UKIFC Launches Brochure to Promote Shariah-Compliant FDI in Scotland
The UKIFC, in partnership with BDO, Gatehouse Bank, Ocorian and Shepherd + Weddernburn has launched a brochure to promote Shariah compliant real estate investment opportunities in Scotland.
With the London real estate market cooling Scotland is a strong and attractive investment destination and, with expertise in both conventional and Islamic finance, it offers competitive Shariah-compliant real estate opportunities.
A number of Shariah-compliant deals have been completed in Scotland in recent years. With a growing and stable economy, underpinned by strong yields, returns on Scottish commercial real estate exceeded the UK average in 2018. Investment reached a record level of £2.5 billion in 2018, up 46% from 2017.
With an enabling legal and regulatory framework and a network of specialist advisers and financiers Scotland provides significant potential for investors seeking Shariah-compliant commercial property structures.
Click HERE to view the brochure.
Brexit brings risks and opportunities for UK Islamic finance but unlikely to revolutionise domestic industry, say experts
Article published by author: Hassan Jivraj
Publication name: Salaam Gateway
Date of publication: 16 JAN 2020
Article link: Click here
The United Kingdom is set to leave the European Union (EU) on January 31. Uncertainty looms as to whether the government will secure a trade deal with the EU or leave in December 2020 without one.
Nonetheless, Brexit presents various risks and opportunities, such as Islamic finance playing a role in bilateral trade negotiations and the UK’s second sovereign sukuk. Beyond these, it is unlikely it will significantly transform the industry in the UK, according to stakeholders polled by Salaam Gateway.
DEAL OR NO DEAL
The biggest uncertainty surrounding Brexit is whether the UK government will be able to secure a Free Trade Agreement (FTA) with the EU, or if it will leave the bloc without a deal.
The risk of a no-deal would have a negative impact on the UK’s conventional and Islamic banking sector.
“Impacts and shocks in the UK economy will obviously also impact the Islamic economy,” Nick Green, Partner and Head of Cross-border Investment at law firm Trowers & Hamlins in Dubai, told Salaam Gateway.
“If we have a No-Deal exit from the EU, the short-to-medium term impact on the economy will not be positive, although I think it will be flat rather than a deep recession,” he added.
Among some of the risks of leaving the EU without a deal is losing the passporting scheme, which allows financial institutions in the bloc to operate, and sell financial products and services in member states without having to apply directly to specific regulators.
“If the EU passporting scheme falls away it will be more difficult to set up banking operations in other EU countries but there is no evidence to suggest UK Islamic banks are looking to set up in the EU outside the UK,” said Chris Tait, Project Manager, Islamic Finance Council UK (UKIFC).
But Mohamed Damak, Senior Director, Global Head of Islamic Finance at S&P Global Ratings downplayed the risks of Brexit’s impact on UK Islamic banks.
“There is no significant linkage between Brexit and the competitive position of domestic Islamic banks in the UK,” he said.
“Islamic finance remains small in the UK with total assets of the Islamic banks at £4.5 billion at Year-End 2018.”
FDI DRIVER
In a post-Brexit environment, it is likely the UK government will seek new trading partners and relationships. Islamic banking and finance can play a role in attracting foreign direct investment (FDI), particularly with Muslim-majority nations.
From his vantage point in the UAE, Nick Green said that to date, most Gulf investors have generally viewed Brexit as a negative.
Middle Eastern investment into the UK is not unsubstantial, from £1.8 billion in 2016 it rose to £2.43 billion in 2017 and £2.6 billion in 2018, according to real estate services provider Savills.
With regards to the government’s position, a UK Treasury spokesperson told Salaam Gateway: “The government remains committed to developing Islamic Finance in the UK to support financial inclusion, encourage investment and enhance its competitiveness as a global financial centre.”
The UK’s five licensed Shariah-compliant banks all have significant shareholders from overseas, notes Stella Cox, Director of DDCAP Group and Chair of TheCityUK’s Islamic Finance Market Advisory Group.
All of the UK’s Islamic banks are majority-owned by Gulf-based financial institutions or investors. For example, Al Rayan is owned by Qatar’s Masraf Al Rayan. Similarly, Kuwait’s Boubyan Bank, previously the majority shareholder of Bank of London Middle East (BLME), acquired the lender in an all-cash takeover in December 2019.
“We have Islamic fund managers and insurance companies. Emerging technology businesses focused on Islamic financial sector opportunities, and also those within the wider halal economy are attracting foreign investors,” said Cox.
