National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
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Table ‎5.5: Summary Status of Activities in Global Financial Centres
Activities UK Germany Luxembourg Singapore Hong Kong
Retail Banking Yes Yes No Yes No
Wholesale Banking Yes No No Yes No
Takaful/Retakaful Yes No No Yes No
Funds Yes No Yes Yes Yes
Sukuk Yes No Yes Yes Yes
Education/Training
Programmes
Yes Yes Yes Yes No
In trying to draw lessons and conclusions from this analysis, one can look at the implications
for other global financial centres with an interest in Islamic finance, or at the implications for
OIC countries considering whether their centres may be able to challenge the existing global
centres on the back of an Islamic finance specialism. It is easier from this study to draw
conclusions about the former than the latter.
First, it is necessary to set some context. Islamic finance is less than 2% of the global financial
system. Some 80% of its assets are in the banking sector, of which 37% are in Iran, 19% in
Saudi Arabia, 9% in Malaysia and 8% in the UAE. Other GCC countries account for a further
13% (IFSB 2016). Even given the very high growth rates of Islamic finance, the amount of truly
contestable business, for international financial centres outside those countries is at present
small. It is therefore unrealistic to think that every significant financial centre in the world can
hope to achieve a viable scale in Islamic finance, even if it wanted to do so.
Several centres besides those discussed have challenged actively for the contestable market
and some have achieved an important presence in it. In Asia, although Kuala Lumpur does not
have a strong pre-existing position in conventional finance, it has had the benefits of a very
active government development strategy supported by regulatory underpinning, active
promotion, and incentives. Both Singapore and Hong Kong have, in practical terms, been in
competition with Kuala Lumpur for internationally mobile business, even leaving aside
challenges from other centres and other regions. In the Middle East, several centres have been
vying for business and in Europe there is again competition, with Dublin and Jersey having a
significant presence in parts of the market, and ambitions from other centres such as Paris.
The evidence from the centres under study is that the demand for Islamic financial products
from Muslims in developed countries operating mixed financial systems is relatively soft.
Islamic products need to be fully competitive with conventional ones for a religious preference
to operate in their favour. This in turn means that they cannot bear substantial additional
distribution costs, even if they are targeted at a dispersed minority of the population.
Achieving a viable scale is not easy as has been demonstrated in the UK, Singapore and
Germany.
It follows that the presence of a Muslim minority is of limited direct value to a centre seeking to
establish itself in Islamic finance (though it may have indirect benefits in offering a talent pool
from which to recruit, and greater knowledge of Islam among the population generally). It is
likely that established trade, financial and educational links with major Muslim-majority
countries will be much more valuable in establishing a presence than the presence of a
domestic minority.
The centres which have succeeded have built on their existing strengths and have essentially
extended (parts of) their existing offerings into the Islamic field. All have made adjustments to
their tax systems to provide effective parity of treatment between Islamic products and their