BMI View: The UK's plans to issue a sukuk bodes well for the country seeing rapid growth in Islamic Banking. Given the lack of coherence on a global level, we expect regional hubs to emerge with London best placed to service Europe's demands. Elsewhere, Nigeria and Thailand look set to see rapid growth from a low base and become centres of Islamic finance for Africa and parts of Southeast Asia, respectively.
The UK's decision to enter the Islamic Banking sector bodes well for the country becoming a major centre of the US$1.5bn industry. The UK chancellor, George Osborne, announced plans for Britain to issue a GBP200mn sukuk - the first country outside the Muslim world to issue an Islamic bond. Whilst precise details on the sukuk have yet to be clarified, it is likely to be backed by rent on government property. Benefitting from first mover advantage, as well as its position as a global financial centre, it is likely that the UK will be a key growth driver in Islamic Banking over the coming years.
|Britain Trying To Get A Share Of The Pie|
|Global Islamic Bond Issuance|
The UK has already witnessed several high-profile shari'a-compliant deals such as the GBP150mn Qatari investment in the Shard building and the £1.5bn Dubai investment in the London Gateway, the UK's first deep-sea container port. In addition, the UK has more sharia-compliant banks than any other western European country. Whilst Paris and Amsterdam are also looking to develop Islamic Banking sectors, it is likely that London will gain pre-eminence. Indeed, we have previously noted that a constraint on Islamic Banking's global growth is the lack of a standardised framework with the Middle East competing with Malaysia to become the global 'home' for Islamic Banking (See 'Islamic Banking: Growth Slowing, But Huge Potential Remains' July 18). Given the lack of coherence on a global level, London is therefore well placed to meet the growing demands for Islamic Banking in Europe.
|Finance To Remain Dominant|
|Global - Share Of Islamic Bonds (2013)|
Key Regional Hubs
Outside of Europe, we highlight potential future hubs in Africa and Asia.
Sub-Saharan Africa: At present, Nigeria looks well placed to develop into Africa's Islamic Banking Centre. The Nigerian government, specifically Lamido Sanusi the governor of the central bank of Nigeria, stated that the country was planning to issue its first sovereign sukuk, although no decision had yet been made on the size of any potential issue. This would be a very exciting development for Islamic finance in the region given that Nigeria is Sub-Saharan Africa's second largest economy, home to 78mn Muslims, has a sizeable middle class, and a relatively developed banking sector by SSA standards.
Emerging Asia: Elsewhere in Asia, Thailand (where Muslims make up approximately 5% of the population) has made moves to become a key Islamic finance player. Recently, the cabinet approved tax incentives whereby capital gains and income tax will be waived for both issuers of and investors in sukuk. Given the large and growing Muslim populations in much of Asia, in addition to their ability to tap into the solid expertise of more well-established financial centres in Malaysia and to a lesser extent Indonesia, there is considerable scope for growth.