BANKING
While Brexit will present challenges for conventional and Islamic banks in the UK, it will also depend on the bank’s business line and how exposed financial institutions are to the EU.
Charles Haresnape, CEO of Gatehouse Bank said the bank does not trade across borders and that the impact of Brexit is much less than for UK banks which trade internationally.
“Any impact for us would be if customer demand for home finance reduced when customer appetite to purchase UK property contracted. We see this as a low risk given the historical resilience of the UK housing market,” he said.
“All things considered we believe the potential for an adverse impact on Gatehouse Bank from Brexit is low.”
From a growth and profitability perspective Mohamed Damak of S&P said asset quality and earnings of UK Islamic banks could be hit due to the significant concentration of their lending portfolio on real estate activities in case of a disruptive Brexit.
He noted around two thirds of total financing comprised real estate exposures at year-end 2018. But he said these banks enjoy a good level of capitalisation and asset quality indicators.
“At the end of 2018, the average Tier 1 ratio for UK Islamic banks stood at 17.9% and their NPLs ratio at 1.3% according to the Islamic Financial Services Board,” he added.
At present, Al Rayan is the only fully-fledged retail bank out of the five Islamic banks in the country.
Despite the small number of players and with the UK seeking to attract more Islamic investors, it is unlikely a new Islamic bank will be set up anytime soon.
“I don’t see appetite for a new Islamic lender to enter the UK at the moment,” said Nick Green.
“It is also unlikely that GCC financial institutions will set up a large presence in the UK. Instead, GCC investors looking to enter the market are more likely to acquire companies or existing financial institutions.”
However, he said there is potential space for the challenger banks to offer Islamic financial products, if they wish to expand their product line.
CAPITAL MARKETS
This year the UK is set to issue its second sovereign sukuk, which will help London maintain its position as a centre for Islamic finance.
“The UK’s second sovereign sukuk issuance is a key part of this strategy: supporting UK-based Islamic banks through the provision of high-quality, Shariah-compliant, liquid assets; encouraging the growth of the domestic Islamic finance industry and helping ensure the UK maintains its position as the leading Western hub for Islamic finance,” the UK Treasury spokesperson told Salaam Gateway.
The deal will follow the maiden sukuk issued by the government in 2014 when the sovereign became the first outside of the Islamic world to issue such an instrument.
In the following year, UK Export Finance (UKEF), the government’s credit export agency (ECA), guaranteed Emirates Airline’s sukuk to buy aircrafts.
However, there has been little activity in sukuk since then. The most recent Sterling-denominated sukuk came in February 2018 from Al Rayan Bank that issued a debut £250 mln sukuk, which followed a Shariah-compliant equivalent to a residential mortgage-backed security (RMBS).
Beyond the upcoming sovereign issuance, the pipeline of sovereign or UK corporate sukuk is likely to be limited due to cheap domestic funding.
“I don’t envisage UK companies will look at sukuk because domestic finance is plentiful, unless there is a Middle East element such as in the corporate ownership,” said Nick Green.
“It’s still cheaper to do conventional or direct lending. It tends to cost on average around 50bps to 100bps more for the UK’s Islamic banks to offer lending compared to conventional lenders, depending of course on size and purpose of facility.”
On a more positive note Bank of England is currently working on a facility for Islamic banks to help with their liquidity requirements, according to Wayne Evans, Adviser International Strategy for TheCityUK.
“This is a welcome development, as was the Bank’s decision to become an Associate member of the Islamic Financial Services Board,” he said.
INSURANCE
Another area that UK will likely seek to develop is the domestic takaful sector.
Stella Cox believes Lloyds of London is interested in promoting takaful and other Islamic insurance products and services.
In 2018, the Islamic Insurance Association of London released guidelines to address capacity constraints and challenges for takaful and re-takaful with the aim of supporting the sector. The guidelines followed the initial set released in 2016.
“The Islamic Insurance Association of London works under the auspices of the Lloyds platform and is seeking to ensure that the market operating environment is sufficiently enabled for Shariah-compliant business to grow further,” she said.
“Overseas investors have shown interest in establishing Shariah-compliant syndicates and we have a Shariah-compliant insurance underwriting agency within Lloyds. Lloyds members offer a range of Islamic products and services across a range of assets and requirements.”
But others say the scope for development in the UK is limited.
