Islamic finance sees big growth in Europe

Updated 02 February 2017
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Islamic finance sees big growth in Europe

JEDDAH: In today’s connected world of business, Islamic finance is a concept that people working in the banking and finance industries are likely to come across in their careers.
Islamic finance, despite its label, is not limited to Muslim countries. It has shown growth globally, including in Europe.
Total Islamic finance assets worldwide are projected to grow to $3.5 trillion by 2021 from $2 trillion currently, according to Thompson Reuters’ Islamic Finance Development “Resilient Growth” report published in 2016.
There are 622 institutions providing Islamic finance courses worldwide, and 201 provide Islamic finance degrees, according to the report.
Europe is increasingly showing interest in Islamic finance education. There are 109 institutions that provide Islamic finance education in Europe, 63 percent of them in the UK.
Britain issued its first Islamic bond (sukuk) worth £200 million (over $250 million), according to a statement by the Treasury published on the government’s website in June 2014.
“Islamic finance is attractive to ethical investors or those looking to do business with Shariah-compliant businesses,” said Farmida Bi, a London-based banking lawyer and head of Islamic finance in Europe at Norton Rose Fulbright global law firm.
“These economies (in non-Muslim countries) are interested in the financing opportunities that Islamic finance can offer, both as an external investor and to respond to the demands of their indigenous Muslim populations,” she told Arab News.
The case of the UK
Being home to 3 million Muslims, according to the Office of National Statistics in 2016, the UK is a leading hub for the Islamic finance industry in Europe.
It also has a fully Shariah-compliant retail bank: Al-Rayan Bank (formerly Islamic Bank of Britain).
“Britain is today the leading center for Islamic finance in the West, including British higher education institutions leading the non-Muslim world in the teaching of Islamic finance,” said Nyra Mahmood, managing director of the UK-based Simply Sharia Human Capital (SSHC Ltd.).
She emphasized the important role financial technology (FinTech) can play in further introducing Islamic finance and banking.
“The opportunities emanating from the FinTech scene and the ethical financial space gives rise to how the UK’s Islamic finance can look at shaping and taking the lead in fulfilling the wider needs of society through technology and innovation, especially with a younger, more socially active generation wanting to join the industry,” she told Arab News.
She said the younger generation expects more from their money, as they are socially conscious and want to see companies embrace their corporate social responsibility along with being part of a financial services sector.
“These are the issues driving a new generation of Islamic finance practitioners and consumers alike, both Muslim and non-Muslim in Europe and beyond.”
Mahmood said factors that can affect Islamic finance moving forward in the UK, directly and indirectly, include the aftermath of the Brexit vote, the UK’s economic outlook for 2017 onward, and customers’ needs.
“With this in mind, the UK’s Islamic finance industry is well positioned.
“As the country looks beyond the EU, there’s an opportunity to align the UK with investors and partners from other Islamic hubs, namely the Gulf and Malaysia, which is already happening,” she said.
“Further engagement and investments with these regions and others, through support from the UK government, can strengthen Islamic finance in the UK and assist Britain economically.”
Islamic finance has witnessed a rise in the past 10 years. Europe’s tallest building, the 95-story Shard skyscraper marking London’s landscape, was financed through Shariah-compliant instruments.
Other projects such as Chelsea Barracks and the Olympic Village were also partly or wholly financed in the same manner, said Mahmood.
There is growing demand among non-Muslims for more education and awareness of the industry as well as products.
In a survey by Al-Rayan Bank in 2014, 57 percent of non-Muslim participants said Islamic finance was relevant to all faiths because they believed it was ethical.
“Many professionals working in Islamic finance today have a background in conventional finance and banking, and many of those are non-Muslim,” Mahmood said.
“As a firm, most of our clients in terms of training in Islamic finance are from the conventional professional services, law firms, accountancy practices and non-Shariah-compliant banking and finance staff.”
