Islamic Finance

The UK has sought to put itself at the forefront of Islamic finance and made a loud statement of intent in 2014 with the issuance of its GBP200 million (US$312.4 million) Sukuk – the first to be issued by a European government. While this was certainly a high point for Islamic finance in the UK, it actually represents the culmination of years of positive steps by successive British governments to promote Islamic finance in both the domestic retail markets and in international financial markets.

On the wholesale markets side, London has long been one of the main venues of choice for listing Sukuk (57 Sukuk have been listed on the London Stock Exchange) and the London Stock Exchange was quick to understand the nature of Sukuk, introducing a specific category for asset-based securities to avoid any overlap with conventional securitization structures.

Successive Finance Acts in 2005, 2007 and 2009 provided specific legislation relating to Islamic finance, and the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2010 introduced the concept of ‘alternative finance investment bonds’ in Article 77A to specifically cover Sukuk issues.

The UK reaffirmed its commitment to Islamic finance this year under the recently issued Emirates Sukuk. Emirates issued its US$917.03 million 2.475% Sukuk due 2025 on the 31st March 2015 with the benefit of a guarantee from UK Export Finance. This landmark Sukuk issuance was the first to be guaranteed by an export credit agency and is further evidence of the commitment of the UK to Islamic finance. The UK government’s inaugural GBP200 million Sukuk in 2014 made good on the government’s assertions over recent years of its willingness to promote London as an Islamic finance center to complement its status as one of the world’s leading financial centers. The issue size of this Sukuk was, in the context of government securities, a small one but its importance in the promotion of the Islamic finance industry in the UK cannot be underestimated. The fact that this has been backed up by UK Export Finance shows that there is a real drive in the UK to promote and nurture Islamic finance.

The main driver for UK Export Finance’s guarantee of the Emirates Sukuk was that the use of proceeds of the Sukuk was to be directed toward the payment for four A380-800 aircraft to be manufactured by Airbus. The wings for an A380 are manufactured in the UK at Broughton with Airbus also maintaining a support facility at Filton in connection with wings manufacture and associated research, systems and structures.

UK Export Finance’s aim is to support exporters of UK manufactured goods and services through the provisions of guarantees and, as such, the Airbus A380 project is a natural fit. The pricing that was achieved on the Sukuk was clearly driven by the creditworthiness of the UK government combined with the growth to prominence of Emirates as the world’s leading airline.

By issuing a sovereign Sukuk and now providing Sukuk guarantees, the UK has shown its commitment to Islamic finance which will no doubt lead to the growth in transactions of a similar nature to the Emirates Sukuk and the wider implications for Islamic finance in the UK are extremely positive.

The UK courts have also been at the forefront of disputes around Islamic finance instruments and English case law provides some of the most comprehensive (albeit still very limited) analysis of the treatment of contracts that are drafted so as to comply with Islamic principles.

In the Shamil Bank case (Shamil Bank of Bahrain v Beximco Pharmaceuticals and others [2004] EWCA Civ 19), the Court of Appeal held that English courts would look at contracts solely from the perspective of English law and would not have regard to the precepts of Islam in handing down a judgement: such matters were the exclusive preserve of Islamic courts and contracting parties are free to take their disputes before such courts should they wish.

The Blom Bank case (The Investment Dar Company v Blom Developments Bank [2009] EWHC 3545) raised some interesting alternative possibilities for the interpretation of Shariah compliant contracts. The Blom Bank case was one that was rejected for summary judgment but never went to full trial. However, the judge in that case did consider whether Shariah advisors could be called to provide evidence as expert witnesses. Unfortunately this was never fully explored.

Nevertheless, the willingness of the English courts to consider Islamic finance contracts and to examine their interpretation has been a factor for many parties in selecting English law as the most appropriate choice of law for international Islamic finance transactions.