“The takaful industry remains small globally and even if we start to see some growth in the UK, we are of the view that it will remain rather small in absolute terms and relative to the insurance industry in the UK,” said Mohamed Damak.
He points to a lack of appetite from clients, lack of standards and also perhaps a lack of offering by the main insurance players.
“As in other markets, takaful companies will need to develop competitive products and do a better job in promoting their offerings/differentiate themselves from conventional insurers in order to grow,” he said.
WINNING OVER MUSLIMS
Irrespective of Brexit, there are still long-standing challenges that will continue to face Islamic banking in the UK, particularly the retail sector.
Shakeel Adli, Partner, Head of Islamic Finance at CMS Law, said the take-up of Muslim consumers has been relatively low. He said this in large part has been down to two factors; firstly a distrust as to whether the underlying products are in fact Shariah-compliant and secondly the pricing arbitrage with conventional products.
“More generally there needs to be greater financial literacy both amongst Muslims and non-Muslims for consumers to be able to make informed decisions,” he said.
He argues that where Islamic products have been particularly successful is when they have outcompeted the conventional market and as such have been able to attract both Muslim and non-Muslim customers.
He cites the examples with savings products in the UK where a number of the UK Islamic banks have offered higher rates than their conventional competitors whilst still allowing customers to benefit from the Financial Services Compensation Scheme.
MOVING FORWARD WITH SDGs ALIGNMENT
As Brexit Day approaches, the picture for UK Islamic finance remains mixed.
However, there are other initiatives taking place.
Chris Tait said the UKIFC recently launched a high-level Islamic Finance and Sustainable Development Goals (SDGs) task force that is supported by the UK Government and includes international stakeholders.
“The taskforce will enhance the engagement of the global Islamic finance industry with the SDGs through capacity building, awareness campaigns and promotional activities,” he said.
“Whilst not driven by Brexit it is a good example of the UK leading a global initiative aimed at leveraging Islamic finance to deliver the Global Goals.”
New Islamic finance taskforce to deliver global sustainable growth.
A new international taskforce is to be created with the support of the UK Government to engage the Islamic finance industry with the UN’s Sustainable Development Goals. The high-level Islamic Finance and Sustainable Development Goals (SGDs) taskforce will be anchored in London and run by the Glasgow-based Islamic Finance Council UK (UKIFC). Economic Secretary to the Treasury John Glen said the new initiative will ‘drive forward innovation around the world’. The UK Government will be the founding country partner when it begins in 2020, with an aim to promote understanding and encourage adoption of the UN SDGs amongst Islamic financial institutions. Gatehouse Bank has confirmed participation and interest has already been expressed from Malaysia and Dubai, as well as other UK organisations.
The UN’s SDGs are the blueprint to achieve a better and more sustainable future for all, addressing issues such as climate change, education and equality. But a recent analysis from UKIFC and Malaysia-based ISRA found a considerable lack of knowledge, misunderstandings and minimal engagement by Islamic financial institutions with the SDGs. Islamic finance is one of the fastest growing sectors in the global financial industry, with assets expected to reach US $3.8 trillion in 2022. Innovative financial structuring in the sector can help create instruments that drive capital towards the SDGs. The UK – and London in particular – has already become a centre for Islamic finance, helping finance developments such as The Shard and the Olympic Village. In 2014, the UK Government cemented the UK’s position as a hub for Islamic finance by becoming the first western country to issue sovereign Sukuk – Islamic bonds. With the City’s strength in conventional financial services, the strong legal framework and progressive outlook it continues to intellectually innovative and assist developments in the global Islamic finance arena.
The UKIFC was established in 2005 as a specialist advisory and developmental body focused on promoting and enhancing the global Islamic and ethical finance industry. It was the first global specialist Islamic finance body to sign up to the UN Principles of Responsible Banking (PRB). With Gatehouse Bank the only fully Shariah-compliant signatory, the UK is leading the way in relation to the Islamic finance sector’s engagement with the global framework that aligns with the SDGs. In 2016, the Church of Scotland and the UKIFC signed a partnership agreement to co-develop an ethical finance solution open to all society, regardless of race, religion or ethnic background and based on the shared values between the faith traditions. The UKIFC supported this month’s Ethical Finance 2019 global summit in Edinburgh, which brought together over 400 senior representatives from more than 200 companies and organisation.
