Speech to the World Islamic Economic Forum in Kuala Lumpur, 20 May 2010
I am delighted to be invited here today and to be given this opportunity to make this lunchtime address at this year’s World Islamic Economic Forum.
As you have heard, I am the United Kingdom’s Special Representative for International Trade and Investment, a role which I have performed for the last 10 years, I hope to the benefit of UK businesses around the world whilst also promoting the UK as an attractive inward investment destination for foreign investors.
This afternoon I want to concentrate a little more on finance.
London is a global financial services centre. It has recognised that there is a need to strike the right balance between risk taking and the requirement to provide capital to stimulate businesses in any investment climate. Financial instruments, of any hue or invention are important tools in the armoury of a financier in order to achieve that balance. Islamic Financial instruments are one of these tools.
This is ever more relevant because, by whatever measure you apply, the Islamic World constitutes a major and growing part of the global population – including over 2 million inside the UK alone. And the sophistication of these investors grows each day and the need for a multitude of offers that give a rate of return or profit commensurate with the customer’s requirements are increasing in demand.
Events such as this provide an important opportunity to a great number of savvy customers and inquisitive providers, not only to attend the formal sessions, but for more informal discussions, to allow the participants to share their views, discuss new ideas and to make our world more tolerant, more prosperous and improve ourselves and the living standards for all.
In the UK we are building on a very long tradition of British trade with the Islamic World. For example, in the British Museum there is a gold coin (one of a number) produced during the reign of King Offa of Mercia, who reigned in the British Isles more than 1,200 year ago.
On one side of that ancient coin is an Arabic inscription of the declaration of the Islamic faith: “There is no god but Allah” – proof I believe that King Offa’s subjects were even at that time trading with the Islamic world. (Or perhaps, if I was being unkind to the British, or more truthful, took a wrong turn after the Straits of Gibraltar!)
As long ago as 1154AD a Muslim cartographer, Mohammed al-Idrisi, roduced a map to help traders and seafarers find their way to Britain. He described Britain as, “Being bathed on the west by a Sea of Darkness, there come continually from that direction mists and rain, and the sky is always overcast, particularly on the coast”.
Whilst I’m afraid to say the British weather hasn’t particularly improved since that time, our trade with the Islamic World definitely has!
Indeed, in my own capacity as the UK’s Special Representative for International Trade and Investment, which I have been doing as you know, for the last 10 years I have been a regular visitor to Islamic countries across the world and in Asia particularly.
All of these visits have left me enormously impressed with the developments in those markets and the business potential which they offer.
Increasingly our trade, in all its forms, with the Islamic world involves the use of Islamic finance. When I was last in Kuala Lumpur during the Independence Celebrations in 2007, I gave another speech profiling the importance of Asset Backed finance, what we all now call Islamic Finance to the global economy. I didn’t quite appreciate how prescient that speech was, because shortly afterwards the credit crunch started to bite and a year later Lehman Brothers collapsed, which sent the global economy spiralling downwards in a way none of us had seen before and I believe none of us wants to see again.
Some observers consider, fortunately, that the worst of the global recession seems to be behind us, although I am fairly sure it could be a bumpy ride for a while to come. Islamic finance, with its risk profile and structures will play its part in getting global finance back on track and will continue to be used to do business in the future.
To those of you who have worked with Islamic finance for many years this will of course be of no surprise. But to others less familiar, the rise in profile of Islamic finance will be something that will sit comfortably alongside the products and services that you already provide. There are an increasing number of non-Muslim executives and Finance Directors in the UK who are now attending workshops and seminars to learn how Islamic finance works and how it might benefit their business.
The potential size of the Islamic finance market is huge. According to Standard and Poors Ratings Services, Shariah-compliant assets reached US$400 billion in 2009, a not insignificant amount during a tremendously rough year for the global economy. With the improved economic conditions there must be scope for a prolonged market growth in the future.
As I have said, if there is one thing we all want to avoid it is another financial meltdown. The sharing of ideas and best practice is to be encouraged and if it helps prevent that version of the future. That is not to say that one system or approach is necessarily better than another.
