Making waves in Islamic Finance in Britain

Is the financial crisis now a distant memory for the region? What is the role Middle East will play to shape future investment and global economic trends in the mid-term?

The global and regional crisis is still in our minds. The impact the crisis has had is still visible globally until today. The biggest mistake we can make is to forget it too quickly. I am sure globally and regionally there have been many lessons learnt and it is everyone’s responsibility in both the public and private sector to work closely together to avoid repeating similar mistakes in the future. There is no doubt the banking sector globally has seen a wave of reform as a result of the crisis.

Despite different global crisis, over the years, Shariah compliant banking has continued to grow fast at a rate in excess of 20% per annum in terms of assets, financing and deposits.

In general, the Middle East economies have great growth potential despite the political instability we are seeing in some countries. In the Middle East we have a very fast growing middle class segment and a large proportion of young population which is key driver of both supply (production of goods and services) and demand. The demand for funding to support infrastructure development across the Middle East is phenomenal.

We are also seeing more economic diversification across the Middle East, moving away from heavy reliance on oil and gas, to industrialization, retail, manufacturing, services, trading etc

On the global investment and economic contribution, the Middle East economies are managing, on a combined basis, probably the largest proportion of sovereign wealth funds, a source of funding for many investment opportunities across the globe.

What do you believe are the greatest contributing factors to these increases, for how long do you expect these positive trends in investment and banking to continue?

The investment banking market generally benefits from good and bad days. In good days, we see a significant demand of M&A and the same can be said to be true in bad days because the strong players see more opportunities and under-valued assets at attractive prices. In 2013 there were a lot of rescue opportunities as banks were deleveraging and divesting non-core assets which opened up more opportunities for both debt and equity capital markets. In 2013 we also saw a number of sovereigns hitting the debt market to support their economies.

In 2013 the investment banking market was supported by growth from all sectors – mainly financials, energy & power, industrials, health care, retail and consumer products. In 2013 the Middle East region had one of the best growth in M&A fees circa 9%, higher than many developed markets.

With regional players like Dubai and Istanbul, what is Qatar’s potential to lead the QISMUT and become bridge between London and Kuala Lumpur to develop the sector further?

Qatar is well positioned to become a leading force in Shariah compliant finance. We have strong regulatory environment and financial system infrastructure in line with international best practices making our country an attractive market for Sharia compliant banking industry. Our regulator is in the forefront when it comes to adoption and implementation of globally accepted banking guidelines such as Basel III. On the regulatory front we have also seen the merger of all financial regulators under one umbrella, one of the strategic moves to strengthen the economic and regulatory infrastructure in the country.

Our Shariah compliant banking industry is in the process of expanding its capacity organically and through M&A. The Takaful market has also seen a significant growth. Other tools critical for any financial industry including Shariah compliant one have been put in place - such as a yield curve from 1 month to 12 years.

There also many initiatives ongoing to develop further both the Shariah compliant financing and equity capital markets.

Masraf Al Rayan is a leading company on the Qatar exchange and its top 20 shareholders are blue in the Qatar investment, corporate and high net worth community.

How has the Morgan Stanley Country Index upgrade of Qatar exchange from frontier to emerging market status together with Masraf Al Rayan’s highlighted the intrinsic connection between the success of Qatar Exchange and the strength of its national banking sector?

Qatar is rated AA by Moody’s and S&P, the country’s GDP has reached over $200bn. All companies listed on QE are profitable and maintain very strong and sound financial positions. Banks represent more than 50% of the MSCI Qatar index highlighting the importance of the sector for the Qatar Stock Exchange. Over the last five years the market capitalization of MSCI Qatar has doubled, driven to a large extent by growth of the banking industry which has been reflected in their share prices. In turn, this helped Qatar meet some of the size and liquidity requirements of entry in to MSCI EM.