The Economic Secretary to the Treasury, John Glen MP, said:
“The UK is a world leader in Islamic Finance, so I am pleased we’re now a founding country partner and observer member of the new Islamic Finance SDG Taskforce. “This Taskforce will bring together the global Islamic finance community so it can help us meet our international, environmental and sustainability objectives – using UK expertise in sustainable finance to drive forward innovation around the world.”
Richard de Belder, Advisory Board Member of the Islamic Finance Council UK, said:
“Delivering the UN’s Sustainable Development Goals will require private sector involvement. “But business-as-usual in the global financial arena will not deliver the 2030 goals. “A step-change in private investment in SDGs is required, and Islamic finance, as one of the fastest growing sectors in the global financial industry, provides a unique opportunity for innovative solutions. “We need a fairer system of financial management that delivers more than just profit and the inherent principles within Islamic finance are naturally aligned to the sustainability agenda. “This new taskforce will explore ways to bring people and institutions together to help achieve the UN SDGs.”
Charles Haresnape, CEO, Gatehouse Bank, said:
“We welcome the opportunity to support and participate in the Islamic Finance and Sustainable Development Goals Taskforce. “Our Shariah-compliant finance principles mean that our products and services are ethical by design and as a founding signatory of the UN’s Principles for Responsible Banking, Gatehouse Bank has committed to strategically aligning its business with the UN’s Sustainable Development Goals. “We are confident that the taskforce will play a significant role in identifying innovative solutions for sustainable finance in the future.”
ENDS
NOTES TO EDITORS
The Islamic Finance Council UK (UKIFC) is a specialist, not-for-profit, advisory and developmental body focused on promoting and enhancing the global Islamic and ethical finance industry. It has helped six countries develop enabling regulatory frameworks for Islamic finance, enhancing financial inclusion to over 15 million people, established the award-winning Ethical Finance Round Table series running since 2010, launched the world’s first joint venture between Islamic finance and the Church of Scotland, and delivered development sessions to over 500 Islamic scholars across the globe.
The framework of an Islamic financial system is based on elements of Sharia (the law of Islam) which governs Islamic societies. The fundamental concept of Islamic finance is that money has no intrinsic value and should only be used as a measure of worth.
London Islamic Finance Summit 2019 hears a wide range of views from across the globe
The UKIFC and International Shari’ah Research Academy for Islamic Finance (ISRA) 2019 London Summit, Reimagining Islamic Finance was hosted on 2nd October in association with Clifford Chance.
The event heard a wide range of views from across the globe. Speakers from early pioneers, to current leaders and a groundbreaking all-woman panel shared their views on the role Islamic finance could and should play in relation to delivering social impact.
Our Islamic Finance London Summit has become the premier London conference in Islamic Finance, convening a multi-stakeholder global audience interested in open, frank and challenging discussions on core issues framing the industry’s purpose and informing future direction.
UKIFC Confirms Support for Ethical Finance 2019
We are delighted to be formally supporting the Ethical Finance 2019 summit; the premier event in Edinburgh advocating finance for positive change. The 2 day gathering of banks, investors, asset owners, regulators and development agencies from across the globe will explore the transition to a sustainable financial system where capital drives positive change.
The summit on October 8 and 9 is being organised by the Global Ethical Finance Initiative and is supported by the Scottish Government. Bodies represented will include the United Nations, Bank of England, Financial Conduct Authority, RBS, Baillie Gifford and HSBC. It is the fourth time the summit has been staged in Edinburgh, and it will be attended by over 400 senior representatives from more than 200 companies and organisations from across the globe.
As part of the Ethical Finance summit UKIFC and Church of Scotland are co-hosting a private round table and dinner with global industry leaders / senior religious guests. The event, which will take place in Edinburgh on Wednesday 9th October 2019, will look at interfaith collaboration and the role of faith based values in modern finance. It will provide a unique opportunity to discuss progress and next steps in relation to the Edinburgh Finance Declaration.
We have a limited number of discount codes (applicable to early bird rates) for Ethical Finance 2019 so please get in touch with info@ukifc.com for details.
