Britain has six “fully Islamic” banking organisations and government minsters are attempting to attract even more Sharia-compliant finance initiatives to the UK.
The announcement over the six “wholly Sharia compliant banks” came last October, but a new push to attract Islamic finance to the City is well underway, with government ministers Saajid Javid and Baroness Warsi leading the charge.
The attraction for the UK is clear. With a growing Muslim population, and over $19bn in assets around the world in Islamic finance institutions, there is a clearly underserved market in Sharia-compliant banking.
But concerns will no doubt abound, considering the extra cost implications for UK institutions, as well as the fact that over 40 percent of Islamic banking worldwide is traceable back to the hostile Islamic Republic of Iran. This week, the UK and Iran re-established formal diplomatic relations, which perhaps explains why the UK is so keen to push forward with Sharia banking.
Speaking at the Euromoney Annual Islamic Finance Summit last week, the UK Treasury minister Sajid Javid MP said: “We [the UK] have 6 fully Islamic banks. And we’ve also got all the support networks in place that any major market player needs… In fact, almost every international Islamic contract will touch London – or a London-based firm – in some way.
“Work is already well underway by Baroness Warsi to identify some of the greatest global experts and practitioners in this field – both from industry and from Government”.
The news may not fill financial institutions with confidence however, as Baroness Warsi becomes involved in a new cronyism scandal over a £120,000 contract, The Sun reports. Sharia finance is also more expensive for financial institutions than regular banking products. A report from the Peninsula, Qatar, says: “…factors that may push up costs are a lack of clear regulation, in an industry where scholars may issue contradictory rulings, and adverse tax treatment, since Islamic deals often involve multiple asset transfers”.
Baroness Warsi travelled to Oman and Saudi Arabia last week to discuss Islamic finance, and said in a speech at the Sultan Qaboos Grand Mosque: “I have had the privilege of speaking from the pulpits of Britain’s oldest cathedrals and from the lecterns of the world’s greatest universities… But there is nothing quite like standing here at Muscat’s spectacular Grand Mosque, a place of deep spirituality and immense beauty.
She added: “For me, this is something of a home from home – not only because it is a symbol of the faith I hold so dearly, Islam, but because its construction was partly down to a British company!”
Islamic, or Sharia finance differs from conventional banking in that it must adher to Quranic rules, one of which states that the charging or earning of interest is not allowed. International Finance Magazine describes the rationale behind Islamic banking as follows: “A core concept of Islam is that Allah is the owner of all wealth in the world, and humans are only the trustees of the wealth”.