Islamic finance in the European Union may be taking a back seat as the continent is gripped with a dire euro zone sovereign debt crisis which has even impacted on sovereign Germany's attractiveness as a bond investment asset class.
Similarly, London's role as a hub for Islamic finance, investment and trade - the declared ambition of the previous Labor government and the current Conservative-Liberal Democrat Coalition - is stalling because of the disappointment of the UK Treasury deciding not to raise funds in the wholesale sterling market through a debut sovereign Sukuk.
Luxembourg and France have also introduced tax neutrality measures to facilitate sukuk and other Islamic financial products, but have yet to commit to issuing a debut sukuk, claiming as the UK does it is not the right timing nor at the right price.
Southern Europe has had hardly a look in. The reality is that Spain, from a historical context, should be spearheading the dialogue and cooperation with Islamic finance. And yet it is the UK that has been leveraging its vast colonial experience with the Muslim world and its pre-eminent position as the world's largest financial center. Not surprisingly, London in the early 1980's emerged as the major center for structuring Islamic financial transactions such as commodity Murabaha and structured finance out of Europe.
Perhaps times are changing. On Thursday, a new collaboration between the prestigious Instituto de Empressa Business School in Madrid and the Jeddah-based King Abdul Aziz University will get a second wind in the Spanish capital with the relaunch of the Saudi-Spanish Center for Islamic Economics and Finance (SCIEF), which was formerly the Center for Islamic Economics and Finance.
The launch will be held in conjunction with a one-day conference on “Islamic Finance in the 21st Century” at the Instituto de Empressa Business School in Madrid which will be inaugurated by Professor Osama Tayeb, president of King Abdul Aziz University and Professor Rafael Puyol, chairman of the board of directors of Instituto de Empressa. Ahmad Mohamed Ali, president of the Islamic Development Bank, is scheduled to give the keynote address.
Perhaps it is pertinent that the proceedings will also see the launch of a timely book, titled “Islamic Economics and Finance: A European Perspective” edited by Professor Cristina Trullols, director of SCIEF, and Professor Abdullah Turkistani, acting dean, Islamic Economics Institute, King Abdulaziz University.
There will also be a panel discussion on the role of Islamic finance in universities and its development and expansion; a presentation on investment opportunities for the Islamic finance sector in the Spanish economy; and a summing up by Celia de Anca, director, center for diversity in global management and a specialist in the Arabic language, and Hisham Bardesi, dean of distance learning at Instituto de Empressa.
"This week's event," explained Turkistani, "comes in a critical economic situation of the world and particularly Europe. The sovereign debt crises in different European countries call for not only liquidity but also for a new way of finance. Islamic finance could be one possible solution. However, it is a long run process to benefit fully from the principles of Islamic finance. Education, in fact is one important channel through which knowledge and awareness of these principles could be built, operated and transferred into the new generation of people and institutions. The Saudi Spanish Center for Islamic Economics and Finance is a collaboration between parties, one with the state of the art in technical know how and the other party with a rich natural resources of values and principles. Together they can draw a road map for economics and finance of the next century."
One of the challenges of SCIEF would be how to translate ambition into a coherent and pragmatic program of independent education, research and development.
One area beckoning to be leveraged is historical research. Muslims, for instance, ruled Spain for centuries. During this time, relations between the three Abrahamic faiths - Judaism, Christianity and Islam - flourished. So did scholarship, the arts and yes business and trade. At the same time there were extensive links with other rulers in Damascus, Istanbul and Baghdad.
One project for SCIEF could be to research the Islamic financial transactions prevalent in Al-Andalus and elsewhere in Spain during the rule of the Muslims, and to see what relevance they may or may not have for today's Spain.
There is a precedent. Turkish academics for instance are doing valuable work on similar financial transactions used during the Ottoman Empire especially relating to Waqf and Ushr (agricultural taxes). This has resulted in some pioneering books being published on this work. The Ottomans through its Mejelle were also the first to try to codify the Shariah, or at least some parts of it.
Perhaps in the Saudi-Spanish context, the challenge is even more daunting. Despite the fact that Saudi Arabia is arguably the largest market for Islamic finance and has the largest liquidity, Islamic finance and Fiqh Al-Muamalat (Islamic law relating to financial transactions) still needs to be demystified to both regulators and ordinary customers.
In Spain the task is even bigger especially in the context of the growing Islamophobia that has swept Europe and North American the post 9/11 era which wrongly associates Islamic finance with political extremism.
But the extent of Islamic finance's Spanish challenge at the frontline business level could not be better illustrated by the latest first half 2011 attributable profit of Banco Santander, the only Spanish global banking major. Some 50 percent of profits were generated from the US and South American markets; and the other 50 percent from retail Spain, Germany and the EU. Not a single euro was generated from the Middle East, Asia let alone Islamic finance.
source: arab news