- Financing Sustainability: Designing for A Future on Earth
- SDGs and the UN Principles for Responsible Banking
- Worthy of Trust? Law, Ethics and Culture in Financial Institutions
- Accelerating Green Finance
- FinTech for Good
- Data Paradigm Shift – Exploring ESG Data Needs
- Values-Based Investing – an Asset Owner Perspective
- Measuring Impact – Asset Manager Challenges
- Finance for Sustainable Supply Chains
- Innovative Financing Structures and Using Blended Capital
[/grve_list][grve_title title="Confirmed speakers include:"][grve_list]
- Dame Susan Rice, Practitioner Member, Banking Standards Board
- Sir Rodger Gifford, Chair, Green Finance Taskforce
- Sarah Breeden, Executive Director for UK Deposit Takers Supervision, Bank of England
- Saker Nusseibeh, CEO, Hermes Investment Management
- Richad Soundardjee, Chief Executive Officer (Middle East), Societe Generale
- The Most Revd and Rt Hon Justin Welby, Archbishop of Canterbury (Video address)
- Tan Sri Dato Azman Mokhtar, Former MD, Khazanah Nasional Berhad
- David Blunt, Head of Conduct Specialists Department, Supervision – Financial Conduct Authority
- Charles Haresnape, CEO, Gatehouse Bank
[/grve_list]
More speakers are listed on www.ethicalfinance2019.com
Announcement – UK thought body is the first specialist Islamic Finance organization in the world to endorse the new UNEP-led guidelines for responsible banking.
Today Islamic Finance Council UK (UKIFC) became the first advisory body dedicated to Islamic finance to endorse the United Nations Environment Finance Initiative’s (UNEP FI) Principles for Responsible Banking (UN PRBs), joining 64 other international banks and stakeholders.
The UN PRBs represent an opportunity for the Islamic Banking industry, which is made up of over 1,300 financial institutions and windows, and is growing at 6% annually. It is a USD2.4 trillion contributor to the international banking marketplace forecasted to reach USD3.8 trillion by 2023 (Islamic Finance Development Report 2018).
The Principles are the first global framework to enable banks to integrate sustainability across their operations and enhance their positive impact with in the regions they operate in. Arab African International Bank (AAIB) (Egypt), Commercial International Bank (CIB) (Egypt), CIMB Bank (Malaysia) and Garanti Bank (Turkey), which operate in muslim-majority countries, are amongst the founding signatories.
The PRBs strongly align with the principles of Islamic Finance. Alignment and Impact are embedded in the foundational goals of the Maqasid al Shariah, a framework of purpose in Islamic practice that focuses on the objective of wealth and the preservation and continuity of life. Achieving communal prosperity and financial transparency underpin Shariah compliant finance, based on a law designed to protect all members of a society. Fairness and inclusion are themes of Islamic finance that resonate with the remaining four UN PRBs (Clients, Stakeholders, Governance and Transparency). Adopting the UN PRBs will encourage more innovation in the use of Islamic finance instruments to achieving the SDGs, such as green Sukuks.
Omar Shaikh, Member of the UKIFC’s Advisory Board said: “The UKIFC is the leading organization in Islamic finance actively promoting greater integration with the broader ethical finance marketplace. The underlying principles of Islamic finance align well with people, planet and purpose. The enhanced nature of stakeholder involvement in Islamic finance sits particularly well with the ethos of UNEP FI’s Principles for Responsible Banking 6 principles and for this reason we welcome and endorse them.”
Simone Dettling, head of the Banking team at UNEP FI said: “It is fantastic to see this coalition growing so quickly. The Principles for Responsible Banking are rapidly setting the global standard for what it means to be a responsible bank. We invite banks that haven’t endorsed them yet to join and show their commitment to the sustainable banking system of the future.”
The Principles, developed by 28 of the world’s leading banks, are currently out for global public consultation until May 2019 and will become available for signature in September 2019, during the UN General Assembly. Shariah compliant banks and intermediaries are encouraged to join the coalition by endorsing the Principles.
The UKIFC contributes to research and advisory on the alignment of the UN SDGs with the Maqasid al Shariah in the Islamic Banking industry, shaping the industry’s role in the broader ethical finance industry and promoting shared values across faith-based finance and investment institutions (The Edinburgh Finance Declaration).
ENDS
For media enquiries, please contact: Chris Tait at chris@ukifc.com
Notes to editors
Islamic Finance Council UK
The UKIFC is a specialist advisory and development body focused on promoting and enhancing the global Islamic and ethical finance industry. The organisation was launched in 2005 by a group of likeminded professionals who sought to make a contribution to the development of the Islamic finance industry. The UKIFC specialises in four core areas, being: 1) Ethical finance – helping to promote better co-ordination and understanding of the shared values between Islamic finance and the broader ethical finance arena; 2) Advisory – specialist capability in advising government agencies, regulatory bodies and financial institutions on creating enabling frameworks for Islamic finance; 3) Executive training – delivering bespoke capacity building programmes aimed at practitioners and regulators focused on commercial issues; and 4) Thought leadership – authoring reports, community education and providing industry comment towards influencing regulation and encouraging the development of the sector based on strong research and insights.
