National and Global Islamic Financial Architecture:
Problems and Possible Solutions for the OIC Member Countries
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funds from institutional and large investors (or, in the case of Luxembourg, to register
collective investment schemes). The advantages of a sound financial architecture to carry out
complex financial transactions are important for issuers and investors alike. It is hardly
surprising that some issuers of sukuk will wish to issue and/or list them in places where they
are best able to contact investors. This is because these activities are conducted largely with
sophisticated, often institutional, investors who are able to articulate the provisions and
disclosures they need, especially in Shari’ah matters. Some will be able to take their own
Shari’ah advice if necessary. In the one area with a strong retail component – collective
investment schemes – Luxembourg uses general powers to mandate disclosure but any
substantive Shari’ah requirements will in any event be those of the jurisdictions into which the
funds are sold.
Similar reasoning applies to some of the business in other sectors. For example, the London
market Takaful offering is for large commercial risks and reinsurance, again aimed at
sophisticated buyers. Some of the UK’s banking activity is also aimed at an international
market which, in itself, implies relatively affluent and sophisticated customers.
As indicated, only the UK and Singapore have made an effort to develop retail Islamic finance
offerings for their domestic markets. Both have found it difficult and both Islamic retail
banking and takaful have remained niche offerings. This has some consequences. It means
that the market cannot generally support many players, and competition is likely to be more
from conventional than other Islamic players. Thus, the issue of a level playing field within the
Islamic market, which is in other jurisdictions one of the arguments for central Shari’ah
governance is largely absent. On the other hand, as the a majority of retail customers use
Islamic finance due to religious reasons, financial institutions have every incentive to stress
their Shari’ah compliance and how their offerings differ, to distinguish themselves from
conventional competitors. Thus, these organizations would institute Shariah governance
mechanisms at the organizational levels as market practice to satisfy their customers.
Given the above arguments, it follows that examples of retail practices of UK and Singapore
cannot readily be transposed to Muslim majority countries. They are relevant primarily to
Muslim minority countries which already have strong positions in conventional finance.
However, lessons can be learnt from the international financial centers for the development of
Islamic capital markets and retakaful sectors. As these segments constitute complex and
sophisticated transactions, there is a need to come up with a sound financial architecture that
can support the development of these sectors in OIC MCs.
5.5. Summary and Conclusions
Overall, it can reasonably be said that two centres (London and Luxembourg) have clearly
established strong positions in Islamic finance in areas where they were previously strong
conventionally. Singapore appeared to have done the same, though more recently its success
has looked more fragile. Hong Kong has so far failed to establish a position. Germany has, at a
strategic level, not attempted to do so, though that has not stopped German firms becoming
significant players through their operations in other countries.
Table 5.5 summarises what the centres studied have achieved. Note that it deals with what is
available in the centre in question, not what its firms have achieved elsewhere. Note also that,
in several cases, although the activity is present, it is on a small scale.