How Political Chaos leads to Real Opportunities.

Is the current political turmoil in the UK bad news for Islamic finance in the UK?

Short-term thinking and short-term uncertainty have never been particularly problematic as there is no capital market importance in the UK for Islamic finance (other than the?London Stock Exchange?as a listing venue) so in some respects whatever short-term (hopefully) power vacuum exists in the Tory party should have little impact on the domestic market.

There is no particular mandate for the government to issue further?Sukuk?and whatever tax changes necessary to equalize the position of Islamic finance fintech businesses have never been clear on the political agenda. Yes, the longer it takes to stabilize the government, the longer it will take for changes to be implemented but nothing is expected before the end of the year anyway. Perhaps this is an opportunity to start lobbying for a possible 2023 election to see where there can be political support for further tax changes.

The?Halal?economy does seem to be gathering momentum; this is an interesting counterbalance to the downfall of high street Islamic finance. It would be interesting to see if any of the new crop of Islamic fintechs approaches the finance market by acquiring customers from the retail products and services end and builds their market presence that way. If coming from the consumer products side was able to attract enough customers (and annually recurring revenue), then this might also provide a platform to prove a business case for products like pensions and savings, particularly if they also align themselves with one political party.

Monetary policy is a problem; the falling pound creates an opportunity for cash buyers to buy cheap UK assets (prime real estate should be an obvious target) but these transactions are private and rarely bring about market attention so it will be impossible to measure just how much the opportunists sitting in US dollars will spend in the coming weeks to acquire new assets.

The traditional offshore centers like Jersey which act as conduits for these real estate transactions may perhaps later announce deals which were secured. Will we be able to look back at October and November and see just how quickly smart money moved into UK real assets?

Traditional?Shariah?compliant investments like care homes, social housing and student accommodation may see a comeback and I expect it will be October 2022 that will signal this. We have been privy to discussions around financing new social housing projects in the UK where yields are above 5% and inflation-linked for long-term, cash-generating, high-impact projects.

In the same light, care homes (which I remember from the late 1990s as being my first exposure to Islamic finance investing in the UK) are already under pressure from increasing utility bills to make their economics work. For long-term, cash-rich investors, both of these types of real estate investments will provide long-term opportunities where commercial and residential yields are struggling above 3% and therefore well underwater at even bank financing rates let alone inflation (recently announced at above 10%). While the pound remains weak, real estate opportunities are real.

Dr Scott Levy, Founder of Al Waseelah PLC

This article was first?published in IFN Volume 19 Issue 44 dated the 27?October 2022.