Principles for Responsible Banking
The six Principles for Responsible Banking that banks commit to are:
1) Alignment: We will align our business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals, the Paris Climate Agreement and relevant national and regional frameworks. We will focus our efforts where we have the most significant impact.
2) Impact: We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and environment resulting from our activities, products and services.
3) Clients & Customers: We will work responsibly with our clients and our customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations.
4) Stakeholders: We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.
5) Governance & Target-setting: We will implement our commitment to these Principles through effective governance and a culture of responsible banking, demonstrating ambition and accountability by setting public targets relating to our most significant impacts.
6). Transparency & Accountability: We will periodically review our individual and collective implementation of these Principles and be transparent about and accountable for our positive and negative impacts and our contribution to society’s goals.
For more information about the Principles visit www.unepfi.org/banking/bankingprinciples
- The Principles were launched by the Founding Banks’ CEOs on 26 November 2018 in Paris at the UN Environment Finance Initiative’s biennial Global Roundtable and the 4th Climate Finance Day, under the patronage of the French President Emmanuel Macron.
- The Principles are now in a six-month global public consultation period until 31 May 2019 before they will be signed by banks from around the world. Banks and stakeholders are invited to provide feedback and input to guide their further development, and to signal their support by becoming Endorsers of the Principles for Responsible Banking.
Omar Shaikh Talks to Sputnik About Islamic Finance at the 2018 Russian-British Business Forum
As published by Sputnik / Alexey Filippov on 28th Nov 2018 (Full Article)
The 2018 Russian-British Business Forum highlighted innovative businesses across a range of sectors, prompting a demand for cross-cultural collaboration between government, banking and intellectual property rights institutions.
Sputnik spoke to Omar Shaikh, advisory board member for the Islamic Finance Council UK in London.
Mr. Shaikh told Sputnik the unique angle of Islamic banking, which is steadily gaining international traction as nations invest in infrastructure projects throughout the developing world.
"Islamic banking is different through two distinct lenses," Mr. Shaikh said. "One is ethical, where you cannot engage in anything harmful to society, and a lot of different faiths or those of no faith would agree with those shared values."
"We launched something called the Edinburgh Finance Declaration, which looks specifically at shared values between faith traditions towards finance, which is the simpler and socially-conscious side of it."
"The other aspect of Islamic finance is the scriptural restriction on receiving or charging interest, and at that point, most people fall off their chairs, asking ‘how can you have a banking system that does not receive or charge interest,' — something both fascinating and unheard of."
Mr. Shaikh also said that Islamic banking forces economists "look at the banking system to see how it is constructed whilst seeing the dangers or challenges of interest-based versus equity-based financing".
Traditional macro-economists refer to the "divide between the rich and poor expanding, as those who already own capital ie, the rich, tend to win as they lend money and receive a return, regardless if the borrower's business performs well, bad or ugly," he stated. "As an equity investor, you lose if the business loses and you do well if the business does well."
Mr. Shaikh also mentioned that bans on interest is shared in the Abrahamic religions and that Greek philosophers' "views on interest were also intriguing, describing it as giving money, a non-organic and sterile matter, the peculiar ability to breed and multiply."
"It forces you to re-evaluate the nature of banking and Islamic banking is a system about financing based on the real economy," Mr. Shaikh continued.
"There is a portion based on venture capital and private equity, and another on asset-backed financing, where one can invest or rent on an asset to make a return."
He also discussed the role of institutions such as the Asia Infrastructure Investment Bank (AIIB) and Islamic Development Bank (IsDB) in international development, who partnered in June to develop infrastructure financing along the Belt and Road Initiative.
"Infrastructure is fundamental and you can never underestimate it," Mr. Shaikh said. "Just look at the New Silk Road going through China into Pakistan. That is fundamental to uplifting economies, people, and businesses."
He stated that as a real asset, infrastructure "aligns itself very well with Islamic financing because you have to invest in something tangible and real" and that "it is an interesting class of investments for Islamic finance."
"In Nigeria, Osun-state issued an Islamic bond for use on infrastructure projects and the development of Queen Alia Airport in Anman, Jordan, had been partly-funded by Islamic finance," he explained.
