The Role of London in
Global Islamic Finance Networks
David Bassens - Ghent University
David Bassens – TIGER – 05/10/2011 – Reading
Presentation overview
1. Introduction
2. Key Features of Islamic Finance
3. The City’s Involvement in Islamic Financial Circuits
4. A Crucial Node in Global Sukuk Markets
5. Concluding Remarks
David Bassens – TIGER – 05/10/2011 – Reading
1. Introduction
•
‘Reorientation’ of the Global Economy:
o
The rapid growth of emerging economies (BRIC, Gulf economies, and others)
→ The rising geo-economic power of SWFs
o
Partial reversal of historically dominant capital flows
→ Corporate bail-outs of financials by Gulf SWFs, China buys US Treasury bills
•
Meanwhile in Europe:
o
A rapidly-unfolding financial, fiscal, economic, and political crisis…
→How do European cities tap into these emerging capital circuits?
David Bassens – TIGER – 05/10/2011 – Reading
2. Key Features of Islamic Finance
•
Faith-based, Shari’a-compliant financial services:
o
o
o
o
No riba: ‘growth’, generally interpreted as all forms of interest
No gharar: uncertainty in contracts, legal risk
No maysir: ‘gambling’, unnecessary risk taking, no speculation
No investment in weaponry, pork meat, alcohol, … is haram
•
Islamic economics is opposed to conventional debt-trading
•
Loans or investments are ideally based on profit-and-loss sharing (PLS) : pre-agreed
part of the profits or loss by ratio of the investment
•
Focus is on the real economy: Products and trade should ideally be asset-based
David Bassens – TIGER – 05/10/2011 – Reading
2. Key Features of Islamic Finance
The sector has an estimated size of 822 billion US$ (The Banker, 2009):
Shari'a compliant assets (bn US$)
Percentage of total
GCC
262,7
41,2
Non-GCC MENA
247,6
38,9
Asia
86,2
13,5
Australia/Europe/N. America
34,5
5,4
Sub-Saharan Africa
6,4
1,0
638,3
100,0
Saudi Arabia
91,9
35,0
Kuwait
63,3
24,1
UAE
49,1
18,7
Bahrain
37,3
14,2
Qatar
21,0
8,0
GCC TOTAL
262,7
100,0
World regions
Global TOTAL
Within GCC
Spatial distribution of Shari’a-compliant assets (based on The Banker, 2008)
David Bassens – TIGER – 05/10/2011 – Reading
3. The City’s Involvement in Islamic Financial Circuits
Transnational office networks of Islamic Financial Service firms (Bassens et al., 2010)
David Bassens – TIGER – 05/10/2011 – Reading
3. The City’s Involvement in Islamic Financial Circuits
Fully Shari’a-compliant
Bank of London and The Middle East
European Finance House
European Islamic Investment Bank
Gatehouse Bank
Islamic Bank of Britain
Islamic windows
Ahli United Bank
Alburaq
Bank of Ireland
Barclays
BNP Paribas
Bristol & West
Citi Group
Deutsche Bank
Europe Arab Bank
HSBC Amanah
IBJ International London
J Aron & Co.
Lloyds Banking Group
Royal Bank of Scotland
Standard Chartered
UBS
United National Bank
Source: IFSL (2010)
David Bassens – TIGER – 05/10/2011 – Reading
3. The City’s Involvement in Islamic Financial Circuits
Retail markets: Shari’a-compliant mortgages
• Mostly mark-up: Murabahah loans
El-Gamal (2005)
• Cater to urban Muslim population: Islamic windows (HSBC Amanah) and full-fledged
(IBB)
• Issues: darura (necessity), knowledge of IFS, bank licence, double stamp tax
David Bassens – TIGER – 05/10/2011 – Reading
3. The City’s Involvement in Islamic Financial Circuits
Wholesale markets:
•
Islamic fund industry: only 1 % of US$ 44bn in London
•
London Metal Exchange is used for Islamic liquidity management (Tawarruq structures)
•
Sukuk (Islamic bonds) issuance:
- Used by Islamic and non-Islamic investors (e.g. Tesco, Toyota)
- Requires financial and ‘Islamic’ expertise, Shari’a –compliance screening
- Government bond is planned
- Sukuk listings on LSE
- Involvement of Investment Banks
David Bassens – TIGER – 05/10/2011 – Reading
3. The City’s Involvement in Islamic Financial Circuits
Evolution of the global sukuk market. Source: Zawya Sukuk Monitor
David Bassens – TIGER – 05/10/2011 – Reading
4. A Crucial Node in Global Sukuk Markets
The case of Emaar Sukuk Limited
o
Dubai-based Emaar Properties PJSC, partially government-owned property developer
(e.g., Burj Khalifa): hit by Dubai crisis
o
Launched on February 3rd, 2011 via London Stock Exchange, US$500 million
o
Multilayered securitization networks (see next slide):
•
•
•
•
Structuring
Management
Investment
Legal advise
David Bassens – TIGER – 05/10/2011 – Reading
David Bassens – TIGER – 05/10/2011 – Reading
5. Concluding Remarks
• Leading European IFCs are crucial nodes in emerging capital circuits:
o Place: knowledge-rich environment, deep capital markets, …
o Social networks stretching out into EM enhance knowledge production
o Historical linkages structure such intergation processes
• No straighforward reproduction of existing power relations:
o New actors: Role of EM actors as market gatekeepers (Shari’a scholars)
o New agenda’s: Strategic investment by SWFs: is it neutral?
o New regulatory frameworks: adaptation of legal context in IFCs
•
Financial integration processes are more balanced and negotiated, reinforcing
interdependent evolution of cities in a multipolar world
David Bassens – TIGER – 05/10/2011 – Reading
Thanks for your attention!
david.bassens@ugent.be
David Bassens – TIGER – 05/10/2011 – Reading