Conference hears calls for Scotland to become ethical finance hub

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  By Martin Kelly
 
Scotland can be a leader in global ethical finance by building on the nation’s financial and banking tradition, according to a group of experts.
 
A conference organised by the Islamic Finance Council (IFC) UK and Tods Murray, an Edinburgh-based legal firm, has heard calls for Scotland to develop Europe’s first ethical finance hub.

According to the IFC, there is currently a pressing need for a more ethical form of banking and finance against the backdrop of the recent financial crisis.  Ethical finance, they claim, gives depositors a choice on where their money is invested, providing enhanced transparency and a focus on more social return, instead of purely financial gain.

Islamic banking is only around 30 years old in its current form, the first initiative came after an Islamic scholar studied the “savings bank” concept pioneered by the former Moderator of the Church of Scotland, the Rev. Henry Duncan, who opened the world’s first savings bank based on business principles in Scotland in 1810.

Recent polls suggest that more than half of Scots want to see some of their money invested using green or ethical criteria – higher than the UK average.

The IFC is promoting a bond issue called a sukuk which forbids the charging of interest.  Instead the bond issuer owns part or all of the asset and can charge the user rent.  The IFC estimates that up to £200 million could be invested in Scotland in this way.

“There remains a window of opportunity in the market for an investment rated sukuk from within the UK, which would attract Gulf and Asian investment funds to diversify currencies but also significantly help UK Islamic banks manage their liquidity requirements.” said Saftar Sarwar, Board Member of the IFC.

He added: “The sukuk market is currently particularly buoyant and presents an excellent opportunity to tap £100m or above backed against an infrastructure or renewable energy project in Scotland, if the Scottish Government is able to put matters in place.

“Crucially, the window of opportunity in the sukuk market will not last forever therefore, today’s conference comes at a critical time.”

According to Tods Murray, the timing could not be better following news of the Scottish Futures Trust’s identification of a potential £333m funding gap on revenue-funded investment programmes for 2012/13 and Scottish Enterprise revealing a key strategic priority of leveraging up to £350 million of additional private sector investment into Scotland’s offshore renewables by 2016.

Speaking ahead of the conference which saw nearly 70 leading representatives from the infrastructure, banking, renewables and finance sectors attend Tods Murray’s offices in Edinburgh, Tods Murray Chairman and IFC Board Member Graham Burnside said:

“The possibility of Islamic funding and Middle Eastern investment has been under discussion for a number of years now.  We are pleased to see that the agenda is moving on and that we have clear indication from the region of a real appetite to invest.

“This conference, which we are happy to once again be hosting with the IFC, will focus specifically on infrastructure and renewable projects, an area of real interest for investors and one which the Scottish Government acknowledges is in search of funding.  The opportunity is now there to be converted into a reality.”

Omar Shaikh, Executive Board Member of the IFC, added: “We have seen other parts of the UK, particularly London, receive Middle Eastern funding but Scotland has yet to see any significant inflow of this capital.

“Qatar alone has invested over £20bn in the UK, with for example over £1bn of Islamic finance invested into the Shard – the UK’s tallest tower.  However, there is no reason why Scotland can’t gain in a similar manner and we are willing to support the Scottish Government achieve that aim.”

Speakers at the one-day conference included Michelle Kinnaird, Scottish Investment Bank; Peter Knott, Green Investment Bank; and Peter Reekie and the Scottish Futures Trust.

Delegates also heard from Gulf investors who shared their views on the current appetite of regional family offices and institutions towards European infrastructure and renewable energy investments.