London, Dubai, Kuala Lumpur in fight for Islamic banking

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http://news.asiaone.com/news/business/london-dubai-kuala-lumpur-fight-islamic-banking

When the British government said last month it would issue its first Islamic bond, the implications went far beyond the debt market: it was a signal that London will not back down in an escalating tussle among cities for Islamic financial business.

London has long been the default centre for international firms to issue sharia-compliant bonds, part of a fast-growing Islamic finance sector that will be worth $2 trillion globally next year, according to consultants Ernst and Young.

But it faces a mounting challenge from two centres: Dubai and Kuala Lumpur.

Dubai, at the heart of the wealthy Gulf, announced a push into Islamic finance this year. It has an entrepreneurial culture which has already made it the Middle East's top conventional banking centre, and big state-run firms which can be expected to support the government's strategy.

The Malaysian capital has a reputation for efficient regulation of Islamic finance and a huge domestic market for local-currency Islamic bonds, which is now starting to attract foreign issuers.

The final result of the three cities' rivalry may not be known for years, but thousands of jobs and large amounts of direct investment in companies and real estate are likely to depend on the outcome.

Islamic banking, which obeys religious principles such as bans on interest and pure monetary speculation, is still dwarfed by conventional banking with over $100 trillion of assets.

But the top 20 Islamic banks have been growing 16 per cent annually in the last three years, far outpacing their conventional rivals, according to Ernst and Young. That makes Islamic finance tempting for many non-Muslim institutions.

In an unstable global market environment, the conservatism of Islamic financial structures may be helping the industry. Its access to big pools of Islamic investment funds in the Gulf oil-producing states and southeast Asia is certainly a factor.