Islamic banks give London world financial clout

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Rodney Wilson, chairman of the London-based Institute of Islamic Banking and Insurance, noted that some other deals had been put on hold — UAE-based Dana Gas postponed its $1 billion sukuk until September due to credit market weakness, while First Gulf Bank of the UAE and Bahrain's Ithmar Bank deferred their issues.

"On the other hand, there is no Islamic financial institution which is in trouble," said Wilson.

Wilson added that the British government is likely to go ahead with the sukuk even after a furor earlier this year over comments from Rowan William, the archbishop of Canterbury and the head of Britain's Anglican Church, that a limited application of Shariah in Britain was inevitable.

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"The sukuk would look very good in the interest of the Islamic finance altogether and U.K. Muslim community in particular," said Wilson.

Britain has worked to position London to take advantage of the rapid growth in wholesale Islamic banking. It is the only Western country among the top 15 for Shariah-compliant assets, ranking ninth, according to industry group International Financial Services London.

Both retail and wholesale services have grown rapidly since the Islamic Bank of Britain became the first domestic bank to cater exclusively to the country's 2 million Muslims just four years ago. There are now also some 23 conventional banks, including Lloyds and HSBC, offering Islamic products.

In contrast, France, with a Muslim population of more than 5 million, has just four conventional banks offering Islamic products.

The United States is the only other country that comes close to Britain, with around 20 Islamic banks, but those are so far predominantly focused on domestic retail operations instead of high finance.

London is also far ahead in training for the industry. The Islamic Finance Qualification offered by its Securities and Investment Institute is recognized around the world and the Chartered Institute of Management Accountants' Certificate in Islamic finance is the first offered by a professional chartered accountancy body.

The burgeoning market is not without its problems, however. Shariah scholars disagree about what constitutes compliance with Islamic law.

One of the world's leading scholars, Sheik Mohammed Taqi Usmani, recently rattled the market by saying 85 percent of sukuk are not Shariah compliant because they were too much like conventional interest-bearing bonds.

Wilson said that a consensus would likely evolve with time.

"I don't really see any huge problems ahead," he added. "I expect it will expand into other areas and more conventional institutions will join which is what we are seeing now."

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