I broadly welcomed the announcement from the Prime Minister at the opening of the World Islamic Economic Forum that a new Islamic Index will be created on the London Stock Exchange and that there are real plans afoot for the UK Government to issue a £200m Islamic bond, or sukuk. With global Islamic investments expected to hit over £1.3 trillion next year, the fact that 25 per cent of the world’s population is Muslim and yet with Islamic finance accounting for only 1 per cent of all global finance the UK Government is right to identify Islamic finance as a key growth area.
With growth of over 150 per cent in Islamic finance in the last seven years alone, this is trajectory the UK is right to be grasping. But among all the arguments around increasing the competiveness of London as a financial sector was a wider point missed?
As well as economic competiveness, Islamic finance offers a unique opportunity for broader relationship building between the West and the Islamic world, and in particular the Middle East, which could have important foreign policy outcomes. In an age of fiscal restraint, defence retrenchment and conflict weariness in the West, the PM's announcement offers the chance to build a new type of multi-lateral alliance between regions, driven not by traditional diplomatic tools but by business and global investors, overseen by government.
This new type of alliance is likely to be less constrained by traditional short-term political considerations. Given on-going disagreement with the west over how to respond to issues across the Middle East, Islamic finance offers a new focus around which both politicians and the international business community can rally around. Outstanding political questions remain, particularly around the viability and taxpayer risk of the sukuk which need to be ironed out with strong political will. I urge the UK Government to stick to the task. Political history teaches us that commerce leads to peace and stability.
In addition for the UK, the setting up of London as an Islamic finance centre allows the UK to begin to invest in the region, complementing the last few decades of, particularly Gulf sponsored, investment in the UK. It also enables the UK Government to focus on investing in, and building up, assets which suit the UK’s broader foreign and defence policy in the region such as around security, energy, technology and defence co-operation. The challenge for Islamic finance is to truly compete on an international scale, recognising the need for greater innovation and creativity to distinguish it from conventional banking and enable the sector to solve problems that cannot be addressed by current banking arrangements. In the process, we open up the possibility of a whole new range of bi-lateral and multi-lateral arrangements as well as building much needed understanding between the two regions.
This new economically-driven foreign and defence policy is already occurring through the development of military partnerships between the UK and the countries of the Gulf Co-operation Council (where UK exports now amount to £17bn per year). A recognition that the Islamic world is a growing economic region as well as a centre of trade and finance as well as an entry point to a whole new set of markets must continue to guide UK foreign policy. And the specific role of Islamic finance should be properly considered as an important tool in this armoury.
Mohammed Al Ardhi is the Vice Chairman of The National Bank of Oman, which is at the heart of Islamic Finance in Oman and received the “Banker of the Year” award from the Banking Magazine for the development of Islamic Finance across the Gulf Region. Al Ardhi is also the former Chief of the Omani Air Force and a member of the International Advisory Board of the Brookings Institute.