While many Western banks may be struggling with liquidity and funding issues, Middle Eastern banks, awash with liquidity, are increasingly making their presence felt in Western financial markets. One such bank is Qatar Islamic Bank (QIB), whose European subsidiary, European Finance House (EFH), recently received Financial Services Authority (FSA) approval to operate as an Islamic investment bank in the United Kingdom. In Europe, EFH will provide a range of Shariah-compliant investment products including corporate financing, asset management and advisory services. In addition to providing Middle Eastern investors with Shariah-compliant investment opportunities in Europe, EFH also hopes to provide a more “resilient” source of financing for European companies that have traditionally sourced capital in the conventional financial markets.
“We want to create an alternative market to conventional structures,” says QIB’s CEO Salah Al Jaidah, adding that he would like to see European firms entering the Shariah sukuk market. “Any CFO that sits on a multinational company needs to be seen to understand Shariah-compliant structures,” he says. Michael Clark, CEO of EFH, says there are large UK company pension funds, for example, with substantial Muslim populations that want their pension entitlements to be Shariah-compliant investments. “We want to take customers out of the conventional space and bring them within Shariah-compliant investments,” he says.
Currently, assets controlled by Islamic banks at the global level are estimated to be in the region of $200 billion to $500 billion and growing at a rate of 10% to 15% per year. Clark says the challenge in convincing Western companies to convert to Islamic financing structures is getting the pricing, deal size, liquidity and complexity of the documentation process right so it compares favorably with more conventional structures.
Meanwhile, Western banks are also looking to cash in on the growing popularity of Islamic financing. Lloyds TSB announced an Islamic nostro account, which will enable banks to provide a Shariah-compliant channel for distributing payments to customers around the world. Lloyds says the account means that the UK’s 2 million Muslims and 100,000 Muslim firms could make and receive international payments without compromising their faith.