Real momentum has been gathering over recent years putt ing London at the forefront of Islamic finance outside the traditional centers of Malaysia and the Middle East. This appears to be an astute move by the UK government as countries typically associated with Islamic finance move away from oil and petrochemicals-based economies and seek to diversify their international investments. Islamic markets remain short of the diversity of investment products that are available to conventional investors, a problem that London is ideally placed to help solve.

London’s unparalleled expertise in the structuring, marketing and execution of complex structured finance transactions means that it is a natural fit to be at the forefront of developing the next phase of Islamic finance products.

Originally published on www.islamicfinancenews.com

Samina Akram left her job at Merrill Lynch International Bank eight years ago to start her own consultancy in London specializing in Shariah-compliant finance. Now she’s seeking to empower women in male-dominated Islamic banking.

What started as an informal ladies lunch club with other women in the industry will this week become the first global Women in Islamic & Ethical Finance Forum, a conference for more than 200 people at KPMG LLP’s Canary Wharf offices in London. Shariah-compliant finance forbids interest and typically relies on deals in which the buyer and the seller share risk as well as profit.

Akram, 36, who set up Samak Consultants LLP, is seeking to support women in an industry where they face more obstacles than in conventional banking because of religious conservatism, restrictions on mixed-gender working environments and stereotypes about women in Islamic finance.

In the six-nation Gulf Cooperation Council a shift may already be under way, as the region’s banks aim to draw more female clients and recognize they need more female bankers to do so, according to PricewaterhouseCoopers LLC. Women’s net worth in the GCC may grow as much as 15 percent to about $258 billion in the 10 years through 2023, according to Kuwait Financial Centre, an asset manager and investment bank.

“There is opportunity, absolutely,” Ashruff Jamall, the Dubai-based global head of the Islamic finance division at PwC, said by phone on July 21. “It’s a question of priorities. Islamic banks are now beginning to focus on the women’s segment. Developing female leadership also serves as a catalyst in attracting women as customers.”

Global Issue

Having started at Merrill Lynch in an administrative role, Akram rose to run the lender’s Islamic finance wealth management business. She left the bank in April 2009 as investment banks were shifting focus to outside Islamic finance consultants rather than in-house experts.

The Bank of London and the Middle East (BLME), a Sharia compliant bank based in London along with Lloyds Bank have arranged the World’s First Islamic-Structured PDP Helicopter Financing deal.

BLME acting as the original Islamic facility participant, under a master Murabaha facility agreement, with Lloyds Bank as the original lender under a conventional facility agreement and mandated lead arranger, security agent and intercreditor agent for both facilities have concluded a world first Islamic financial transaction.

The deal allows LCI, the aviation leasing arm of the Libra Group to complete the world’s first secured helicopter PDP (“Pre-Delivery Payment”) funding under a unique Islamic finance structure. The innovative multi-year financing arrangement by LCI’s helicopter leasing division, LCI Helicopters, initially covers over US$250 million worth of Airbus Helicopters assets.

The arrangement covers the H175 – Airbus Helicopters’ new-generation medium-sized rotorcraft. This 7-ton class helicopter is certified in accordance with the latest and most demanding regulatory requirements.

UK Innovation in Islamic Finance

UK Islamic Finance has displayed a double first this week, as in addition to the innovative LCI deal, earlier this week saw delivery of the fourth and final Airbus A380 aircraft to be funded under the world’s first corporate sukuk to be guaranteed by a western government. The aircraft was delivered to Emirates at Hamburg Airport with the sukuk guaranteed by UKEF.

The $913 million sukuk issuance marks a triple first, as well as being the first example of a sukuk sold in the debt capital markets to be backed by an export credit agency, it is also the first time a sukuk has been used to pre-fund the sale of aircraft, and the largest capital markets offering of any kind for aviation to carry an ECA guarantee.

The case has been hailed as a new gold standard for sharia-compliant asset finance. It has widened options for buyers of UK exports and boosted the UK’s aspiration to become the leading Western hub for Islamic finance.

Originally published on www.islamicfinance.com