Muslims and non-Muslims “are looking for an alternative that promises and delivers on ethical values.
The underlying principles of Islamic finance promote equity, fairness and the betterment of the wider community.”
The case of Spain
Spain is one of the countries curious about Islamic finance. One of its top business schools, IE Business School based in Madrid, has a center that teaches and researches Islamic finance.
“There’s a lack of knowledge in Islamic finance. Everybody is looking but no one is pushing yet,” Gonzalo Rodríguez, general coordinator at the Saudi-Spanish Center for Islamic Economics and Finance (SCIEF), told Arab News during a visit in Jeddah.
“After the financial crisis (in 2008), ethical banking became much more popular, especially among young people. We believe it’s fair, ethical and based on real economy, and we try to spread this approach.”
SCIEF is the fruit of collaboration between the Islamic Economics Institute at King Abdulaziz University (KAU) in Jeddah and IE Business School, and has been running since 2009.
Although Islamic finance and banking remains non-existent in Spain, it is becoming popular among finance students who wish to gain international experience. The role it plays is both educational and advisory.
“We’re trying to spread knowledge of Islamic finance in Spain, and to reach out to all players to explain to them what Islamic finance is, its potential in Spain, and the opportunities we have for Islamic finance in the country,” Rodríguez said.
“We see Islamic finance as an industry and an alternative way to make finance. It opens windows for foreign investments.”
He pointed out what he believes are the three main reasons behind growing interest in Islamic finance in Spain. First, it is seen as a new industry that is booming.
“Second, when people study Islamic finance they find it more ethical and believe in its principles.”
The third reason is that the person is Muslim and wants to adhere to his or her religious teachings.
“As an international business school, we think worldwide. Islamic finance makes 1 percent of assets worldwide. We have students interested in that. They’ll probably not work in Spain, but in other countries,” Rodríguez said.
He and a number of his colleagues from SCIEF came to Jeddah last week to give the third edition of the center’s annual four-day Islamic Finance Executive Program (Jan. 23-26), in partnership with the Islamic Research and Training Institute (IRTI) and KAU.
The program consisted of classroom sessions, roundtable discussions and field visits. Students were mainly international.
The university played a role in teaching and organizing, as the teachers were both from the university and the center.
“Students studying finance at IE Business School can choose the Islamic finance module as an elective, and they’re not necessarily Muslims,” Rodríguez said.
The collaboration between Jeddah and Madrid goes both ways. Every year, SCIEF hosts 10-15 students from KAU coming to the IE Business School “immersion week” on entrepreneurship, not Islamic finance, but they take advantage of Saudi Arabia having a center in Madrid at a top university.
Being a country with a small Muslim minority — 4 percent of the population as of 2015 — having a religious label can be a barrier, Rodríguez said. Applying it will require changes in the way the banking system works.
“At a regulatory level, it’s quite difficult to accept Islamic finance and give a license to a bank, because then we’ll need to change many things in our laws and banking regulations in terms of interest for example,” he said.
“It’s difficult to put it in the agenda because it’s difficult to explain it in Spain. I think there are challenges and opportunities for Islamic finance in terms of lands, investments in real estate, in the halal industry that is growing.”
The center created a think tank in 2016 with “main players of the economy in Spain from banks and law firms,” including Santander Bank.
“We’ll have four meetings per year,” Rodríguez said. “They see the opportunity, and if something happens they want to be there. They know Islamic finance represents 1 percent of assets worldwide.” The first meeting is set to take place on Feb. 23.
Rodríguez said Spain is yet to start adopting Islamic finance and banking due to the small number of Muslims in the country and the lack of knowledge about it.
However, he said FinTech can accelerate its introduction: “Banking is changing, and will absolutely change in the next five years. FinTech is the future. Relations between the bank and client will change.”


