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So it did not surprise me that the founding shareholders of the Islamic Bank of Britain (IBB) have chosen Mr. Malik to head the most innovative new bank in the City of London. It is great to see a prominent Bahraini ex UAE based banker resurface as CEO of a new City of London bank dedicated to Islamic finance.
The Islamic Bank of Britain is no run of the mill Sharia compliant bank. As a FSA regulated London bank, it will immediately register on the financial radar screens of the 1.8 million Muslims in the United Kingdom, a primarily Arab and South Asian origin population.
While HSBC Amana existed to provide Muslim investors with products such as UK Islamic mortgages, the beauty of IBB is that it is a new venture bankrolled by elite, British and Arab world institutions that has been awarded an operating license by the UK’s Financial Services Authority. Regulatory transparency has inhibited the growth of Islamic finance in the West, so a FSA imprimatur is crucial. The growth potential of the new bank encompasses 10 million Muslims across the European Union – four times the population of UAE where forty seven banks duke it out in competition.
It is significant to see a new Islamic bank in London after the post- 9/11 regulatory scrutiny of this sector and the earlier order from the Bank of England to Saudi’s Dallah Baraka Group to close down its London subsidiary.
The IBB is more than a commercial venture. It is a symbol of the religious and cultural values of British Muslims - a community besieged ever since the Twin Towers went down three fateful years ago. It exists not just to make a profit for its shareholders but to prove to the international financial markets that Muslim banks can compete with professional aplomb and high ethics on the global stage. As the crucible of the Euromarkets, London is the epicenter of the global financial village, the place where a new bank can either win or lose big. The grim memories of the BCCI failure, the largest bank fraud in banking history, still haunts the memories of senior bankers and reinforces their prejudices against Arab, Muslim and Pakistani bankers. Bizarrely enough, many senior London bankers I meet still remember BCCI as an “Islamic bank” though it was nothing of the sort, but a commercial bank steeped in the Western interest based financing system. Sure, there have been major scandals in Islamic finance in the Middle East - Egypt’s Al Rayan, Pakistani’s mudarabas were major frauds where millions of depositors lost their savings. There is still no international regulatory regime to regulate Islamic banks, let alone standard, of Sharia compliance, liquidity in balance sheets, product diversity and lender of the last resorts. No indigenous Islamic bank has emerged with a credible global brands not even Prince Mohammed Al Faisal Al Saud’s DMI, which pioneered Islamic finance two decades ago and had a transnational dimension since its very genesis. This is both an opportunity and a challenge for IBB, which can create a new paradigm shift for Islamic banking on the European stage if it succeeds.
Retail Islamic banking product innovation, pricing and product supply has been far greater in the Middle East than in Western Europe. So there are great competitive pricing and product innovation opportunities that IBB can exploit to project growth. Existing Islamic banking products in the UK are of limited provenance and often more expensive than conventional products.
The establishment of the IBB in London underscores that Islamic banking is a fast growing, credible niche of the global financial services industry. Assets of Islamic bank’s worldwide are estimated at $270 billion and insiders speak of annual compound growth rates in excess of 15 per cent. There are almost 200 Islamic banks now operating in four dozen countries with offices in all major financial centers Apart from retail banking, Islamic banks have emerged as a major force in project finance, leasing real estate and trade commodity finance. The establishment of the Dow Jones Islamic Index has also proven a bonanza for the proliferation of Sharia compliant sector, country and global funds. Some of these Islamic equity funds – since they could not invest in highly leveraged shares such as Enron or Worldcom – actually outperformed their conventional peers in the global bear market in 2002-2003.
The one successful Islamic institution in UAE finance has been Dubai Islamic Bank, whose profitability, balance sheet, management bandwidth and product offering (not to mention share price!) has exploded in the past twelve months. Given the historic ties between the emirate of Dubai and Britain, DIB could immediately make a name for itself in the global banking world by opening a branch or subsidiary in London. The formation of IBB proves that a huge opportunity exists in Europe for retail Islamic finance and wealth management for retail Islamic finance and wealth management products. A DIB branch in London will be great for the bank, great for Dubai and the UAE and above all great for the cause of Islamic banking in Britain. An idea worth exploring!
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