National and Global Islamic Financial Architecture:
Problems and Possible Solutions for the OIC Member Countries
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at a national level or required it at the firm level (though Luxembourg has felt able to achieve a
similar effect, for capital market instruments by interpreting its regulations to require
disclosure of Shari’ah governance arrangements (LfF 2014)).
The extremely limited regulatory change among the European centres is no doubt partly
attributable to the fact that any material change would have to take place at a European level,
and to be negotiated at that level. Such change, requiring a substantial consensus among many
countries, would be likely to be difficult, given the political caution with which even the UK has
needed to proceed. The fact that these countries have an essentially identical regulatory
regime does, however, allow interesting comparisons to be drawn in other areas. The
European centres also share the characteristic that, because of the European single market, a
business established there has very wide freedoms to offer its services across the European
community. There are also wide freedoms for financial products. So, for example, a CIS based
in Luxembourg in accordance with the UCITS framework can be offered across the EU. This
means that there is a degree of competition among European centres to be the point of entry to
Europe for businesses based outside, and the size of each country’s domestic market need not
be the dominant factor in achieving this.
As regards sukuk, although they are (like conventional bonds) capital market instruments and
are regulated as such, they trade very little and do so largely over the counter.61 As a result,
they are not particularly profitable businesses for an exchange since the main income they
offer comes from listing fees (and on the other side the quality of the exchange’s secondary
market is of limited relevance to the issuer). However, structuring and marketing sukuk are
important and remunerative activities for investment banks and lawyers in particular. It is
supporting businesses like these that have most to gain from a centre establishing itself as an
important one for sukuk.
To consider what the five centres have achieved in Islamic finance, it is helpful to place their
positions in a global context. As regards banking, IFSB (2016) places the UK with 0.3% of
Islamic banking assets globally and in 16 th place. None of the other four countries appears in
the first 16. Similarly, none of the centres have a material presence in Takaful (IFSB 2016),
though the data here excludes Retakaful. The capital markets data is more interesting. Figures
for sukuk issuance in the first 11 months of 2015 by domicile of ultimate obligor show
Malaysia in first place, with 50.4% of issuances, followed by Indonesia (13.2%) and Saudi
Arabia (11.8%). Hong Kong is in eighth place with 1.7% as a result of its sovereign issuance
(IFSB 2016). This is, however, of limited relevance to the significance of various centres as
venues for capital raising. Figures for sukuk listings are helpful but are quite volatile and
complicated by sukuk being listed on multiple exchanges. However, in mid-2016, NASDAQ
Dubai claimed the highest level of sukuk listings, ahead of Kuala Lumpur, London and Dublin
(Kane 2016). More relevant data is, however, available for Islamic CIS, where data is available
by fund domicile as at the end of October 2015. Saudi Arabia leads with 40%, followed by
Malaysia, Jersey and the USA. Luxembourg is in fifth place with 4%. Singapore has 1% (IFSB
2016). Taken together, these figures show that none of the jurisdictions have major
importance outside capital markets, and even where they do achieve significance at all is
subject to very strong challenges.
61 Tendulkar & Hancock (2014) have data on the low rates of bond turnover in general, though unfortunately not for the
centres studied here. Corporate bonds have in general lower turnover than government bonds and emerging markets have
in general lower turnover than developed ones. The London Stock Exchange’s website shows that in the last 6 months of
2015, Emaar’s sukuk had just 3 trades