National and Global Islamic Financial Architecture:
Problems and Possible Solutions for the OIC Member Countries
190
conventional counterparts but, interestingly, none have made or sought any major adjustment
to their financial services regulation. Where changes have been made, they have generally
been to allow firms to provide Shari’ah-compliant products without artificial restrictions (for
example on ownership of real estate in an Islamic mortgage).
All the centres except Germany have seen a need for active promotion of their offerings in
Islamic finance and have sought to be visible in public fora. They have also sought to
demonstrate their commitment and, often, the effectiveness of their legal frameworks, by
issuing sukuk even where this was not necessary for government financing purposes. In some
instances, particularly for London, there has been an attempt to demonstrate the depth of the
centre’s capability by pioneering novel structures. The export credit-backed sukuk for
Emirates is an obvious example. This is an example of trying to utilise the strengths of the
centre’s “soft infrastructure” though, interestingly, none of the centres has made a strong
strategic attempt to develop that infrastructure. Although in some there have been important
developments in education or in professional services, these have in general been allowed to
arise spontaneously rather than being driven by government strategy. Singapore is the only
one of the centres where the government has claimed direct credit for educational initiatives.
It is clear, however, that while government promotion and demonstration may be a necessary
condition of success, they are not a sufficient one, even when combined with a strong pre-
existing position as a conventional financial centre. The relative lack of success of Hong Kong
and the difficulties of Singapore in some sectors are a demonstration of that.
For a financial centre to succeed in attracting globally-mobile Islamic financial business,
therefore, it must compete with other centres and have at least some element of its selling
proposition that will give it an advantage. That will be difficult, more so since many of the
European centres will necessarily follow the same regulatory model and be unable to
distinguish themselves on that ground. Some centres may have advantages of language or
historic ties, for example within the Russian-influenced countries of Central Asia, or the
Francophone countries of Africa. Some may have particularly strong positions in parts of
conventional finance (as, for example, Bermuda has in reinsurance), but otherwise it is difficult
to see what might distinguish a new entrant.
There is, however, also a category of regionally-mobile business. Typically this will be
business where there is deemed to be an advantage in carrying it out close to investors or
other counterparties but which do not have to be done in a particular jurisdiction. Some
capital market businesses are of that kind, as are various headquarters and back office
functions. For example an insurer may choose to concentrate specialised underwriting skills in
a global or regional centre. In such cases, the competition for location will be complex. Issues
of economies of scale will be relevant as will synergies between the firm’s Islamic and
conventional business. This does allow another route for conventional centres to benefit in
employment terms from Islamic business, even if that business is booked elsewhere.