Islamic Finance for UK-based Consumers

Islamic financial services available to UK consumers include banking, investment and takaful. The Islamic Finance industry has been growing in the UK since the 1980s when Al Baraka International was launched as the first Islamic bank in the UK.

In 2008, the UK Government committed to ensuring that financial services are available to all irrespective of religious beliefs. However, there is not yet a level playing field for Muslim consumers. Despite the range of Islamic finance structures available, Muslims in the UK continue to experience financial exclusion. Issues that remain persistent include access to Shari’ah-compliant student finance, home finance, and finance for Muslim entrepreneurs.

In the UK, the Shari’ah compliant consumer finance industry did not begin to develop until the 1990s with the launch of Islamic home financing by the Halal Mutual Investment Services company and the United Bank of Kuwait.

The formal regulatory framework began to develop in the early 21st century, alongside a number of new market participants. A Bolton-based company called 1stethical was established in November 2001 to assist Muslims in obtaining financing for home purchases through ethical investments and financing that relies on leasing rather than paying interest. In July 2003, HSBC became the first high-street bank in the UK to offer Shari’ah-compliant alternatives to mortgages, while the Islamic Bank of Britain (now known as Al Rayan Bank) opened in London in September 2004.

Shari’ah compliant retail investment funds have been launched by a number of providers, starting with the HSBC Islamic Global Equity Index Fund in 2004. Recent years have seen the launch of several smaller-scale online investment platforms aimed at Muslim investors.

The UK takaful market has an opportunity for growth. The Islamic Insurance Association of London, which was established in 2015 and is actively involved in the development of the Islamic finance sector and its regulation, promotes the availability and capacity of Shari’ah-compliant insurance in the UK market while also interacting with other markets and trade associations around the world. The first Shari’ah-compliant motor insurance was by Salaam Halal Insurance but the company later closed after suffering significant losses.

In 2015, the Bank of England joined the Islamic Financial Services Board (IFSB) as an associate member and in 2016 it announced a framework for Shari’ah-compliant deposit facilities in Britain. It made history by being the first notable Western central bank to grant access to its deposit facility to Islamic banks without charging interest as would often be the case

Shari’ah-compliant banks in the UK include:

  • Gatehouse Bank
  • Abu Dhabi Islamic Bank (ADIB)
  • Qatar Islamic Bank UK
  • Bank of London & The Middle East
  • Al Rayan Bank

Conventional Banks with Islamic financial services include:

  • ABC International Bank
  • Bank of Ireland
  • Barclays
  • Citi Group
  • Deutsche Bank
  • IBJ International London
  • J Aron & Co
  • Lloyd’s Banking Group
  • Royal Bank of Scotland
  • Standard Chartered
  • UBS
  • United National Bank

Shari’ah-compliant investment funds and platforms in the UK include:

  • HSBC Islamic Global Equity Index Fund
  • iShares MSCI USA Islamic UCITS ETF
  • iShares MSCI World Islamic UCITS ETF
  • iShares MSCI Emerging Markets Islamic UCITS ETF
  • Wahed Invest
  • Schroder Islamic Global Equity

UK as an Islamic Finance Hub

In addition to the potential for the UK Islamic finance industry to serve the needs of Muslims in the UK, Islamic finance can contribute to the UK economy as a service export.

According to the Islamic Finance Development Indicator Report 2022, the UK is currently ranked 27th out of a total of 136 countries and the 4th of the top countries by Islamic Funds Assets under Management. According to the ‘Islamic Finance: global trends and the UK Market 2022’ report by TheCityUK, in partnership with DDCAP Group, assets of UK-based Islamic banks in 2021 were $7.5 billion, a 1.6% decrease from the previous year while still making 85% of total European Islamic banking assets.

The UK was the first Western country to issue a sovereign sukuk in 2014 with orders totalling around £2.3 billion. The second sovereign sukuk’s issuance helped expand the small pool of UK-based, shariah-compliant, high-quality liquid assets market for sukuk. The High-Level Working Group on Green and Sustainable Sukuk, which was established by the Global Ethical Finance Initiative, the UKIFC, Her Majesty’s Treasury, the Ministry of Finance in the Republic of Indonesia, the Islamic Development Bank, and the London Stock Exchange Group, works to promote green and sustainable sukuk. The TheCityUK report also notes that the London Stock Exchange (LSE) has raised over $50 billion and currently has 68 sukuk listed. Issuers in the LSE include the Islamic Development Bank, Tabreed Sukuk Spc Limited and QIIB Senior Sukuk Limited.  The bulk of international sukuk are likewise governed by English law, and the UK is one of the world’s top listing hubs for such securities.

The UK is not only one of the world’s leading Fintech markets, but it is also the first in the West to have an Islamic Fintech supportive ecosystem by having a strong regulatory framework and having an Islamic Fintech Panel which was launched in 2018. According to the Global Islamic Fintech Report 2022, it is ranked number 5 globally with Malaysia topping the rank followed by Saudi Arabia, Indonesia and the United Arab Emirates. 45 of the 68 Islamic FinTech companies in Europe by the end of 2021 have their headquarters in the UK.

Furthermore, the TheCityUK report notes that the UK is the foremost provider of Islamic Finance education in the world. Institutions in the UK provide courses, degrees and qualifications. The institutions include Durham University, the University of Dundee, the University of Cambridge and the School of Oriental and African Studies (SOAS). This has led to an increase in Islamic finance professionals not only in the UK but globally.

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