Good morning – and it’s a real pleasure to be here in Dubai.
This city has gone through an incredible transformation over the last 50 years – this transformation which has been fuelled by natural resources, tourism, retail and finance – is nothing short of astounding.
And it sends a very powerful message that the fast-growing financial powerhouses of today are often located away from the traditional hubs of Western Europe and the United States.
Nowhere is this more the case than in the world of Islamic finance, clearly demonstrated by the palpable ambition in this room – ambition to make the most of the opportunities offered by a market enjoying year-on-year growth of 40 per cent since 2005 – and which, at the current rate of growth, will exceed US$2 trillion in assets by the end of this year.
My position, as the City Minister in the government of the United Kingdom, is simple: We too are ambitious.
Our policy is one of open, willing engagement with fast-growing economies, such as those in the Islamic world.
And the UK is not in competition with those economies. Our aim is to work together to grow this market throughout the world. And having listened to Governor Zeti just now, and what she has helped achieve in Malaysia, I see what a long way the UK has to go!
But by maintaining and expanding our position as the Western hub for Islamic finance, I do believe that London can sit proud in the world as a leading centre.
We believe that the UK has a great deal to offer your fast-growing market. So today, I will talk about the actions we are taking in the UK to make that a reality.
My first point is that there are already a number of factors making the UK a good place to do business in this area:
- our time zone means that we sit at the centre of global capital markets
- English is the global language of business
- our professional services industry has significant expertise in Islamic finance – including more than 25 law firms
- we have world-class academic institutions offering specialised training courses and qualifications, such as MBAs - and just last year we set up ten new Chevening Scholarships for Islamic finance
- we benefit from a talented, highly-educated, multilingual, multicultural workforce
My second point is: judge us by our actions. The UK has already put in place a suite of policies to help solidify the UK’s position as a global partner and destination of choice for Islamic finance.
This time last year, London hosted the first WIEF outside of the Islamic world – a resounding success, with 1,800 political and business leaders from over 115 countries attending.
We made a number of significant commitments then to make the UK a partner of choice for Islamic finance. And we have delivered on those commitments.
We’ve created an Islamic Index on the London Stock Exchange.
We’ve seen the launch of the first Islamic Insurance Underwriting Agency, Cobalt Underwriting.
The London Market Group, which sits within Lloyds of London, has also developed a trade body, the Islamic Insurance Association, to look specifically at developing UK expertise in Islamic insurance.
We have continued work on setting up Islamic-compliant student and start-up loans.
And six months ago we had the inaugural meeting of the Global Islamic Finance and Investment Group (GIFIG) in London – chaired by Baroness Warsi.
This group brings together Premiers, Ministers, CEOs of major Islamic banks, central bank Governors and regulators – people who can make a real difference to the global landscape – to examine the key global opportunities and barriers facing Islamic finance.
We have done this because the UK believes in this industry’s great international future – and we will continue to work with you to develop it.
But our landmark announcement at last year’s WIEF was promising to be the first western country to issue sovereign Sukuk - and in June this year we delivered on that promise.
We issued £200m of sovereign Sukuk and orders for the issuance totalled £2.3 billion – that’s nearly 12 times oversubscribed.
This was the culmination of years of hard work to create the right tax and regulatory environment, one which puts Islamic finance on a par with “conventional” finance, creating a level playing field for Islamic financial products.
And I hope that this achievement inspires further issuances of Sukuk by corporates, as the Islamic finance industry in the UK continues to expand.
I would now like to talk a little about where I see the UK market developing, and the opportunities that means for you.
One development we expect to see over the next quarter is the move into the Sukuk market by UK Export Finance (UKEF) – the UK’s export credit agency.
Since the global financial crisis, UKEF’s 100 per cent guarantee product played a key role in supporting customers of Airbus aircraft and Rolls-Royce engines. A UKEF-guaranteed Islamic Sukuk product is a natural step to extend the scope and appeal of this guarantee.
UKEF expects to bring its first guaranteed Sukuk to market in the New Year in support of an Airbus customer – the first Sukuk for an ECA-backed aviation transaction, and a significant step forward in UKEF’s existing work with a wide range of airlines from the Islamic world.
Like conventional capital markets guarantees, it will be available for use in a range of currencies to suit all customers.
And our indications are that, given the confidence the market has in both the strength of the UKEF guarantee and the principles of Shari’ah financing, its pricing would be consistent with the conventional capital markets product.
Our ambition is that this Sukuk product will be rolled out to a range of other customers and sectors.
The second area of significant development in the British market is, and will continue to be, infrastructure.
The last few years have seen some flagship developments in the UK that have been funded, or part-funded, by Islamic finance.
To give just one example, Qatari Diar’s investment in Chelsea Barracks represents the largest Islamic finance deal anywhere in Europe – ever.
And over the coming years, it is in infrastructure that the UK will be seeking significant further inward investment, which UK Trade and Investment will be explaining in our Country Investment Programme tomorrow.
In housing alone, we need to be building hundreds of thousands more units per year than we currently are – creating enormous opportunities for Islamic banks.
6,600 of those units – in the North-West and the Midlands regions – are coming from a £700m investment by Gatehouse Bank, a fully Shari’ah compliant bank.
So my message to you is: over the coming years, I hope we will see billions’ worth of new investments from the Islamic world in a range of sectors in the UK. Because it is good for us and good for you.
The third area I would like to touch on is Shari’ah compliant facilities.
The Bank of England is very well aware that Islamic banks face real difficulties in meeting their liquidity requirements with the currently limited range of options – its existing facilities, which involve interest bearing activity, not being Shari’ah compliant.
So I am pleased to confirm that the Bank will begin feasibility work next year on establishing a Shari’ah compliant facility.
This will, I am afraid, not be a quick process. But the emphasis must be on getting it right – and that means we are looking at a project for the medium term.
Nevertheless, I hope that you see this endeavour as recognition from the UK’s central bank of the challenges Islamic banks face in their liquidity management requirements, and another British vote of confidence in bringing Islamic finance into the mainstream.
Because Sukuk, and the wider Islamic finance market will, I know, continue to flourish…
…and the United Kingdom is determined to continue working with you as you grow and expand.