The Islamic financial market has has grown exponentially over the last decade and at the World Islamic Economic Forum (WIEF) roundtable event in London on Wednesday, it was clear that many institutions are planning to increase their Shariah-compliant product offering.
In Malaysia, where the WIEF is based, the Deputy Finance Minister Datuk Dr Awang Adek Hussin announced this week that "at a time when world economy is slowing down, Islamic finance is, more than ever, central to our agenda for sustainable growth and development."
The most actively traded Islamic finance product is the Sukuk, which is a bond which pays asset returns to comply with Islam's ban on interest. Global sales are worth $7.2bn in 2010, which is more than double the $3.4bn sold in the same period last year, according to Bloomberg data.
While the country enjoys a 60 percent market share of outstanding global Sukuk sales, Hussin said that foreign currency-denominated sukuk in Malaysia, accounts for 14.5 per cent of US dollar-denominated sukuk issued globally, showing a rise in foreign appetite for Islamic finance.
While major Western investment banks, such as Barclays and HSBC have broadened out their Islamic banking offerings over the last few years, Shariah-compliant products are becoming more and more accepted in non-Muslim economies.
Symbolically, for the first time since WIEF's creation, it will host its main conference in London next year, as it sees London as one of the linchpins for Islamic finance growth in non-Muslim countries.
Speaking to IBTimes UK at the recent event, Sir Iqbal Sacranie, former Secretary General of the Muslim Council of Britain and now chairman of the MCB Charitable Foundation told us why the UK is the key to Islamic finance success in the West and how it will be a platform to promote a Shariah-compliant economy.
Q: Why would you say that Britain is a key place for growing the Islamic finance market and why has it been adopted in the UK, more than other non-Muslim countries?
IS: There is a uniqueness to Britain. It has had linkages with Islamic trade and finance for centuries. While it is not a Muslim country, there is an understanding of different cultures and a wonderful relationship with the Middle East, which has been understood and therefore has resulted in action.
What we have been trying to encourage is a deeper understanding that Islamic finance products can be applied to those who are not followers of Islamic faith, as much as Muslims. The products follow moderate principles and ethical investment.
The UK has been very responsive to our structure and when we said that it was unfair that we got double taxed from property, this was removed. [Referring to the when financial arrangements for property purchase involving transactions with the lending institution that are consequential to the main property transaction, in order to comply with Sharia law, are now exempt from Stamp Duty Land Tax (SDLT)]
Gordon Brown, who was Chancellor of the Exchequer at the time, took the time really understand what Islamic finance entailed and how it could benefit Britain and this really paved the way for further discussions in how Sharia law could be applied to finance.
We've already seen a huge wave of change as Barclays, HSBC and Natwest already have a strong Islamic banking arm.
However, ideally, we would like Islamic finance to become part of the mainstream, not a caveat to "regular" finance.
Q: What needs to be done in terms of rolling out Islamic finance into the mainstream?
IS: There are still a number of structural issues that need to be made clearer. For instance, there needs to be more structural consistency and coherency between all the Islamic finance markets across the world.
In tandem with pushing Islamic finance into the mainstream, there also needs to be more education into understanding the products and of course for more experienced financial industry players to engage in trading Sharia compliant investments.
Q: Apart from education, what other hurdles do you see Islamic finance having to overcome, when it comes to the growth of it in the UK?
IS: The one major hurdle is the word 'Islamic.' In reality there are still a number of sections in society that are sensitive to the word and who would automatically have a concept of Islam with negative connotations.
If we try and remove those hurdles at the beginning by enhancing better education and to see, then people will see that there are many positives to Islam.
Q: But how would you practically see this happening? For instance, would you say more courses in school or more publically available education courses?
IS: Learning about Islam, Sharia law and therefore Islamic finance should be seen as a mainstream topic to cover and not a fringe issue. Colleges and universities should also adopt it at a similar level in order to have a generation where the area is more understood.
The current Western financial system has created a lot of problems and destruction to society and there is a greater divide between the rich and poor.
Islamic finance has been successful for centuries and has been reinvented to make it more applicable to society today. The West should be looking to adopt Islamic finance more, especially in the current economic landscape.
Q: But, in practical terms, of the UK adopting Islamic finance on a broader scale, would this mean that a lot of legal framework would have to change?
IS: No, existing laws would not need to change, Sharia law can work alongside it.
Q: But what would you say that this would create a two-tier financial law framework?
IS: That is simply not true. With the double taxation, there was clearly unfairness as part of what Islamic mortgages entails but that was addressed. But broadly, Islamic finance and Sharia can work alongside existing law.
Even the principles of the investments can greatly help the financial system moving forward.
Q: So in product terms, what can mainstream banking, learn from Islamic finance?
IS: The huge economic crisis over the last 5 to 6 years led to a collapse across the European continent, while most, apart from a couple, Middle Eastern banks remain unscathed.
This is because complex derivatives are alien to Islamic finance. We do not subscribe to them.
There is a more transparency, clarity and simplicity when it comes to Islamic finance, which is less risky for both parties. For example, a Musharaka, is a flexible partnership contract between two or more parties who all contribute capital towards the funding of a project or asset.
Both parties are aware of where their money is going and profits are pre- agreed with any losses being shared on the basis of the contributed capital.
The Sharia compliant bond, the Sukuk is a flourishing Islamic product, as the safety and guarantee of the buyer's money is a given. Every time a government will issue an Islamic bond, it is always oversubscribed.