David Bassens – TIGER – 05/10/2011 – Reading The Role of London in Global Islamic Finance Networks David Bassens - Ghent University

David Bassens – TIGER – 05/10/2011 – Reading Presentation overview 1.Introduction 2.Key Features of Islamic Finance 3.The City’s Involvement in Islamic Financial Circuits 4.A Crucial Node in Global Sukuk Markets 5.Concluding Remarks

David Bassens – TIGER – 05/10/2011 – Reading 1.Introduction ‘Reorientation’ of the Global Economy: o The rapid growth of emerging economies (BRIC, Gulf economies, and others) → The rising geo-economic power of SWFs o Partial reversal of historically dominant capital flows → Corporate bail-outs of financials by Gulf SWFs, China buys US Treasury bills Meanwhile in Europe: o A rapidly-unfolding financial, fiscal, economic, and political crisis… →How do European cities tap into these emerging capital circuits?

David Bassens – TIGER – 05/10/2011 – Reading 2. Key Features of Islamic Finance Faith-based, Shari’a-compliant financial services: o No riba: ‘growth’, generally interpreted as all forms of interest o No gharar: uncertainty in contracts, legal risk o No maysir: ‘gambling’, unnecessary risk taking, no speculation o No investment in weaponry, pork meat, alcohol, … is haram Islamic economics is opposed to conventional debt-trading Loans or investments are ideally based on profit-and-loss sharing (PLS) : pre-agreed part of the profits or loss by ratio of the investment Focus is on the real economy: Products and trade should ideally be asset-based

2. Key Features of Islamic Finance The sector has an estimated size of 822 billion US$ (The Banker, 2009): David Bassens – TIGER – 05/10/2011 – Reading Shari'a compliant assets (bn US$)Percentage of total World regions GCC262,741,2 Non-GCC MENA247,638,9 Asia86,213,5 Australia/Europe/N. America34,55,4 Sub-Saharan Africa6,41,0 Global TOTAL638,3100,0 Within GCC Saudi Arabia91,935,0 Kuwait63,324,1 UAE49,118,7 Bahrain37,314,2 Qatar21,08,0 GCC TOTAL262,7100,0 Spatial distribution of Shari’a-compliant assets (based on The Banker, 2008)

David Bassens – TIGER – 05/10/2011 – Reading 3. The City’s Involvement in Islamic Financial Circuits Transnational office networks of Islamic Financial Service firms (Bassens et al., 2010)

David Bassens – TIGER – 05/10/2011 – Reading Fully Shari’a-compliant Bank of London and The Middle East European Finance House European Islamic Investment Bank Gatehouse Bank Islamic Bank of Britain Islamic windows Ahli United Bank Alburaq Bank of Ireland Barclays BNP Paribas Bristol & West Citi Group Deutsche Bank Europe Arab Bank HSBC Amanah IBJ International London J Aron & Co. Lloyds Banking Group Royal Bank of Scotland Standard Chartered UBS United National Bank Source: IFSL (2010) 3. The City’s Involvement in Islamic Financial Circuits

Retail markets: Shari’a-compliant mortgages Mostly mark-up: Murabahah loans Cater to urban Muslim population: Islamic windows (HSBC Amanah) and full-fledged (IBB) Issues: darura (necessity), knowledge of IFS, bank licence, double stamp tax David Bassens – TIGER – 05/10/2011 – Reading El-Gamal (2005)

3. The City’s Involvement in Islamic Financial Circuits Wholesale markets: Islamic fund industry: only 1 % of US$ 44bn in London London Metal Exchange is used for Islamic liquidity management (Tawarruq structures) Sukuk (Islamic bonds) issuance: - Used by Islamic and non-Islamic investors (e.g. Tesco, Toyota) - Requires financial and ‘Islamic’ expertise, Shari’a –compliance screening - Government bond is planned - Sukuk listings on LSE - Involvement of Investment Banks David Bassens – TIGER – 05/10/2011 – Reading

3. The City’s Involvement in Islamic Financial Circuits David Bassens – TIGER – 05/10/2011 – Reading Evolution of the global sukuk market. Source: Zawya Sukuk Monitor

4. A Crucial Node in Global Sukuk Markets The case of Emaar Sukuk Limited o Dubai-based Emaar Properties PJSC, partially government-owned property developer (e.g., Burj Khalifa): hit by Dubai crisis o Launched on February 3 rd, 2011 via London Stock Exchange, US$500 million o Multilayered securitization networks (see next slide): Structuring Management Investment Legal advise David Bassens – TIGER – 05/10/2011 – Reading

5. Concluding Remarks Leading European IFCs are crucial nodes in emerging capital circuits: o Place: knowledge-rich environment, deep capital markets, … o Social networks stretching out into EM enhance knowledge production o Historical linkages structure such intergation processes No straighforward reproduction of existing power relations: o New actors: Role of EM actors as market gatekeepers (Shari’a scholars) o New agenda’s: Strategic investment by SWFs: is it neutral? o New regulatory frameworks: adaptation of legal context in IFCs Financial integration processes are more balanced and negotiated, reinforcing interdependent evolution of cities in a multipolar world David Bassens – TIGER – 05/10/2011 – Reading

Thanks for your attention! David Bassens – TIGER – 05/10/2011 – Reading