UK-Bahrain Islamic Finance Summit in London
Dr. Mozammel Haque
The UK-Bahrain Islamic Summit was held at the Foreign & Commonwealth Office (FCO), London on Tuesday, 8th of April, 2014. The Summit forges partnership to uncover new trade and investment opportunities in both countries. UK and Bahrain also agreed a joint framework to enhance collaboration on Islamic finance at the Summit held in London and also working together to promote Islamic Finance.
A Memorandum of Understanding (MoU), signed by Senior Foreign Office Minister Baroness Warsi and His Excellency the Governor of the Central Bank of Bahrain Mr. Rasheed Mohammed Al Maraj, set out plans to boost cooperation through an education and skills programme and the establishment of a working group devoted to the development of Islamic finance-driven trade and investment between the two countries, the Foreign & Commonwealth Office press release said.
Islamic finance is currently growing 50% faster than conventional banking and is worth £1.3 trillion globally reaching an expanding market of over 2 billion people. It accounts for over 25% of banking in the Gulf.
Over the last six months, the UK has successfully hosted two major Islamic finance events; the World Islamic Economic Forum and the Global Islamic Finance and Investment Conference.
Baroness Sayeeda Warsi
In her UK keynote speech, Baroness Sayeeda Warsi, the senior Foreign Minister, welcomed the Baroness Morris of Bolton, Baroness Symons and ambassadors to the Foreign & Commonwealth Office while hosting the UK-Bahrain Islamic Finance Summit here in London. She said, “I am delighted to host today’s UK-Bahrain Islamic Finance Summit. It is an honour to welcome so many prominent experts from both countries at this first bilateral Islamic Finance sovereign summit of its kind in the UK.”
While referring to the deep-rooted relationship between the two countries going back nearly 200 years, Baroness Warsi mentioned, “This year we celebrate the 200th anniversary of UK-Bahrain relations. As well as the close and longstanding relationship enjoyed by our two countries, Bahrain is considered an established innovator in Islamic Finance. It issued the first international Sovereign Sukuk in 2001, which drove the Gulf Corporation Council Islamic capital market. And with the largest concentration of Islamic finance institutions in the region, Bahrain is one of the pre-eminent Islamic Finance centres in the Gulf.”
Baroness Warsi raised the question: “Why is this Islamic Finance important?” and immediately said, “Every minister in this government is a trade minister; we are constantly finding ways out to set up business.”
“Islamic Finance is growing at a remarkable pace; 50% faster than traditional banking. It is estimated that the global Islamic finance investment would be worth about 1.8 trillion and it is expected to grow at 10-15% per annum reaching at an expanding market of over 2 billion people. 5% of Bahrain,” she mentioned.
The Senior Foreign Minister also said, “Bahrain is a natural partner for the UK on Islamic Finance and as you will hear today, Bahrain is an established innovator having issued the first international Sukuk in which drove the Gulf Corporation Council Islamic capital market. Bahrain has also the biggest and one of the pre eminent Islamic finance centre in the Gulf.”
Mentioning about Islamic finance in the UK, Baroness Warsi said, “As a leading global financial centre, the UK has a great track record on Islamic Finance. We have more than twenty institutions offering Islamic finance and six wholly Shari’ah- compliant banks. We also have over twelve Universities offering related specialist courses and qualifications. It is not just in words; it is in the vein of that ambition that the Prime Minister announced at the World Islamic Economic Forum.”
South Africa and Luxemburg are already there. “So therefore the race is on. And for that reason, I am proud to say that less then this financial year. It is anticipated that this will be an Ijara structure backed by government property and growing an open competition up already appointed on this project,” said Baroness Warsi.
Baroness Warsi also mentioned, “Since the World Islamic Economic Forum we introduced Shari’ah-compliant Sukuk. Why? Because the Prime Minister fundamentally belief that religion should never be a barrier. I would add in a Shari’ah-compliant model which are very successful; part of long scheme loan more your entrepreneur are able to settle. Why we will introduce Shari’ah-compliant finance? This February we extended our scheme providers of home mortgages which are consisted of Islamic Finance. And just last month the UK regulatory body, the Bank of England and the PRA published a operating in the United Kingdom.”
Baroness Warsi expressed her ambition, “My ambition is to go further and to go a bigger role in developing Islamic finance. My vision is to create Islamic finance global club; why we will establish the global Islamic Finance and investment group which recognise the Bank of England from around the world.”
In addition to the trade relationship between UK and Bahrain, Baroness Warsi was delighted to welcome “a new agreement and a new collaboration which will be held” and “will continue following the success of the global Islamic financing investment group.”
