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Islamic banks offer limited private banking facilities when compared to Western banks

Date: 25 Feb 2016

Bumblebee Design

Simon Archer, visiting professor at the International Capital Markets Association, Henley Business School, says the main problem for Islamic financial institutions during the crunch was a drop in the level of business rather than defaults.

What should ultra-high net worth individuals know about Islamic finance?

It depends on whether the UHNW individual is a practicing Muslim or not. If so, there may be issues around sharia compliance such as restrictions on tradability. Also, Islamic banks seem to offer limited private banking facilities when compared to the leading conventional banks, such as Swiss banks, in the field. For UHNW investors more generally, the liquidity of secondary markets for sukuk is limited, even if the returns are attractive. Sukuk are generally targeted at institutional investors and are issued and traded over-the-counter. Islamic investment funds and Islamic REITs are probably a better option.

If defaults occur in emerging economies, will we see Islamic financial institutions taking a hit as economic difficulties bite?

Islamic financial institutions (IFIs) are not particularly exposed to sukuk defaults, but are of course exposed to defaults on their financing assets. The main problem for IFIs resulting from the global crisis of 2007 – 2008 was a drop in the level of business rather than defaults as such.

Will we see a rise in Islamic finance as oil revenues affect the Middle East?

Oil exporting countries in the Middle East and South-East Asia may be expected to issue more sovereign sukuk to raise funds which they haven’t needed to do when oil revenues were copious. Issuance may be in Western markets, including Ireland and Luxembourg, where sukuk may be listed on an exchange. The investors in these sukuk would no doubt include Western institutions looking for returns or risk diversification.

Who are the most important players in the field of Islamic Finance in London?

Islamic banks in the UK include the retail bank Al Rayan, formerly the Islamic Bank of Britain, and several smallish investment banks: European Islamic Investment Bank (EIIB, a subsidiary of Qatar International Islamic Bank), Bank of London and the Middle East (BLME), Gatehouse Bank which is Kuwaiti-owned, and Qatar Islamic Bank UK.