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Thursday, January 24, 2019

Opinion > Al Rayan Bank

London - the Western Islamic finance hub

Amir Firdaus, treasurer at Al Rayan Bank | 07:27 Wednesday 4th April 2018

Last month, the Islamic Development Bank and London Stock Exchange hosted the Sukuk Summit, not long after Al Rayan Bank listed a £250m three year-dated Sukuk in the capital.

The issuance helps Al Rayan Bank to diversify its sources of funding, which in the past has been reliant on retail deposits. Ultimately, by lowering our funding costs I hope to be able to reduce the cost of finance to our customers.

Named after the fantasy writer J.R.R. Tolkien, 'Tolkien Sukuk' was significantly oversubscribed, with 97% of subscribers coming from the UK. This reflects the equal demand for Islamic financing instruments in comparison to conventional in the UK market and should serve as a catalyst for others looking to enter the market.

Al Rayan Bank was established in 2004 and, since then, we have pioneered in Sharia-compliant banking in the country.

During that time, we've also seen a number of very positive legislative changes from successive British Governments, designed to create a level playing field for Islamic banks. In June 2014, the UK became the first country outside the Islamic world to issue a sovereign Sukuk when the Government listed a £200 million Sukuk on the London Stock Exchange. Fast forward almost four years and more than $50bn has been raised through 67 Sukuk listings on London's markets.

The UK is extremely well positioned to become the leading destination of Sukuk issuance for Western Europe and a launchpad for Islamic banking. English law provides an ideal framework and complements Islamic finance nicely, and the Government continues to be supportive of new entrants to the market that provide alternative and ethical ways of banking.

We'd like to see Tolkien Sukuk become a template for others to follow and we hope that it acts as a catalyst that encourages other Islamic banks to look at the residential mortgage-backed securities (RMBS) market as a potential funding structure for them as well.

With a supportive regulatory and legal framework, the only real obstacle to the growth of the sector in the UK is a lack of understanding. Although over a third of our customers are non-Muslim, many people are not familiar with Islamic banking principles that underpin our operations; while we found that many overseas Islamic institutions required clarity on the RMBS structure.

We accept our responsibility to promote awareness and understanding of Islamic finance and the opportunities it provides.

Al Rayan Bank plans to re-enter the Sukuk market at some point next year, by which point other Islamic banks may have chosen to join us, but in the meantime, we can expect the sector to continue to build its presence in the UK and London and make its compelling case to become a global Islamic finance hub to rival Dubai or Malaysia.

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