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All roads lead to London

11.10.2010

All roads lead to London

All roads lead to London

Given their own Islamic financial services sector, why would Malaysian investors opt for a London-based bank?

 

Why would a Malaysian investor come to the UK for Shariah-compliant financial services? The answer is simple: for innovation, mediation and market depth. Not only is it the leading global financial centre; it has also emerged as a credible global Islamic financial centre.

 

“London historically prospered as the centre of trade and finance because it got the mix right: finance supported commercial activity,” says Gatehouse CEO Richard Thomas. “The global crisis has shown the flaws of the casino side of the financial services sector – making money out of making money. ”That approach isn’t sustainable,” he adds. “It’s a zero sum game.”

 

Innovation centre

In the aftermath of the financial crisis, the City has gone back to its roots with the shift away from financial engineering and towards financing real deals. 

 

The means will come from the market itself – specifically from its capacity for innovation. After all, the City has always responded and adapted to new ideas.

 

“The Shariah-compliant products that are needed for investment – financing, and mezzanine type equivalents, debt equivalents – will come from London,” says Thomas.

He points out that, given that some UK Islamic banks launched before and during the crisis, it’s a testament to their durability – and the commitment of their shareholders – that any of them are still here. “In other institutions, the shareholders would have been long gone,” he says.

 

Islamic partnership

 

In future, Gatehouse won’t just be partnering with other Islamic banks. In international markets, greater product ranges potentially offer greater opportunities to work with overseas institutions.

“There is vast financial growth in the GCC and Southeast Asia that needs to be accommodated,” he says. “The pressure to provide solutions increases over time. As we become more sophisticated, we can do more to provide solutions at the local level and to benefit from those markets’ growth.”

 

London as a filter

 

The best part about London’s role as an Islamic financial services provider comes from its ability to connect with other centres. Malaysia as a natural Islamic jurisdiction of choice for SE Asia and its international neighbours finds common synergies with London. Together both centres participate and thrive in a global industry for Islamic financial services.

 

Its ability to work both with Malaysian and Middle Eastern institutions and with investors – and to steer between sometimes divergent interpretations of Islamic finance – suggests another explanation why London provides a global hub for Islamic finance.

 

If Gatehouse were to engage in a transaction with a Malaysian counterparty, for example, there might be some discretion to accept a Malaysian interpretation, according to Mufti Muhammad Nurullah Shikder, head of Shariah services at Gatehouse Bank.

 

“Malaysia and the Middle East have different perceptions of Shariah- compliant finance. There’s more tolerance of debt in Malaysia, for example. But the differences are far outweighed by the similarities,” says Thomas.

 

London offers an effective conduit that can accommodate both approaches – and make it easier to develop universally acceptable products, for example.

“London’s big advantage is that it can work with both,” he says.