But what it does show is that we can all learn from each other and must be willing to explore different approaches to keep the wheels of commerce moving smoothly.
As you might expect, I am confident that London can play a major role in the growth and further progress of the Islamic finance sector. The UK is already the largest centre in the Western world for Islamic Finance and the 8th largest globally. The new UK Islamic Finance Secretariat, the first Islamic Finance Trade Body in the UK, was launched in London at the end of March, with the aim of coordinating and promoting the development of Islamic Finance in the UK.
It will be looking to build upon, for example, the 22 Islamic banks that already have an operation in London. To the 20 Sukuk issues that have already been issued in London that have so far raised over $11 Billion, and only yesterday the Malaysian Ministry of Finance here announced one through HSBC, Barclays and CIMB; and then there are the 20 law firms in London which provide specialist services in Islamic finance.
Only yesterday I opened a new Branch of HSBC’s Amanah bank in Kuala Lumpur, showing that leading UK banks are serious about the potential growth of Islamic finance. HSBC as well as Standard Chartered, both leading British banks, have based substantial Islamic finance operations here in Malaysia where they have direct access to one of the world’s leading Islamic finance markets, and can also tap into the skilled human capital required to make their operations a success.
In the insurance market, Prudential has a long history of providing Islamic finance (including 85 years in Malaysia alone) and I am delighted that last year it launched its new Islamic asset Management Business, Prudential Al Wara. Similarly, the British insurer Aviva has a joint-venture with CIMB Group, offering a takaful product.
Just by way of an aside, I learnt that such products are not as new as we think. Lloyds of London has a history dating back to the early 17th century, and indeed the will of Robert Hayman in 1628 possibly illustrates one of the first takaful insurance policies.
His will read:
“And whereas I have left in the hands of Doctor Ducke Channcellor of London two pollicies of insurance the one of one hundred pounds for the safe arivall of our Shipp in Guiana which is in mine owne name, if we miscarry by the waie (which God forbid) I bequeath the advantage thereof to my said Cosin Thomas Muchell…whereas there is an other insurance of one hundred pounds assured by the said Doctor Arthur Ducke on my life for one yeare if I chance to die within that tyme I entreat the said doctor Ducke to make it over to the said Thomas Muchell his kinsman…”
This shows that today’s Islamic financing products are building on a proud history and aren’t so new as some would think. We could be about to make a significant step in the face of the last financial crisis where the use of computer modelling is replaced by a more traditional form of banking where actually knowing your customer and assets or at least a significant proportion is required before loans or mortgages are lent. And if there is one thing that will increase the success of Islamic Finance it will be the institutionalisation of the regulation and compliance as has happened here in Malaysia.
Whilst I have concentrated on finance, Britain in the Islamic world is wider than just the finance sector, and I pick just example now for time: Education. Yesterday, I visited Nottingham University’s campus just outside Kuala Lumpur to celebrate their 10th anniversary. This is just one of the more than 80 British universities offering students here the chance to study for a British qualification. This is in addition to the 12,000 Malaysian students that are studying in the UK. We know that these types of educational experiences build links between faiths and our countries over a student’s lifetime and that is a great foundation to build on into the future.
So it is encouraging that leading Universities such as Reading and the Oxford Centre for Islamic Studies, of which my elder brother is the Patron, are working so hard to build tolerance and acceptance through outreach programmes, international conferences and by inviting leading Islamic scholars to the UK to share their knowledge.
As I have said, London is the leading financial services centre in the world. It has its doors open for all of you to work with us to innovate and drive forward Islamic financial instruments as increasingly important tools in years to come.
London also represents an excellent entry point to the market in Europe. It also is a platform upon which you can develop your global strategy. It has a cosmopolitan and tolerant society and a financial centre bustling with innovation. This afternoon I wish you every success in your deliberations this week and especially in your business endeavours wherever they may take you but I look forward to seeing you in The United Kingdom with your businesses in the future.
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