Jaidah addressing students and faculty at the IBFS inauguration at Oxford.
By Denise Marray/London
The Inauguration of the Islamic Banking and Finance Society (IBFS) at the Oxford Union Debating Chamber on Wednesday featured presentations by leading figures from the Islamic finance world. They addressed an audience which included professors from the Faculty of Oriental Studies and the Oxford Centre for Islamic studies and MBA students from the Said Business School.
At a reception held in the richly atmospheric setting of the prestigious university, Gulf Times caught up with the keynote speakers: Salah Jaidah, vice chairman of Mena (Middle East and North Africa) at Deutsche Bank and chief country officer for Deutsche Bank Qatar; Baroness Warsi, Senior Minister of State and Minister for Faith and Communities, and the Ministerial lead on Islamic Finance; Nigel Denison, executive director of Bank of London and the Middle East (BLME), and Azeemeh Zaheer, vice president of Gatehouse Bank and former vice consul, US oil & gas sector head for the British Consulate General.
The IBFS hopes to act as a platform for leading professionals in Islamic banking to create relationships with students at Oxford interested in pursuing a career in finance.
Jaidah, who said he was pleased to return to Oxford, where he studied the Advanced Management Programme, said: “Being in the industry and being part of the institutions that have been addressing (Islamic finance) issues, I felt committed to come and give certain views. And more than that just to learn – and this is the place to learn. Hopefully, it will be useful for both parties.”
Speaking as he said, “On behalf of myself as an Islamic banker” he described the core elements of Islamic finance, observing, “the base of Islamic Finance is definitely the ethical part and most of the conducts within Islamic banking prevent the over-leverage that we have seen on the conventional banking side. Every transaction has to have an underlying asset, so there is value creation for the person who is taking the finance or the person who is extending the assets.”
He added: “With these principles I think if institutions used similar ethics and built in this spirit of profit sharing, and when you say profit sharing you have to say profit/loss, this will give everybody the responsibility of making sure that the due diligence, asset value and potentiality of the investments are positively recognised. And in case of failure, everybody has to take a portion of the fault.”
He concluded by saying: “That’s the spirit of Islamic banking. How much it is practised in reality – well, I think it depends on the institutions – some are and some are not.”
Warsi, who launched the UK’s first Islamic Finance Task Force in 2013, and chairs the Global Islamic Finance & Investment Group, noted that “the skyline of London is being changed by Islamic finance”. She said London aimed to be one of the key hubs around the world which specialise in and promote Islamic finance. It is important, she said, for there to be “an Islamic finance market that doesn’t sleep.” She said: “We need to make sure that all time zones are trading in terms of Islamic finance products.”
Reflecting on the issues that had to be resolved to clear the way for the UK’s planned launch of a sukuk later this year, she said: “Two years ago, someone said to me that a sovereign sukuk in Britain ‘is impossible.’ Having fought the battles through that and shown that it can be achieved, I’m confident that standardisation is something that we can make real headway on.”
On a personal level she said: “As a Muslim, I believe in the principles of Islamic finance. As a Conservative, I can see the huge economic benefits of Islamic finance and as somebody who feels that Britain’s best days are still ahead of us, I feel that Islamic finance provides another opportunity to reach out to the world and bring the benefits of that for our citizens.”
Denison, who prior to joining BLME, the largest Islamic Bank in Europe, was head of European distribution for WestLB’s Global Markets unit, spoke about the importance of education in Islamic finance. “It’s a very young industry; one of our big challenges is educating people around Islamic finance in a non-Muslim country.”
He added: “In 2007 the UK government started addressing the tax rules to make Islamic Finance, if not competitive with, then at least operating on the same basis as conventional finance. We hope we’ll see the UK government sukuk later this year which will be an announcement that Islamic finance has really arrived in the UK.”
Speaking of the challenges around Islamic finance he said: “There’s the regulatory level; in other words, can Islamic banks compete with their conventional peer group on the same basis? In most cases the answer now is ‘yes.’ Most of the regulation is set up so that Islamic Finance is not disadvantaged. But what is more difficult is when you are in a new industry – building up to the kind of size that conventional banks have got to.”
He pointed out that even the biggest Islamic banks globally such as Kuwait Finance House and Al Rajhi Bank, are “less than a tenth of the size of the big global banks – and clearly that makes it more difficult to compete.”
BLME, which is Kuwaiti-owned, saw a mixed range of attitudes towards Islamic finance from its clients, he explained. “Among our clients from the Gulf most would definitely prefer to use Islamic finance – but they are aware of costs. If we are competitive they will always choose Islamic finance but if there is going to be an increased cost in terms of borrowing or a lower return in terms of investing then they will question that and then it’s down to their personal views as to how Islamic they want to be, because most of them have been using the conventional banking system for a long time.”
He added: “We’re the largest Islamic Bank in the UK but we don’t have a credit rating because we’re not big enough or old enough and we don’t have a long enough track record. Most investors will require a minimum credit rating before they will place money with you. Until we get to that kind of size that will rule out a number of the financial institutions – so it will take time. In our own case I would think we would be in a position to have a credit rating in less than five years.”
On the subject of credit ratings, Azeemeh Zaheer, vice president of Gatehouse Bank, said: “Gatehouse Bank doesn’t have a rating – we are not a public bank. We would like to get rated in the future but I think having a very strong shareholder base like the Kuwait Investment Authority and exceeding our liquidity requirements helps to offset the risk of not being rated.”
Zaheer compared the status of the sukuk today with the euro bond market in the 1970s. “People were very nervous about the future of that and it did very well,” she pointed out, adding, “If you issue a sukuk it allows you great flexibility. So corporates, perhaps those who are not maybe investment grade, can issue short-term paper and they can have a callable option so they don’t have break costs involved. Also, it allows companies from the West to access partnerships and ventures in the East so it builds brand equity – it shows solidarity and openness to a new type of finance.”
Speaking of Qatar she said: “Qatar is a very important investor in London, no doubt. But if you look at the Islamic finance issues, most of the Islamic corporate issuances come from Saudi Arabia and the UAE. Qatar issues one big one a year – so it keeps them on volume but not on size. One of the big issues in the industry is tradeability and liquidity and we would love to see Qatar issue more sukuk in the corporate side and in different increments.”
Speaking of the significance of the establishment of IBFS at Oxford, she said: “I think it is very important to educate the future leaders of tomorrow. Islamic finance a growing industry but it is only 1% of the entire assets under management globally. So we have huge potential to grow. One of the big issues is lack of intellectual capital. We need new, fresh talent, not just from the Muslim world and that will enable us also to sell to non-Muslims.”
Speaking at the conclusion of the evening event which was hosted by IBFS co-presidents Clementine Brown and Charlotte Lindesay-Bethune, Brown said: “We were thrilled to have such a distinguished panel of speakers – particularly Salah Jaidah, coming all the way from Qatar.”