"It is very important for the Islamic financing world to get more comfortable with taking positions on infrastructure projects through longer-term Islamic bonds (sukuk), as most sukuk appetites are currently around the 5-year period with fewer long-term ones. Availability of products will help to drive this change and collaboration between the IsDB and AIIB will help facilitate that."
Ethical Finance Round Table Explores the Role of Blended Finance for the SDGs
The 17th Edinburgh Ethical Finance Round Table took place at the Scottish Parliament on Wednesday 24th October 2018 during a week of ethical finance events that were anchored by the 2-day Ethical Finance 2018 conference held at the RBS Conference Centre.
The round table began with Scottish Government host Ivan McKee the Minister for Trade, Investment and Innovation, welcoming those attending and expressing the Scottish Government's support for the round table series and the Global Ethical Finance Initiative in general.
The topic for the meeting was the implementation of the United Nations Sustainable Development Goals (SDGs) and the role of "Blended Finance" in achieving this. The first speaker was Gail Hurley, a Senior Advisor on Development Finance with the United Nations Development Programme (UNDP), which provides analysis of development needs and funding gaps as well as supplying support to individual countries.
While it is commonly stated that in order to implement the SDGs by the target date of 2030 an annual spend of $2.5 trillion will be required this may in fact be understated. In any event it is clear that development aid and domestic facilities alone will be far from sufficient to achieve this, so private capital will be essential and hence the development of the concept of "Blended Finance", i.e. mobilising development and philanthropic capital alongside private investment resources.
Currently the principal areas where this is being taken up are among the "middle income" economies, notably in sub-Saharan Africa, the Caribbean and the Middle East, with the principal focus of investment being in infrastructure, renewable energy and agriculture. While Blended Finance is expected to continue to expand it does face significant problems – limited capacity in individual governments, limited take-up within poor countries, the complexity of the financial structures involved and the affordability of alternative and more straightforward sources of funding (notably from China).
Gail concluded her presentation with an example of a recent successful project – the world's first Tobacco Control Bond, helping farmers in Sri Lanka and Zambia to transition to other crops.
The second presentation was given by Maria Teresa Zappia, the Chief Investment Officer of BlueOrchard, a leading global impact investment manager based in Geneva, which had itself been established as a result of a UN initiative. She explained that while BlueOrchard had initially specialised in microfinance projects this had expanded more recently into Blended Finance vehicles. Nine funds in all had been established in this area with five in current operation. In all it was estimated that up to 2017 $100 billion of Blended Finance had been mobilised. In their experience Blended Finance investment vehicles require to be carefully structured with the "waterfall" of preferences reflecting the needs of different investors and with the public investment always taking the "first risk" slice. In practice however, structuring the vehicles to meet the exact needs of varying investors presented many challenges.
A wide-ranging discussion then followed, the first question arising being the extent to which capital can be leveraged by these techniques. Gail Hurley indicated that, in broad terms, public funding currently generates a private capital multiple of around 2.5. In response to a further question, Maria Teresa Zappia advised that while their Blended Finance vehicles were effectively regulated via BlueOrchard's registration in Switzerland and Luxembourg they were not listed or rated. The difficulty of incorporating assets from the poorest countries in "frontier markets" with very little financial infrastructure were also discussed.
The meeting concluded with a brief outline from Jamison Ervin, also of the UNDP, of the new two year partnership programme between the UNDP, the Ethical Finance Hub, FaithInvest and Heriot-Watt University seeking to develop a pipeline of investable nature-based projects in developing economies, and in particular seeking to find ways of bridging the financial gap between the size of the individual projects involved and the requirements of the professional investment market. She was heartened by the announcement earlier in the week of the Scottish Government's funding and support for the project.
FOR MORE INFORMATION ON THE ETHICAL FINANCE ROUND TABLE SERIES PLEASE CLICK HERE
Event Listings for Edinburgh Ethical Finance Week - 22nd - 25th October 2018
As part of the Global Ethical Finance Initiative international leaders in ethical finance will be convening in Edinburgh at Ethical Finance 2018 taking place on 22nd - 23rd October 2018. The conference will be delivered in partnership with United Nations Development Programme (UNDP), Scottish Government and RBS.
Ethical Finance 2018 will explore themes including regaining trust in financial institutions, measuring impact, aligning capital to the UN Sustainable Development Goals (SDGs) and the $7trn demand for ethical investment products from faith and philanthropy groups.