Baroness Warsi also expressed her hope that this meeting will “develop new partnership between the private sector and the academia world”.
“We have much to share about how to grow the industry successfully. To underscore this ambition, a Memorandum of Understanding was signed at the Summit, which gives the UK and Bahrain a strong framework on which to develop our ongoing collaboration,” mentioned Baroness Warsi.
His Excellency the Governor of the Central Bank of Bahrain
Mr. Rasheed Mohammed Al-Maraj
Earlier, the Governor of the Central Bank of Bahrain, His Excellency Mr. Rasheed Mohammed Al-Maraj, addressed the delegation and said in his Bahrain keynote speech, “I would like first to express my appreciation to Baroness Symons, Baroness Warsi, for her pro-active initiative for Islamic Finance and taking the lead in organising this Summit. I would also like to thank His Excellency the UK Ambassador to Bahrain and his team for their hard work in co-organising Islamic Finance Summit. Last but not least I also like to thank the members of both the UK-and Bahrain delegation for their support and being here today.”
Speaking about Islamic Finance, Mr. Rasheed Mohammed Al-Miraj mentioned, “The Islamic Finance industry is currently valued at US$1.6 trillion dollars. It is growing at 15% per annum, and is active in almost all of the major financial centres. More than 500 institutions worldwide practice Islamic finance in banking, insurance and asset management or private equity. It is active in 75 countries. Tailored counting standards have been implemented, and a tailored risk management framework is in place to reflect the risks arising out of the unique product structure which forms heart of the industry.”
Tracing the origin of the modern Islamic Finance, Mr. Al-Maraj said, “The modern Islamic finance industry was born some forty years ago, primarily to fulfil the needs of those customers who wanted to conduct their financial affairs in accordance with the requirements of their faith. However, Islamic finance is available to all, no one is excluded from benefitting from it. The ethical foundation of Islamic finance and its emphasis on fairness for both parties dovetails nicely with contemporary thinking in relation to corporate social responsibility (CSR) and socially responsible investing (SRI). Moreover, the overriding principle of Islamic finance; namely the prohibition of debt trading, trade speculations and the selling of what you don’t own have all proven during the financial crisis that the Islamic finance business model is more resilient than its conventional counterpart.”
Mr. Al-Maraj gave a brief overview of the Islamic Finance industry today. He said, “There is a paradigm shift happening before our eyes. In a number of countries Islamic banking, for the first time, has crossed the 25% threshold. This means that a quarter or more of total banking assets in many countries undertaken within the Islamic banking framework is at or close to the critical mass required to provide the impetus for the next phase of growth - to achieve a majority market share - which could be attained more quickly than the time it took to achieve the first 25%. This is because the initial hiccups of an evolving industry have been overcome, including the implementation of robust necessary regulatory frameworks, and an exponential increase in public awareness about Islamic finance. Future growth will be more a function of supply side issues than demand side ones.”
“On the other side of the spectrum, a number of countries are opening up to Islamic finance for the first time - in Africa, Europe, Asia Pacific and Central Asia. Islamic Development Bank, a multilateral institution, dedicated to promote Islamic finance worldwide, has approved technical assistance grant requests from 8 countries to enable changes in their legal and regulatory frameworks over the next two years. Uganda, Tunisia, Mozambique, Kazakhstan, Tajikistan and Azerbaijan are included among them. Islamic finance is resurging in major economies such as Turkey and Indonesia where the current market share of Islamic finance assets is less than 5%, but with renewed government commitment the pace of growth is likely to accelerate in the near future. China, India, Russia and other emerging countries have not opened up to Islamic finance formally as yet, but they are watching with keen interest and may enter the market in the foreseeable future,” mentioned the Governor of the Central Bank of Bahrain.
Mr. Al-Maraj also said, “The recent inclusion of South Korea as a member of the Islamic Financial Services Board and the change of regulations in Hong Kong to enable Sukuk issuance are very healthy indicators of the progress of Islamic finance, and they are important indicators which are likely to uniform the decision-making process in these markets. I believe we are in the critical stage of the evolution of the Islamic finance industry based on the paradigm shift in Muslim majority markets and in new markets opening up to Islamic finance.”
Speaking about the advantage of London offering, Mr. Al-Maraj said, “Clearly, the UK Government understands the significant opportunity Islamic finance offers. Its decision to make London the leading western hub for Islamic finance reflects this. London already enjoys the reputation as the global financial centre; the addition of Islamic finance will help it attract issuers and investors from the Middle East, Far East and elsewhere to take advantage of London’s offerings.”
