Islamic finance in the UK


Britain’s Islamic finance industry has grown steadily over the years. It has not been without challenges, and the impact of Brexit and the COVID-19 pandemic has created uncertainties. Like their conventional peers, the economic risks shared by Islamic banks are similar, and the environment in which Islamic finance operates is expected to become smaller, especially as a result of Brexit.

Nonetheless, it is reassuring that UK national Islamic banks such as Gatehouse Bank, Bank of London and the Middle East and Al Rayan Bank have said there have been limited implications on their operations to date. Indeed, their activity in the United Kingdom is focused on real estate and savings.

The influx of investors wishing to invest in UK real estate has not been significantly affected by COVID-19 or Brexit, as real estate continues to be at the forefront in attracting compliant foreign investment to Sharia law in the UK. This means that there has been a constant trail of investment from the Middle East and the Far East.

In this article, Islamic banking and financial partner Fara Mohamed discusses developments in Islamic finance in the UK.

Alternative liquidity facility for Islamic banks

An important development in the Islamic finance space in the UK is the announcement by the Bank of England regarding the development of an alternative liquidity facility. This facility will provide UK Islamic banks with the opportunity to invest in high quality Shariah compliant liquid assets and thus allow banks to hold Sharia compliant reserves and assets.

This facility was long overdue as the resources available to Islamic banks were limited to invest in Sharia-compliant assets. This facility will allow UK banks to manage their cash flow and liquidity in a more diversified way. This is also seen as another attempt to level the playing field with conventional banks.

UK issues second sovereign sukuk

The UK issued its second sovereign sukuk (Islamic bond) in 2021. The £ 500million sukuk has been sold to a wide range of UK-based institutional investors and major centers of Islamic finance in the Middle East and Asia. This second sukuk offering is more than double the size of the UK’s first issue in 2014. This has increased the supply of high quality Sharia-compliant liquid assets in the market and further supported the development of Islamic finance in Africa. UK. The UK’s first sukuk, which was a £ 200million note, was also heavily subscribed and made the UK the first Western country to issue a sovereign sukuk.

While there is little UK sukuk activity among the business community, there has been some issuance. In 2015, the UK Secretary of State (acting through the Export Credit Guarantee Department and operating as UK Export Finance) guaranteed a sukuk to finance the acquisition of four new Airbus aircraft. It was the world’s first sukuk backed by an export credit agency. Al Rayan Bank issued a first £ 250million sukuk in 2018. Other issues of UK companies included Al Waseelah which issued a US $ 50million sukuk in 2019. This offers an alternative financing solution to companies and institutions and provides investors with access to a wider range of UK Shariah Compliant Investments and Assets.

Islamic insurance

Takaful (Islamic insurance) is a product that has long been considered an area with great potential. According to Insurance Business UK, the UK market now has up to 10 commercial insurers offering Sharia-compliant products, ranging from political risk insurance to risk-sharing mechanisms in UK infrastructure projects backed by finance. Islamic. This is supported by the member companies of the IUA and Lloyd’s unions.

Nonetheless, this continues to be an area of ​​growth and demand as London is home to established insurance players who can tap into the insurance and reinsurance field. Friendly societies and other mutual insurance companies are potential vehicles that can provide takaful and re-takaful.

Asset Management

Asset management is another underserved area where there is growing interest in building Islamic funds. Schroders recently launched a Sharia-compliant fund in 2020, which is part of its wider presence in Islamic markets. This fund will give investors access to a diversified portfolio of Shariah-compliant stocks. It is also possible for other large UK institutional asset managers to establish Islamic funds, in various asset classes and sectors. Other Islamic asset managers in the UK include the dedicated offices of UK Islamic Banks, Oasis Crescent, Arabesque and TAM Asset Management.

Islamic FinTech

Islamic fintech is arguably the area that has received the most attention recently in Islamic finance. As the UK is now home to more than 27 Islamic fintechs, London has therefore strengthened its unique position as a financial and technological center well positioned to take advantage of domestic and global demand for Islamic finance. This encourages the UK’s Islamic finance economy and its clients to take advantage of London’s dominance in the fintech world.

Future trends in Islamic finance in London

It is predicted by S&P Global Ratings in a new report that the global Islamic finance industry will slow down in 2020-2021 after its strong performance in 2019, which was largely focused on developments in the sukuk market. This is largely due to the slowdown in major Islamic finance economies in 2020 and the measures implemented by various governments to contain the COVID-19 pandemic. Nevertheless, several opportunities have been identified:

  1. the development of social instruments that can help the industry, such as the social initiatives of sukuk and waqf (foundation);
  2. harnessing technology and building a stronger Islamic finance industry with a focus on further digitization and fintech collaboration; and
  3. focus on sustainable growth opportunities by promoting its key underlying principles such as equity, fairness and transparency. It is expected that there may be a more frequent issuance of instruments dedicated to social and green Islamic finance, as the industry promotes alignment with environmental, social and governance values.



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