With the speedy growth of radical Islam in the western nations and the possible risk of Islamization of the West, the Bank of England has announced the launch date for a new Sharia-compliant non-interest-based deposit facility – Islamic banking, the first from a Western central bank.
According to Financial Reporter, the Bank says the facility, in which deposits from Islamic banks will be backed by a return-generating fund of high-quality Shariah-compliant assets, “will further strengthen the United Kingdom’s role as the leading international financial center for Islamic finance outside the Muslim world”.
It may be mentioned here that Islamic finance had assets totaling US$ 2.4 trillion in 2019, 11 percent higher than a year earlier and a third bigger than in 2015. For the last few years, the size of sharia-compliance banking in Britain is seeing a huge “prospect” as even non-Muslims are switching to sharia banking, for reasons unknown.
In a speech given during UK Islamic Finance Week, the Bank of England’s Andrew Hauser said that key aspects of Islamic finance “make it particularly well suited to financing the post-Covid recovery”.
Hauser said these aspects include prioritizing equity-like risk-sharing over debt, factoring ethical and environmental considerations into investment decisions, and embracing innovative financial solutions beyond traditional banking.
However, he noted that Islamic banks have long challenges in efficiently managing their liquidity, stating the Bank of England’s new non-interest-based central bank deposit facility “is designed to help level the playing field”.
While conventional banks hold a range of high-quality liquid assets to meet those obligations, including cash and central bank reserves; government and corporate debt; and asset-backed securities and commercial paper. They can also borrow in secured and unsecured money markets and, as a backstop, from central banks. But Islamic banks’ prohibition on the payment or receipt of interest means they can’t access many of these tools.
Financial Reporter added, the Bank of England’s new Alternative Liquidity Facility will provide UK Islamic banks with greater flexibility in meeting high-quality liquid assets (HQLA) requirements, enabling them to hold a reserves-like asset in a non-interest-based environment.
What does that mean?
Muslim world is particularly delighted at the latest decision of the Bank of England as it would ultimately pave the path for sharia-compliant banking in emerging as a potential threat to conventional banking. Cheering this decision, Arab News in a report titled ‘Future ‘extremely bright’ for UK’s Islamic finance economy’ wrote: London is perfectly placed to continue its rise as a global centre for Islamic finance in the coming decade, and the dual challenges posed by Brexit and the coronavirus (COVID-19) pandemic are unlikely to derail that ascension, according to experts and industry insiders.
It further said, many in the UK fear the devastating economic impact of an ill-timed separation from the European Union’s free trade area, just as the country plots its long and difficult recovery from the pandemic, will compound the economic misery after a year of job losses, lockdowns and costly government bailouts.
But despite the near-term challenges, Martina Macpherson, senior vice president of partnerships and engagement at Moody’s ESG Solutions Group, told Arab News that she expects the global Islamic finance industry to ultimately continue to see growth move in an upward direction.
Youness Abidou, CEO of Shariah-compliant property investment firm Nester, told Arab News, the city is perfectly positioned to be a key beneficiary of the explosive growth of this industry in the coming decade.
The British capital, he said, has “arguably the perfect mix to support investment into innovative growth whether that be fintech (financial technology) or Islamic Finance. Interestingly, London is considered a hub for both these sub-sectors, yet uncertainty lies ahead … the true impact of Brexit remains unknown.”
However, he continued: “I believe true free market economics will prevail. There is a growing demand for Islamic finance products. Innovation in the sector is necessary and so supply has to catch up.”
Islamic money for buying western businesses
According to Trade Arabia, Abu Dhabi Islamic Bank (ADIB) said it has provided AED91 million ($25 million) in Sharia’a-compliant structured financing for a private UAE-based client to acquire a AED141 million ($38.3 million) business park on the UK’s south coast, which will provide the client with a cash-on-cash return of 8 percent. The Grange Road Business Park, located in Christchurch, Dorset, comprises 15 mixed-use buildings, with a total net lettable area of 150,191 sq ft.
There are indications that a number of sharia-compliant or Islamic banks in the Arab and non-Arab Muslim nations are considering investing millions of dollars towards acquiring business and properties in the Western nations, including UK, USA, Canada and Australia.
The UK capital now has more than 20 international banks operating in Islamic finance – five of which are fully Sharia-compliant. London is also home to more than 20 law firms that are supplying legal services relating to Islamic finance for global and domestic markets.
Islamic finance mechanisms have been used to finance a range of iconic London projects, like The Shard, the Olympic Village, and the redevelopment of the Chelsea Barracks and the Battersea Power Station – the number of institutions in the UK offering Islamic finance is double that of similar institutions located in the US.
According to Arabian Business, “UK’s large Muslim population has played a role in helping to establish London as the focal point of Islamic financial services in the West. About 4.5 percent of the British population is Muslim, according to the 2011 census. More than a million of the UK’s 2.8 million Muslims live in London”.