The conference forms part of a wider ethical finance week that includes a series of events, organised and supported by Baillie Gifford, Church of Scotland, The Institute of Chartered Accountants of Scotland (ICAS), Ethical Finance Hub and the Financial Innovation Lab, that will take place in Edinburgh between the 22nd - 25th October 2018.
Please see below for details:
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ETHICAL FINANCE 2018* - 9am - 5pm, 22nd - 23rd October 2018
Hosted by RBS at the Gogarburn Conference Centre, Edinburgh and delivered by UKIFC in partnership with Scottish Government, UNDP and Responsible Investor
*includes an evening reception at Edinburgh Castle (6.30pm - 8.30pm, 22nd October 2018)
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INTERFAITH COLLABORATION ON ETHICAL FINANCE CELEBRATORY DINNER - 7pm - 9.30pm, 23rd October 2018
Hosted by Church of Scotland at Greyfriars Kirk, Edinburgh in partnership with UKIFC.
www.globalethicalfinance.org/edinburgh-declaration/
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UNDP ROUND TABLE: ROLE OF BLENDED FINANCE FOR THE SDGs - 1.45pm - 4pm, 24th October 2018
Hosted by Ben Macpherson MSP at the Scottish Parliament, Edinburgh and delivered by UKIFC in partnership with UNDP and Baillie Gifford.
Ethical Finance Round Table Overview
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INCLUSIVE FINANCIAL INNOVATION IDEATION EVENT - 10.30am - 4pm, 25th October 2018
Hosted by the Finance Innovation Lab at Foundation Scotland, Edinburgh.
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SUSTAINABLE FINANCE DISCUSSION - 6pm - 8pm, 25th October 2018
Hosted by ICAS at CA House, Edinburgh in partnership with Ethical Finance Hub.
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Over the past 8 years, along with our partners, the UKIFC has pioneered and developed a number of ethical finance initiatives in Edinburgh. Moving forward, these activities are being consolidated under one neutral umbrella - Global Ethical Finance Initiative (GEFI) - which aims to create a compelling proposition that positions Scotland as the "Davos" of ethical finance.
We believe Scotland is well positioned to become a global leader in ethical finance by facilitating dialogue and enabling innovative businesses, initiatives and thinking. To do so we welcome your participation and support so please come along to the Ethical Finance Week events and feel free to share with colleagues and associates.
If you wish to discuss the new Global Ethical Finance Initiative or any of the events in more detail please contact chris@ukifc.com or call Chris Tait on +44(0) 7931 103573.
UKIFC and Church of Scotland to Celebrate the Launch of the Edinburgh Declaration
Faith and finance leaders from across the globe will come together at Greyfriars Kirk in Edinburgh on 23rd October 2018 to celebrate the launch of the "Edinburgh Declaration", to be officially unveil the Declaration at the Ethical Finance 2018 Castle reception on 22nd October.
Driven by a mutual desire to move towards a fairer, more responsible finance system the initiative aims to bring together the best of our respective faiths to build a shared values framework (Edinburgh Declaration) which can be used to underpin the development of a commercially viable ethical finance solution open to all in society.
In order to identify and articulate the shared values a series of workshops were held bringing together theologians, leading industry practitioners and well-informed faith-thinkers, to explore and debate faith reflections on ethical finance and economics.
The first workshop, held in Edinburgh in May 2016, reflected upon the historical perception and trajectory of an ethical economy in the two faiths. The session explored the theological perspectives and philosophical underpinnings of Christianity and Islam.
The second workshop, hosted by Lord Sheikh in the House of Lords in October 2016, explored the shared values in ethical finance amongst the faith traditions within the context of the present commercial world. As well as perspectives from theologians and religious leaders we also had contributions from leading asset managers, banks and economists who provided insights on different types of economic models where ethical finance can deepen the economy, encourage inclusion and create positive social impact.
A draft Declaration was developed as a direct output of the first two workshops and supplementary conversations with the third workshop providing an opportunity to present, and critically appraise it.
As a final step the draft Declaration was shared with a number of other faith groups with all feedback collated and integrated into the final document.
The Declaration will provide the guiding principles that underpin the formulation of a financial product or service open to all in society regardless of religion or ethnic background. As we prepare to embark upon a research and development phase we ask any individuals and organisations interested in supporting this to please get in touch.
The celebratory dinner will provide an informal opportunity for contributors to reflect upon the journey so far and consider what the future might hold.
For further information please contact omar@ukifc.com