islamic finance prosper on a level playing field with more conventional financial products.

To other investors, Islamic finance has some considerable attractions. Shari’a scholars insist upon products being transparent and without uncertainty and many products will include elements of risk sharing and will follow principles not dissimilar to those that would appeal to ethical investors. The ethical concepts of Islamic finance are perhaps not that well understood in the UK and European financial markets. More needs to be done to promote Islamic finance as being an ethical as well as a faith-based model.

As the market looks to Europe, there are still challenges to face in the UK, including the development of a range of investment products and Islamic insurance (takaful). To really generate growth and build the momentum for expansion over the English Channel, I believe that we need to increase the product portfolio, starting in the UK.

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