Saudi Arabia seeks stable, not soaring, oil prices

Updated 22 September 2018
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Saudi Arabia seeks stable, not soaring, oil prices

  • Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday.
  • The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98

RIYADH: Oil prices rose this week on continuing market tightness. With the price rise, some Saudi-bashing has begun. Bloomberg reported that increasing prices were due to Saudi Arabia’s comfort with Brent crude above $80 per barrel. Such “analysis” is hogwash.

Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday. WTI rose above $70 per barrel for the first time in three months and settled at $70.78 per barrel by the week closing.
The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98. As may be noted in those numbers, the Brent crude price has been resisting the psychological barrier of $80 per barrel. The fact is that, since October 2014, the Brent monthly average has never gone above $80.
The oil price outlook might be raised as a result of this upward tendency and the continuing tight oil market. For instance, with the latest numbers in hand, HSBC has revised its oil price forecast upward with Brent to average $80 per barrel in 2019 and $85 in 2020, before settling at about $75 in 2021.
Bloomberg was inaccurate about Saudi Arabia’s comfort with a Brent price above $80 per barrel. The Kingdom has never been among the bulls when it comes to oil prices. Again and again, Saudi Arabia has been a major advocate for stable oil prices, not increasing oil prices, which it views as unsustainable and damaging to the global economy. Bloomberg is also predicting that Saudi Arabia will follow its allegedly bullish nature and refrain from ramping up production to compensate for the oil lost once the US sanctions on Iran come into effect.
US Secretary of Energy Rick Perry has confirmed that Saudi Arabia, Russia and the US are well able to add enough crude oil supply into the market to compensate for Iran. Indeed, the Kingdom has begun to increase output to adjust for market needs, from 9.87 million barrels per day (bpd) in April to 10.42 million bpd in August.
The upward movement in oil prices came after strong fundamentals showed market tightness that spurred record levels of speculative traders, with nearly all betting on higher prices. The price rise also recognized that total US inventories are below the five-year average for the first time since May 2014. Oil prices have been gradually trending upward with gentle fluctuations. There have not been any steep surges or declines. There is nothing artificial about the trend. In reality, it is boringly predictable.
Last month, the International Energy Agency (IEA) reported OECD commercial crude oil inventories at 32 million barrels below the five-year average. Stocks at the end of Q2 2018 were up 6.6 million barrels versus the end of 1Q 2018, the first quarterly increase since 1Q 2017. The IEA also noted that global refinery throughputs in the second half of 2018 are expected to be 2 million barrels higher than in the first half of the year. These refined products stocks will draw down before building again in 4Q 2018.
Global crude oil inventories peaked in 2016. The OPEC+ agreement that worked for market balance was the reason for a fall in inventories. Since May 2017, global oil stocks have been on the decline and now global crude oil stocks are below the five-year average. Product stocks are also below that level, with strong demand and healthy refining margins.
Inventories have kept falling despite American producers pumping at all-time highs last month. It is only the massive flood of oil from the US which has kept crude oil prices at low levels from early 2015 to the end of 2017 — along with a resulting lack of upstream investment in the oil industry. Therefore, the IEA predicts that in 2022 spare production capacity will fall to a 14-year low.
Global oil markets are rebalancing. Oil prices started their upward momentum from the end of October 2017. They went above the psychological barrier $60 a barrel after 10 consecutive months of tireless efforts by OPEC and non-OPEC nations that started on January 2017. The market rebalancing will continue through the end of 2018, and beyond.
Such upward momentum in oil prices isn’t artificial movement because it came after many months without steep price fluctuations. In 2016, the Brent price average was $43. The 2017 Brent price average was $54, and prices just surpassed $60 in October 2017. The Brent average surpassed $70 in late March 2018 and has been hovering between $72 and $78 since. There is no evidence of a steep fluctuation or an artificial movement.
The claims of an artificial price movement have come just at the time when OPEC and the world are reaping the positive outcomes of 24 nations collaborating in output cuts that managed to successfully rebalance the oil market in a situation where global oil inventories were running at record highs. Also, these false claims came when the oil industry needs capital inflows to reactivate upstream investments for major international oil companies. Such investments are essential for the price stability that benefits oil producers and consumers globally. Low oil prices result in low investment in discovery and production of petroleum resources, which damages various industry sectors and energy needs. That leads to a vicious cycle of up-and-down price fluctuations.