1. Islamic Finance in Europe
Professor Rodney Wilson
Banca d’Italia
Seminar on Islamic Finance
Rome, November 11th 2009

2. Outline The current environment for Islamic banking in Europe
Retail banking: Islamic Bank of Britain
Shariah compliant asset managers
Bank of London and the Middle East
European Islamic Investment Bank
(European Finance House)
Gatehouse Bank
Limitations of Islamic banking in Europe
Future prospects for Islamic finance in Europe

3. The current environment for Islamic banking in Europe
Retail
Recession has adversely affected Muslim communities in Europe
Rising job insecurity and unemployment
Reluctance to take on additional financial commitments: de-leveraging
Asset management
Significant capital losses with equity investment, although recent gains
Commercial real estate market remains very depressed
Exits from private equity often problematic
Little sukuk activity

4. Retail banking: Islamic Bank of Britain
Profile
Founded 2004
AIM listed
Majority stake Qatari private shareholders
48,000 customers
Branches
Number
London 4
Birmingham 2
Leicester 1
Manchester

5. Retail banking: Islamic Bank of Britain
Financials, June 2009
Deposits increased by 9% to £172 million
Home Purchase Plan accounts for asset growth to £14.4, double December 2008 figure
Loss of £4.6 million for 6 months to June 2009 compared to £3.1 million loss for same period to June 2008
Income from Islamic financing transactions fell from £2.4 million for 6 months to June 2008 to £0.8 million for same period to June 2009
Costs under control, but returns on financing have slumped

6. Bank of London and the Middle East
Profile
Founded August 2006
Owned by Boubyan Bank of Kuwait which has recently been taken over by National Bank of Kuwait
Focus
Treasury services for Islamic financial institutions
Corporate banking
Private banking and wealth management
Investment banking

7. Bank of London and the Middle East
Financials
In first half of 2009 overall loss £9.8 million from a total operating income of £17.5 million
Loss largely accounted for by impairment charges with respect to 3 clients
Value of assets fell from £867 million in December 2008 to £783 million by June 2009

8. London based Islamic banks: financial indicators, 2009, £ million
Assets
Customer deposits
Shareholder equity
Losses
IBB
197
172 21
4.6
EIIB
278
2.7
163
14,8
BLME
782
5.0
247
9.8
Gatehouse 54
1.3 37
8.5

9. Limitations of Islamic banking in Europe
Retail banking
IBB has high fixed costs in relation to customer numbers
Lack of economies of scale and scope
Conventional banks offering Islamic products have cost advantages as no need to establish new branches or IT systems
Most British Muslims continue to use high street banks
Many Muslim families have low incomes
Deposits and financing for very small amounts from East Ham and Whitechapel branches of IBB

10. Limitations of Islamic banking in Europe
Investment banking
Wholesale Islamic banks such as EIIB, BLME and Gatehouse too small to be involved in major M&A activity
Focus on accepting deposits from other banks, including their Gulf based parents
Treasury activity largely involves commodity murabaha, a more expensive alternative to an Islamic money market
Attempt to build wealth management business, but much competition, including from long established conventional banks

11. Shari’a compliant fund management
Screening
Sector screens
Financial screens
Early European Islamic funds
Kleinwort Benson, 1986
Flemings Oasis Fund, 1996
Current fund offerings
HSBC Amanah Luxembourg and Dublin based funds
Asset management by Aberdeen and Pictet
Oasis Dublin based Crescent Global Equity Fund
Deutsche Bank Islamic Equity Builder Certificates
Scottish Widows Islamic Global Equity Fund
Mutual Shariah Baby Bond

12. Future prospects for Islamic finance in Europe
European single market
National regulation remains, but banking passport
FSA most pro-active, but Banque de France supportive
Islamic capital markets
UK Treasury and FSA have made legal changes to facilitate sukuk issuance
No UK sovereign sukuk, but aim to encourage corporate sukuk
Legal changes introduced in France, including provision for trusts as special purpose vehicles for sukuk