Diversification of Islamic Financial Instruments
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Further expanding the scope of Islamic finance, from early 2015 the government has also
announced a UK Export Finance (UKEF) provision of Sharia compliant support for UK
exporters, in efforts to further strengthen London’s status as Islamic finance hub of the
western world. This effort was followed by UK Government-backed export credit guarantee
agency underwriting its first Sukuk where they provided cover for a $916 million Sukuk issued
by Dubai’s Emirates Airline.
With the growth in the industry, United Kingdom has been at the forefront of the soft skills
services by developing the human resource for the Islamic financial sector. UK is by far the
largest provider of Islamic finance courses at both the undergraduate and postgraduate level,
with offerings at around 70 educational institutions.
3.10.2 ISLAMIC BANKING IN UK
Within Europe, United Kingdom has been taking leaps and bounds to become the hub of
Islamic finance with an aim for not only Europe but a global perspective. The history of Shariah
compliant financial instruments in United Kingdom goes back nearly three decades, but it has
been recent efforts which have brought it to limelight.
The factors which have contributed towards the development of UK as a focal point of Islamic
finance in Europe has been brought forward not only with the demand from consumers but
credit goes to the governmental support and a favorable regulatory environment. Some of
these regulatory changes on behalf of the government have been started to attract the interest
of global players. Some of the key changes in regulations which have contributed to the
development are highlighted below.
 The removal of double tax on Islamic mortgages and the extension of tax relief on
Islamic mortgages to companies, as well as to individuals;
 Reform of arrangements for issues of debt so that returns and income payments can be
treated as if it were interest. This makes London a more attractive location for issuing
and trading Sukuk;
 Initiatives by the Financial Services Authority (FSA) to ensure that regulatory
treatment of Islamic Finance is consistent with its statutory objectives and principles.
UK stands as the leader of Islamic banking in European markets. (See the Figure below)
With these initiatives, western banks have ventured into Islamic finance within UK, and
initiated offering of Shariah Compliant financial products to the Muslim consumers in United
Kingdom. The beginning of this growth started in 1990s when Gulf banks entered UK by
introducing Islamic mortgages based on the Murabaha principle and Ijarah financing to cater
to the growing needs of housing of Muslims. Initially these instruments faced cost issues as
cost concerns as double stamp duty would apply. The abolition of double taxation regime in
2004 paved the way for mainstreaming of these instruments. Ten major global banks
operating in the UK have set up units to provide Islamic financial services. United Kingdom is
also home to the first fully fledged Islamic Bank in the non-Muslim world. The number of truly
standalone Islamic banks has grown in the past few years and in 2017, there are five fully
fledged Islamic banks operating in the country.