London’s Islamic banks are positioning themselves to cater to the estimated 15 million Muslims in Europe, where the industry has so far made little impact outside the British capital, bankers said.
Britain has taken steps to attract the world’s booming Islamic finance industry — estimated to be worth $1 trillion in assets by 2010 — including new legislation to make Islamic transactions easier and plans to issue a sovereign Islamic bond.
About 3.5 billion British pounds ($7.14 billion) of Islamic bonds are listed in London, and many of the world’s largest Islamic bond and loan deals are routed through the city’s banks, giving London a headstart over its European rivals in providing Islamic financial services, bankers said.
“I went to an Islamic banking conference in Paris with the view we would be talking about Islamic finance in France. Actually half of the day we were talking about Islamic finance in the UK,” said Farrukh Raza of the Islamic Bank of Britain.
Islamic law bans the receipt of interest and operates on the principle of sharing risk and reward among all those involved in a business venture. Investing in sectors such as alcohol, pornography and gambling is prohibited.
“We continuously receive enquiries. People are very excited about developments in the UK and they want to see the same services becoming available in other countries,” Raza told an Islamic banking conference in Bahrain, which ended on Monday.
Under European law, the Islamic Bank of Britain and other Islamic banks are eligible to expand into Europe after two years of satisfactory operation in the UK, the bank’s Web site said.
Islamic banking services are non-existent in neighbouring France, whose 6.12 million Muslims make up about 10 percent of the population.
“There’s massive opportunity in Europe. Everyone talks about France. Certainly in parts of Europe on a retail basis there’s been very little Islamic banking activity at all. It’s surprising really,” said Derek Weist of the Bank of London and the Middle East.
However, before branching out into Europe a number of hurdles need to be cleared first in Britain and in European countries targeted for expansion, bankers said.
Islamic banking products offered by about 10 institutions in Britain have so far seen lower demand than anticipated, Britain’s top financial watchdog the Financial Services Authority said in a recent report.
Many British Muslims choose to bank conventionally because it is cheaper than equivalent Islamic products, said bankers, who expect growing competition among Islamic financial service providers to eventually lower prices.
“We have plans to expand into Europe, but first we need to consolidate ourselves in the UK,” Raza said.
There was also the need for the regulatory system in European countries to adjust to Islamic banking, by making common Islamic financial transactions easier and reassuring the public about what could be seen as a relatively exotic form of banking.
“Certainly there is a market for these products to be rolled out into Europe (but) the legal infrastructure must be there in those countries so that people will be comfortable we’re not going to run off with their money,” said Waqar Ahmed of ABC International Bank’s alburaq Islamic division in London.