Islamic banks in London reject Brexit fear

Islamic banks and asset managers based in London have played down the impact of the UK vote to leave the European Union, amid wider fears the move could spell an exodus from the world’s financial capital. The Brexit result has caused turmoil in the markets, sending the pound to a 31-year low and wiping trillions […]

Islamic banks and asset managers based in London have played down the impact of the UK vote to leave the European Union, amid wider fears the move could spell an exodus from the world’s financial capital.

The Brexit result has caused turmoil in the markets, sending the pound to a 31-year low and wiping trillions of dollars off world equities in the immediate aftermath of the June 23 vote.

And on Thursday, four more companies – Aberdeen Fund Managers, Canada Life, Columbia Threadneedle and Global Henderson – suspended withdrawals from property funds amid a rush to the exits.

The pound, meanwhile, was at US$1.30 (Dh4.77) in afternoon trading, down by about 13 per cent from its level before the Brexit result.

The Brexit fallout risks undoing the years of work the UK has spent building its standing as the western hub for Islamic finance. David Cameron, the British prime minister, in 2013 told the World Islamic Economic Forum that he wanted London to “stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world”. In 2014, the UK government issued a £200 million (Dh955m) sukuk, the first such sovereign bond issued by a country outside the Islamic world.

At the same time, some specialists in the field believe the current fears are overstated.

The UK-listed asset manager Rasmala, which operates several Sharia-compliant funds, has downplayed the possible effects on the Islamic finance sector of the decision to leave the EU, while the Bank of London & The Middle East (BLME) said it is “open for business as usual” following the vote.

The exit of the UK from the EU would likely mean that London-based financial institutions lose “passporting” privileges, which allow them to access the single market without restrictions. Those rights were cited by many campaigners as one of many reasons for Britain to remain a member of the EU.

But Zak Hydari, the chief executive of Rasmala, said that this is not of great importance.

“European passporting has not been of significant importance to domestic Islamic banks in Europe since their operations are typically confined to the home market and are not typically pan-European,” Mr Hydari said in an interview. “As a result, deposit taking should not necessarily be affected by Brexit.”

Rasmala targets Gulf investors, offering conventional and Sharia-compliant investment products. Rasmala’s thinly traded shares have dipped since the Brexit vote, from 97.5 pence on June 23 to 94.5 pence yesterday afternoon on London’s AIM.

Mr Hydari said that he had not seen a big impact on investors’ attitudes following the Brexit vote. “At this early stage, investors [who are typically Gulf-based] have not yet expressed significant concerns since markets like the UK are considered fundamentally robust and transparent and therefore remain attractive in the long-term.

“Some Gulf investors may indeed consider the recent currency movements as a potential buying opportunity,” he said.

Mr Hydari said that he does not see the UK’s standing in Islamic finance being reduced.

“Since the early 2000s, the UK’s Islamic finance ambitions have been driven by the development of a strong legislative framework that allows for Islamic finance to operate on a level playing field. This does not change as a result of Brexit,” he said. “The UK’s aspiration to be the leading non-Muslim majority Islamic finance hub will mirror the ongoing status of London as a global conventional financial centre.”

The Sharia-compliant BLME said that it planned to continue its operations in the UK capital despite the Brexit vote.

“Following the vote to leave the EU there will be much debate about what happens next,” a spokeswoman said. “We are clear that we remain committed to our customers. We are open for business as usual in London and Manchester and there are no plans for this to change. BLME will continue to work closely with government and the regulator to develop an environment in which Sharia finance and investment can thrive.”

Despite the “business as usual” outlook held by Rasmala and BLME, some observers are warning of a potential impact on the Islamic finance sector.

Nafis Alam, an associate professor of finance and the director of the Centre for Islamic Business Finance and Research at the University of Nottingham’s Malaysia campus, wrote that the referendum result might lead London to “lose its jewel in the crown and Islamic investors … look for a more favourable hub such as Paris, Frankfurt or Berlin”.

He said that it was “too early to assess” whether there will be a long-term impact on London’s Islamic finance sector. But if conventional banks start leaving London, their Islamic counterparts could follow, he said.

“London is seen as being like the Malaysia of Islamic finance in the western world,” Mr Alam said. “If there is a movement of capital from the London banking sector, or if there is a lot of brain drain in the UK in terms of the financial expertise, that will give a dent to [the growth of] Islamic finance in the long run.”

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