British observers have criticised and praised The Shard, London’s tallest building, in equal measure.
Points of disagreement range from its controversial design to the sheer scale of the project. One thing they can agree on is that the 308-metre tall tower symbolises something important about London, for good or ill.
In 2008, as the credit crunch hit the United Kingdom, a consortium of Qatari banks bought an 80 per cent stake in The Shard. The purchase contract was Sharia-compliant. Typically, a musharaka is an agreement through which the participants jointly undertake a business venture, from which they earn profits or take losses in line with their capital contributions.
For advocates of Islamic finance, this is an example of how London is well-suited to become a home to the world’s fast-growing financial sector and how it can compete with Dubai’s aim to become the capital of the Islamic economy by 2016.
“I want London to stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world,” the British prime minister David Cameron said at the World Islamic Economic Forum in London last year. The UK was the first country outside the Islamic world to host the event.
In June this year, the UK issued a landmark £200 million sukuk. Investors earn revenue generated from the transfer of ownership of three government properties, forming an ijara. The National Bank of Abu Dhabi helped to structure the product, which was 10 times oversubscribed.
“London’s reputation as Europe’s leading centre for Islamic finance, products and professional services goes from strength to strength,” said the London mayor Boris Johnson.
Harris Irfan, the managing director of the European Islamic Investment Bank and the author of Heaven’s Bankers: Inside the Hidden World of Islamic Bankers, says it is easier to conduct Islamic finance activities in the UK than in most Muslim-majority countries.
“The UK is a massively enabling environment for Islamic finance. There is an excellent, level playing field, from both a tax and legislative point of view,” he says.
There are also the skills and infrastructure to launch small, specialist banks with more creative and thoughtful approaches to Islamic finance, Mr Irfan believes.
“London is a large global capital of finance, and has access to a lot of talent,” he says.
The UK’s legal system is a great strength for the development of Islamic finance, says Professor Habib Ahmed, the Sharjah chair of Islamic Economics and Finance at the University of Durham in England, potentially giving it the edge over Dubai.
“English law has a long history and is more predictable than UAE law, so most international Islamic contracts are governed by English law,” he says.
While UK judges are formally barred from applying Sharia principles in their decision making, that does not prevent contracting parties from using Sharia-consistent principles in their contracts, Prof Ahmed says.
This means judges’ decisions will be in line with Sharia, so long as the relevant clauses do not clash with UK legislation.
“There’s not really any kind of problem with taking Islamic disputes to an English court,” Prof Ahmed says.
The UK government has been proactive in adjusting the law to ensure that Islamic banks face a level playing field. One example is how the UK government treated Islamic home financing products for tax purposes.
In ijara contracts used to fund consumer house purchases, UK law originally stipulated both parties would be taxed each time the house changed hands, while purchasers of conventional mortgages would be taxed only once.
This was changed in 2003.
With Dubai aiming to become the capital of the Islamic finance world by 2016, competition to claim the biggest share of the estimated US$1.7 trillion industry is heating up.
Originally published on www.thenational.ae