Islamic finance roundtable: The new contest to be the capital of Islamic finance

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After the World Islamic Economic Forum was held in a Muslim minority country – the UK – for the first time. Euromoney quizzed the envoys of rival centres on their ambitions.

Islamic finance roundtable: Participants

Why is it important for your state to develop its status as an Islamic international financial centre?

JS, Dubai
At the moment, there is no obvious frontrunner in Islamic finance in the [Middle East], and we believe that this is an area where Dubai and the Dubai International Financial Centre (DIFC) can take the lead and set a benchmark for innovation and activity, in line with His Highness Sheikh Mohammed’s recently articulated three-year strategy of Dubai becoming a global capital of the Islamic economy.

Source: World Islamic Economic Forum
The initiative illustrates the emirate’s commitment to diversifying the UAE economy and establishing Dubai as a global leader in the Islamic economy, focusing on several sectors including finance, the halal food industry, family-friendly tourism, the digital economy, fashion, economic education, and standards and certification.

SW, UK Islamic finance is growing 50% faster than traditional banking and global Islamic investments are set to grow to £1.3 trillion [$2.14 trillion] by 2014. But the UK government believes that the sector has even greater potential, and we want Islamic finance to achieve that potential here in the UK.

As the most international financial and business centre, with a leading position in emerging markets, we want to make sure a big proportion of those investments are made in and through the UK. And engaging in Islamic finance is also an important part of the government’s strategy to diversify and rebalance our economy, working with new markets and taking advantage of emerging trends.

AK, Istanbul In terms of being a financial centre, Istanbul draws its road map to be a regional hub and global actor at the beginning and then to be a global financial centre.

Istanbul is a safe haven that can attract savings from the Gulf region. This is going to be the first step in attracting long-term investments from the Gulf area to help Turkey to cope with its current-account deficit problem

NM, Luxembourg Islamic finance is a natural diversification for the financial centre, calling on skills that form the core of Luxembourg’s expertise: creativity in asset structuring, international real estate investment and cross-border distribution of financial products and services.

Luxembourg is already recognized as the leading Islamic fund centre outside the Muslim world. According to the 2013 Lipper global Islamic asset management report, it lies in third place globally, both by the number of funds (111) and assets under management ($4 billion).

What makes an attractive financial centre for Islamic finance?

KH, Bahrain Clearly there are some legal and regulatory hurdles that can prevent centres from reaching their potential. Stamp duty is a particularly well-known example of a law that can cause problems for Shariah-compliant investment and where many jurisdictions will need to adapt legislation to avoid unfair charges being imposed on many Islamic finance transactions.

Finally, as with any financial centre, Islamic finance will not thrive unless there is an experienced, well-trained local workforce in place. After all, it isn’t the buildings that matter: it’s the people you put in them.

NM, Luxembourg Any financial centre that reaches the short list must have a legal framework that accepts the concept of Islamic products and services, a network of tax treaties with the appropriate countries and a body of knowledgeable service establishments.

However, the deal is likely to be clinched by two further factors that are regularly cited as of top priority by Islamic investors: stability and political support. Stability – evidenced by political and fiscal continuity – is the first priority. This is closely followed by high-level political engagement. Islamic investors expect easy access to the relevant authorities and for these authorities to create a level playing field by confirming or adopting an appropriate legal and tax framework.

JS, Dubai The attractiveness of any financial centre is reliant on a combination of factors – the need for a market, strong regional growth and a robust infrastructure offering. These, coupled with soft infrastructure, such as legal and regulatory structures that aid and ensure market activity and growth, are critical to the success of an Islamic finance – or other financial sector – centre. In our case, DIFC works closely with the Dubai Financial Services Authority (DFSA) to ensure that legislation and regulations are updated to support the growth of Islamic finance.

What makes your state attractive for the industry?

AK, Istanbul Historically and culturally there has been substantial knowledge in Turkey of Islamic finance and financial practices since the Ottoman period. Turkey’s geographic and political proximity to Europe and the Gulf countries increases its chance of becoming a centre.

NM, Luxembourg Luxembourg combines a high level of physical security (the city is frequently nominated safest city in the world), together with exceptional political, economic and social stability.