With the balance of world economic power shifting ever eastwards, financial services markets are having to evolve and adapt to the new reality. Islamic finance has become the prevailing method of finance in some Eastern states where conventional finance once dominated. You may think that this has nothing to do with us in the South West, but if you are a business looking for funding or an investment, or a property developer or investor needing extra support then you should pay attention!
Sustained high oil prices and shifts in exchange rates and asset prices have all helped with the return of Middle Eastern investment in the UK. Such investment has been encouraged by the UK government's stated aim of breaking down the tax and regulatory barriers for Islamic finance and to establish London as the global capital for Islamic finance outside the Muslim world. A number of Islamic banks are now fully established in the UK and are open for business. Whereas they do sometimes focus on serving the needs of the Muslim population, the Islamic banks are also very keen to be involved with mainstream UK companies and they have the liquidity to back it up.
Rather than go into detail, it would suffice to say Islamic finance is an internationally recognised alternative financing system which has strong ethical values and uses structures whereby the banks get closely involved in the business of their customers.
So what is driving the growth of Islamic finance in the UK and how can you benefit?
The drivers for the continued growth of Islamic finance in the UK are both demand side and supply side. On the demand side there are over two million Muslims in the UK and thousands of Muslim-owned businesses. The UK is also an ever popular destination for investment from the Middle East. This gives Islamic banks (and conventional banks interested in the sector ) a fertile growth market for their Islamic finance products. In addition there are the customers of other faiths who appreciate the ethical and economic benefits of some Islamic finance products.
On the supply side, ample liquidity from the Middle East has enabled Islamic banks in the UK to flourish whilst traditional banks have been pulling back from the market. By way of example, some of the Islamic banks are focused on funding and investing in innovative SMEs who need capital to enable rapid growth. To give another example, one of these banks is able to offer mezzanine property financing which allows you to reduce the significant amount of equity you otherwise have to put down on property investment or development transactions.
All this partly explains why the majority of the funds deployed by some of the Islamic banks in the UK is to regular UK companies and non Muslim investors who are less concerned with matters of faith than they are with simply ensuring that they get the finance they need when they need it.
Foot Anstey is a keen participant in this growing market and we will be happy to explore with you the possible implications or opportunities for you and your business.