National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
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UK
The UK, like Singapore, is a leading financial centre globally, with a Muslim minority smaller in
percentage terms but larger in absolute terms than Singapore’s. Like Singapore, it has been
pursuing Islamic finance with a government-driven strategy, for a significant time, and with an
eye to both retail and wholesale business. Also like Singapore, it has found that demand among
its own population has been sufficiently soft that firms offering Islamic financial products in
the retail market have struggled to reach a viable scale.
The UK has, however, benefited from a very deep infrastructure, in education, in professional
institutions (for example CISI), in lawyers and accountants, and from the fact that English law
has been a common choice of law in international transactions, including the issuance of sukuk.
This depth has allowed it to attract attention with innovative structures, the demonstration of
which seems to have been a tacit part of the government’s strategy. It has also built, and
continues to build, an infrastructure for Islamic banking, notably in the area of liquidity
management.
The UK has benefited from historic links with the Middle East, which have made it a centre for
wealth management and investment from the region. For example, the sovereign wealth funds
of Abu Dhabi, Kuwait and Qatar all have investment offices there (TheCityUK 2015b). Its
Islamic finance offerings have therefore served traditional clients and have been built on
traditional strengths. It has established a strong position in sukuk listings and in asset
management a number of private deals have been structured on Islamic principles.64 Similarly,
the Cobalt Takaful facility is based on London’s traditional strengths in insuring large
commercial risks.
5.4. Lessons for Islamic Finance
The cases of international financial centers show that Islamic finance is operating in these
jurisdictions with minor changes in tax laws but with no fundamental changes in the
conventional regulatory regimes and with no regulatory Shariah governance frameworks. This
paradox can be partly explained by examining the Islamic financial sectors operating and the
clients served in these centers. In particular, other than UK and Singapore that have some retail
practices, other jurisdictions have focussed more on capital markets and retakaful services.
One jurisdiction (Germany) has made no attempt to promote Islamic finance. It has, at best,
found a way to accommodate it within its existing regime. German businesses, acting
independently, have tried to establish positions, but often through operations in other
jurisdictions. Of the remainder, while Hong Kong and Luxembourg have focused their
ambitions on international capital markets activities neither would expect to have a domestic
Islamic market. These international capital markets have also been a material part of the
ambitions and activities of the UK and Singapore.
Capital market and retakful sector practices are sophisticated and require sound legal and
regulatory foundations. All five jurisdictions studied provide very strong infrastructural
institutions for these sectors in conventional finance. This means that, as far as internationally
traded business is concerned, they start out with the advantages of a strong conventional
infrastructure, active exchanges, legal communities familiar with their regimes, etc., which are
prerequisites for complex financial transactions. They are all known as places in which to raise
64 See, for example