Masraf Al Rayan is the parent company of Islamic bank of Britain (IBB), which was established in 2004 as the UK’s first wholly Sharia retail bank and has pioneered Islamic banking in the UK for over a decade. Providing access to Islamic banking poses a major opportunity for investment in the real the economy. Would you please discuss and share insight on which many in the British Business community have yet to explore?

It has always been our belief and mission to create a viable and sustainable links between our institution and the real economy. This is one of the basic and fundamental principles of Shariah compliant financial system. IBB would soon be re-branded, subject to shareholder’s approval, to Al Rayan bank plc. Al Rayan bank will be developed as the platform for Masraf Al Rayan’s expansion in Europe. Part of this re- branding is the re-positioning of al Rayan as a bank for all, Muslims and non-Muslims, whose underlying theme is ethical banking combined with great customer service and financial security. We will undertake a number of initiatives to attract main stream customers on board and in the process make our product offerings become more understood and appreciated. Over time we are looking to grow and expand our offering in the market to include commercial banking especially asset finance and trade finance, private banking products and services catering for GCC and UK high net worth individuals.

We strongly believe the UK and European market offers a major opportunity for growth. The recent and first UK Government Sukuk was over-subscribed 10 times. IBB’s balance sheet has seen decent growth since beginning of 2014 when it was £369 million and we are expecting to close 2014 with at least 75% growth in total assets. Our projection for 2015 is to close the year with £1 billion in total assets.

Qatari banks have benefited from the knock-on effects of the state’s heavy investment in infrastructure and preparations to host the 2022 World Cup. Speaking as the nation’s largest Islamic lender by market value, is there still space in the market for mezzanine foreign investors?

Qatar has always been open to foreign investors. QFC alone has more than 100 banks registered under its authority, plus the capital market is open to foreign investors for a long time now. Qatar tax law is one of the most attractive tax legislation, one of lowest tax rates in the world for businesses and zero income tax against employment income.

Qatar hosting several global and regional sports events every year from 2005 all the way to 2022, definitely this creates huge infrastructure development opportunities and the financial and banking sector is one of the direct beneficiaries of these opportunities but one must be competitive in terms of quality of service, pricing and variety of product offerings in line with customer needs. The competition is stiff across all sectors but at the same time a lot of opportunities exist for many more investors.

The United Kingdom is the 3rd largest HNWI market in the world. At the end of 2013 there were approximately 840,000 HNWIs living in the United Kingdom, with a combined wealth of US$3.5 trillion. On the other hand, it’s no secret that Qatar, as the world’s wealthiest country in terms of GDP per capita, has in recent years been a prolific investor in the UK with investments ranging from The Shard, to Heathrow Airport, Qatar also recently allotted 10 billion pounds for British infrastructure investments. Why do you think Qatar has had this attraction to investments in the UK, and London in particular?

Qatar is a global investor and seeks investment opportunities in different markets and sectors. We cannot ignore the fact that London is the second largest financial market globally after New York. The legal and regulatory environment in UK is very sound. Also Qatar and UK have had very strong political and economic ties going back many decades across many sectors from oil and gas, health care, education, sports and others.

Lord Howell stated in 2011 that the UK and Qatar shared a multitude of investor opportunities from infrastructure development projects related to the 2022 World Cup, to the argumentation of both country’s education and health sectors. UK Trade and Investment have also priorities Qatar by putting them on the “High Value Opportunities Programme”, seeking to support business-to-business engagement bilaterally. Which do you see as the greatest investment or partnership opportunities for British individuals or companies in Qatar today?

The Qatari market offers many investment and partnership opportunities for UK investors. With the multi billion dollar infrastructure investments planned for the next coming decades, different sectors that directly or indirectly feed into these projects will be the largest beneficiaries.

With the expansion and development of the port and economic zones, we expect significant investments in trade and industrial/manufacturing projects in Qatar.

In addition, the utilities, health care and education sectors offer excellent opportunities as the population in the country grows and the government allocates more resources towards these sectors.