The Rt Hon Baroness Warsi hosted and chaired the inaugural meeting of the Global Islamic Finance and Investment Group (IFIG) in London on 26 March. The group was established following a commitment made at the World Islamic Economic Forum (WIEF) in October 2013. Its aim is to identify the key global opportunities and barriers facing Islamic Finance and to use its extensive knowledge and expertise to create a global Islamic Finance market that supports growth and prosperity, including in the UK. The group includes Premiers, Ministers, CEOs of major Islamic banks, central bank Governors and regulators - people who can make a real difference to the global landscape of Islamic Finance.
The meeting on 26 March resulted in a number of concrete steps that the group agreed to take action on:
Communicating: the group recognised the need to build greater understanding and better communicate the value of Islamic Finance. It recommended that a comprehensive analysis be conducted on the current global market and a broad strategy developed to foster understanding and challenge perceptions of Islamic Finance.
Regulation: Islamic Finance is a fast-developing industry which has to operate in different domestic regulatory environments as well as internationally. The group suggested that it would be beneficial to consider how to exchange knowledge on Islamic finance and approaches to regulating it. With this in mind, Baroness Warsi outlined her intention to ask relevant stakeholders to consider how best to pool resource and share expertise on Islamic finance, possibly through the establishment of a physical or virtual hub.
Investment: the group recognised the huge investment potential both outside of and within the Muslim world, where an estimated 72% of Muslims are “unbanked” (do not use any banking services at all); and that insurance and pension funds are underdeveloped across the Islamic World. The Group agreed to consider an engagement strategy for potential investors, looking at:
- innovative Islamic Finance products for the tech savvy generation;
- the potential of the Waqf ; and
- long-term development opportunities in the Takaful market - a source of long-term capital and potentially a big growth area.
The group agreed to meet on a bi-annual basis to drive progress in the key areas highlighted and to continue to identify areas where collective action will lead to further opportunities.
Following the meeting, Global IFIG Chair, Baroness Warsi commented:
The global development of Islamic Finance is a huge opportunity for all of us. Interest in its potential both from within the Muslim World and outside of it demonstrates that it may be the next big thing. I’m confident that by harnessing the technical expertise, business knowledge and political influence of all our members, this group will accelerate the global growth of the Islamic Finance industry. Our ambition is to get things done.
Other areas where government is already making progress on Islamic Finance
- HMT is on course to issue £200m of sovereign Sukuk in the forthcoming financial year.
- It is anticipated that this will be an Al-ljara structure, backed by government property.
- Following an open competition, HM Treasury appointed HSBC and Linklaters LLP as external advisors to assist the Government’s work on the project.
- Closer to the time of the transaction HMT will be seeking to include additional syndicate members to help bring it to market.
Extension of Help to Buy scheme to Home Purchase Plans
- In February 2014 a series of amendments to the rules of the Help to Buy scheme were announced by the Financial Secretary, enabling providers of Home Purchase Plans (HPPs), which are an alternative to a mortgage but consistent with the principles of Islamic finance, to benefit from the scheme.
Start up loans
- Further to the announcement that the government has agreed a mechanism for Start-Up Loans to pursue a Shari’ah-compliant model, work on the design has been completed.
- The project is awaiting a fatwa from the Shari’ah Supervisory Board at Gatehouse Bank. In the meantime, those seeking Shari’ah finance can apply via Start up Loans so work on their business plans can get underway.
- The government is planning to hold a consultation this year on the model which has been identified as the best candidate for making Shari’ah-compliant loans available through the Student Loans Company.
- This government is fully committed to supporting the development of Islamic finance in London and the UK. The Financial Services Trade and Investment Board, created by the Chancellor at Budget 2013, includes Islamic Finance as one of its priorities.
- The board, a joint government and industry partnership, has been tasked with attracting inward investment, promoting external trade and lifting barriers for the UK’s financial services sector. This will help UK financial services firms to increase their market shares overseas and cement the role of the UK as a pre-eminent global financial centre.
- The board will look to the Global IFIG to help identify the opportunities and barriers in Islamic Finance and create a vibrant global Islamic finance market to support mutual growth and prosperity.
Shari’ah-compliant assets permissible in the UK
- The Bank of England recently published consultation paper 5/14, which asks whether Islamic banks should be permitted to hold a slightly wider range of eligible assets to mitigate the concentration risk arising from only being able to hold the Islamic Development Bank (IDB) sukuk for the LAB. The IDB sukuk is the only security currently which is both LAB eligible and also Shari’ah compliant. The consultation period ends on 15 April 2014.
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