Mr. Al-Maraj then turned to recent events in his homeland Bahrain. He mentioned, “Bahrain was voted top in several of the international development initiatives in Islamic finance; a recognition that it remains proactive and creative in identifying and implementing initiatives”. By way of example, he said, “We recently introduced an innovative approach to the measurement of solvency for Takaful business, we are re-engineering the current market practice of Sharia-compliance, and we are currently working with a first class consultant and AAOIFI to significantly enhance the Certified Islamic Professional Accountant qualification which will make it equivalent to the conventional counterpart accreditations.”
Speaking about the future prospect of Islamic Finance, Mr. Al-Maraj said, “Let me share with you the perspective we have of what needs to be done to secure a sound and prosperous future for the Islamic finance industry globally. The excellent track- records of, and the promising opportunity in, Islamic finance provide a solid and robust foundation for this industry to advance further as a mainstream global industry.”
“I wish therefore to utilize this Summit, and our cooperative efforts thereafter, to implant the seeds of cooperation with the City of London to achieve this objective. More specifically, the City of London can play a role in the globalisation of standards issued by AAOIFI, IFSB and IIFM,” said Mr. Al-Maraj and added, “The industry needs more accomplished leadership at all levels; people who are committed to Islamic finance, understand its principles and differentiated structures and who are also good professional bankers, insurance specialists, asset managers, etc.”
Speaking about the challenges and opportunities, Mr. Al-Maraj said, “It is perhaps the biggest challenge for all of us but also the biggest opportunity if we can do it right. In addition to our joint efforts in the development of financial services and its regulation, both countries benefitted from our longstanding relationship in training and education. This partnership can be further enhanced to achieve world leading qualifications, linked with a cross-offering of vocational training and academic programme in Islamic finance. Both Bahrain and the UK have some outstanding educational and vocational institutions which are doing a great job in this space, and significant progress can be achieved through increased cooperation in this area.”
The Governor of the Central Bank of Bahrain also said, “As the financial sector is a highly regulated industry, a key component for the acceptance of Islamic finance at the regulatory and the government level. The experience of the last forty years suggests a strong correlation between regulatory clarity and the rate of growth of Islamic finance in a market. Recognising the unique aspects of Islamic finance and making necessary adjustment to the legal and regulatory frameworks is the correct approach to adopt. We are ready, able and willing to assist the City of London in its efforts in this domain.”
The FCO press release said, “Today marks an important day in the long history of Bahrain-UK relations as the two countries will be extending significant cooperation to each other to promote Islamic banking and finance. A joint committee has been formed for this purpose and a MoU has been signed. Both the UK and Bahrain have their strengths in Islamic finance education, training and practice, and their cooperation will open new opportunities for the Islamic finance industry.”
Welcome address by
Mr. Edward Oakden
Earlier, Mr. Edward Oakden, Director, Middle East and North Africa, Foreign & Commonwealth Office, gave a very warm welcome particularly to the Guest of Honour Governor of the Central Bank of Bahrain Mr. Rasheed Mohammad Al-Maraj, to the Bahraini Ambassador to the City of London, Baroness Symons and to the others distinguished guests who attended the Summit.
This is the first bilateral Islamic Finance Summit and the UK and Bahrain have had for nearly 200 years now a very strong relationship, Mr. Oakden said.
Mr. Oakden said, “Islamic finance is growing at a remarkable pace, 50% faster than traditional banking; growing 10% to /15% a year. Given the base rate is lower nonetheless it already comprises 25% of the banking in the Gulf.”
He also said, Britain is a natural partner for you in that area and even Bahrain is already an established innovatory in the field. “You have the biggest concentration of Islamic financial institutions in the region,” he said. .
As regards, UK, Mr. Oakden mentioned, “In London, here in UK, we are first nation outside the Islamic world to issue a Sovereign Sukuk; we are working hard to develop our own Islamic financial standard; already we have more than 20 institutions; wholly Shari’ah-compliant and banks. Well we have 12 Universities offering specialised courses and qualifications in Islamic finance. We tried to adjust our financial legislation to bring advantages to those who wanted to take Islamic Finance free; so we remove the double taxation from Islamic mortgages; extended tax relief on Islamic mortgages to companies and individuals.”
Besides the welcome address, the Bahrain keynote speech and the UK keynote speech, there were three sessions; the session 1 was on Investment opportunities in the UK and Bahrain, the role of Islamic finance and new innovation in investing, chaired by Sir Michael Bear, CEO, Regeneration Investment Organisation. The session 2 was on Co-operating to build excellence in Islamic finance education and training, chaired by the Baroness Morris of Bolton, OBE DL. The session 3 was on Getting the regulatory and legal environment right, chaired by Mel Beaman, Head Overseas Banks Department, Bank of England.