If the UK takes a more ambitious, coordinated and strategic approach to Islamic finance it can capitalise on the growth opportunities of Shariah-compliant finance and future proof its position as the leading western hub in the sector, according to a new report by trade body TheCityUK.
Islamic finance has sustained annual growth of 10-12% in recent years, with associated assets projected to reach $7.5trn by 2028 and Muslim wealth estimated at $27.8trn globally, the report, ‘Islamic finance and UK economic prosperity: A vision for growth’, highlights the significant role Islamic finance can play in driving investment, supporting infrastructure delivery and strengthening the UK’s position as a leading international financial centre.
It also makes clear as Muslim-majority markets intensify their move towards Shariah-aligned financial systems, the opportunity for the UK to attract and enable Shariah-compliant foreign direct investment (FDI).
However, while the UK has a strong track record in attracting Islamic investment, including into projects such as The Shard, Battersea Power Station and Chelsea Barracks, the report argues that to maintain its competitive edge, government and industry will need to act with greater pace, coordination and consistency as competition from other markets intensifies.
To secure the UK’s future at the leading edge in Islamic finance, the report outlines a series of recommendations for how government can support industry as it pursues new Islamic finance product development and growth, including:
- Working with industry to develop a pipeline of Shariah-compliant investment opportunities across real estate, infrastructure and other growth sectors aligned to the industrial strategy. A dedicated investment portal and stronger international promotion would make it easier for Islamic investors to identify UK opportunities
- Using sovereign Sukuk more consistently as a strategic signal of its commitment to Islamic finance, helping to build investor confidence internationally, support price discovery and crowd in Shariah-aligned capital.
- Exploring a digital sovereign Sukuk to position London at the forefront of innovation in Islamic capital markets.
- Building greater Islamic finance expertise within the HM Treasury and financial regulators to deliver effective policies and regulations to drive growth in this high potential segment of the market.
- Making greater use of UK Export Finance’s Shariah-compliant toolkit to help de-risk projects internationally
The report also sets out recommendations for the UK to deepen international partnerships and undertake for a market-specific approaches to international engagement to fully capitalise on opportunities in key Muslim-majority markets.
The report also points to wider benefits, including the opportunity to expand exports of UK financial and related professional services in markets such as Malaysia, GCC and Indonesia, and strengthen financial inclusion in the UK, particularly for Muslim communities underserved by current savings and pension products.
Nicola Watkinson, Managing Director, International, TheCityUK, said:L “The UK has a terrific tradition of servicing global Islamic financial markets but to capitalise on the significant and immediate global growth opportunity it presents there needs to be greater pace and ambition from the UK government and regulators. Global competition is increasing and the task now is to make sure the UK’s offer is clear, coordinated and compelling to sovereign wealth funds, global investors and Islamic finance market participants.
“This will require a whole-of-government approach and close coordination with industry to ensure the UK remains the leading western hub for Islamic finance.”
