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gif Interview


Dr Alberto Brugnoni, Founder and Director General of ASSAIF


Richard Williams, Finance Director, BLME


Warren Edwardes, CEO, Delphi Risk


Management Ltd


What is the current state of Islamic finance in Europe?


It’s a long and bumpy road. Definitely the ball is rolling and there is a demand. Although there are no exact figures, there are approxi- mately 25 to 27 million Muslims in Western Europe. We know that ethical finance and fair trade is key. There are organisational church funds that share the same values as in Islamic finance.


There is a distinction in Europe between investment banking and retail investment banking. In terms of Islamic investment bank- ing, not only the UK, but now also France and Malta are coming into it. Italy and Spain are moving towards it. The outlook for Islamic investment banking in Europe is quite pink and rosy. For Islamic retail banking, there is a longer road and a more difficult environ- ment. A lot of banking regulations and tax issues are obstructing the growth of this in- dustry in Europe.


The impact Islamic finance has on public opinion influences the success of Islamic retail banking. Many people at grass roots level have issues with Islam-they see Islamic finance as letting sharia’a law come into our system. Businesspeople and capital market players have one mindset: The people on the street, which is where you want to take Is- lamic finance to, have a different mindset; they live in a different world and environ- ment.


In your views what direction is Is- lamic finance developing?


Islamic finance is still very young. I am slight- ly disappointed that there haven’t been more new Islamic finance start-ups in the UK and Europe. I’d rather have more competition as we would like to be on top of a wave Islamic finance institutions coming into the market- place. Having said that, it’s probably not a bad thing that there’s not more competition as we’re still establishing our brand.


When we launched we were expecting a flood of similar institutions. Of course, we started in 2007 and by 2008 the Credit Crunch was upon on us. It’s not surprising that other people’s plans have been put on hold. More Islamic finance institutions will come with time. There are still issues to be resolved in the aftermath of the Credit Crunch and the effect it had on the Middle East. I’d like to be proved wrong and to very soon see new entrants into the market, but it’s a long proc- ess to establish Islamic finance institutions in continental Europe. You’ve got to get pass the local regulations. In terms of amending regulations, the UK has done everything that is necessary in order to encourage the start up of Islamic banking. If you have a good business model, good management and good backing, you will be able to start up an Islamic financial institution in the UK. I don’t think that’s the case in the rest of Europe yet.


It’s not difficult to convince borrowers that Islamic finance is here to stay. Also, all the legal firms and accountants are providing Is- lamic Finance advice and solutions.


To what extent was the Dubai debt crisis last year an Islamic finance problem?


If global finance had been run on Islamic principles would the current global financial meltdown have occurred under such a sys- tem? These were questions asked before the Dubai / Nakheel difficulties and rescue by Abu Dhabi. And now some think the Nakheel problems were Islamic Banking’s fault and a result of the structure of Sukuk structures. But risk is not new. Basic risk management says focus on cash flow and the business plan and collateral is only a comfort blanket. The structure and asset backing or asset basing is very much of secondary importance.


Does Islamic Banking risk really differ from Western banking risk? Not really. Boiling things down into cash flows everything in Islamic Banking can be expressed in Con- ventional Banking terms – Murabaha and Salaam are very similar to trade finance and commercial paper. In fact I recall going back 30 years ago when I was a British Gas’ Treas- ury issuing US Dollar Commercial Paper that the underlying commodity to be financed had to be stated. Same with Bankers Acceptanc- es. Then there are Ijaara and Istinaa which are similar to leasing and project finance and Mudharaba is fund management or ven- ture capital. So not really so different. Just a special case but there are reputational risks for entering into transactions that might be barely Hallal and a concentration of busi- ness in certain sectors.


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34 Global Islamic Finance February 2011


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