Diversification of Islamic Financial Insturments
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3.10 CASE STUDY: UNITED KINGDOM
3.10.1 INTRODUCTION
The United Kingdom, an economy with a GDP of USD 2.619 trillion and a population of 65.6
million196, has been the leading western Islamic Finance hub over the years. Its status as the
hub has grown by leaps and bounds over the years as the penetration of Islamic financial
products has increased in the local market as well. Islamic finance in UK is nearly 40 years old
in one way of the other primarily in the form of professional and support services for the
global Islamic finance industry. In the recent ICD Thomson Reuters, Islamic finance
Development Report, ranks UK at an index value of 16.2, above the global average of 10.3 and
the highest ranking of any non-Muslim-majority country.
In terms of numbers, the institutions offering Islamic financial services based in United
Kingdom is about double of the ones located in the US and far ahead of other Western
countries. A cautious estimate of the Islamic financial services assets in UK at the turn of the
year 2016 was $4.5bn. In recent years’ Islamic finance has played a crucial role in the domestic
economy of the United Kingdom in infrastructural development. Some of the key projects
which have been financed in Shariah compliant manner include the The Shard, Battersea
Power Station regeneration, London Gateway, the Olympic Village and the redevelopment of
Chelsea Barracks and nearly 6,500 homes in the North-West and the Midlands through
financing bye Gatehouse Bank.
The main impetus for the growth has come from the UK government policies over the last
decade which have created a fiscal and regulatory framework intended to broaden the market
for Islamic products. This includes the removal of double tax and extension of tax relief on
Islamic mortgages and the reform of arrangements for issues of debt. The regulatory
framework under which Islamic finance operates is generic and applicable to all sectors, thus
providing a level playing field for the industry. The Islamic finance retail market has developed
in recent years with the launch of a series of Sharia compliant products including individual
savings accounts, home purchase plans, a Sharia compliant pension scheme and business start-
up financing. The Government is also developing Islamic student financing. There are now over
100,000 Islamic finance retail customers in the UK. There are currently five fully Sharia
compliant banks licensed in the UK which puts it in the lead amongst Western countries.
Assets of these banks totaled $3.6 billion at the end of 2014.
The government of the United Kingdome has also emerged in 2014 as the first western nation
to issue a sovereign Sukuk in the global Islamic capital markets marking a beginning of a new
era. In 2014, the UK Government sold £200m of Sukuk, maturing in 2019, to investors based in
the UK and in major global hubs for Islamic finance. The UK’s first sovereign Sukuk was
oversubscribed with very strong demand and orders totaling around £2.3 billion. In addition
to that, the London Stock Exchange has been a key venue for global Sukuk issuances by
corporates and sovereigns with a total value of $48 billion being raised in Sukuk from the
market.
196 World Bank data (2016), United Kingdom. Se