The UK has been providing Islamic financial services for 30 years and recent developments have contributed to it becoming the Western centre of choice in the provision of Islamic finance.
Government support and a favourable regulatory environment are encouraging Islamic banks to set up operations in the UK.
The establishment of an enabling fiscal and regulatory framework in the UK for Islamic finance since 2003 has resulted in a number of advantages:
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’ interest. This makes London a more attractive location for issuing and trading sukuk.
Initiatives by the Financial Service Authority to ensure that regulatory treatment of Islamic finance are consistent with its statutory objectives and principles.
Where Middle East meets West
Western banks are also meeting the demand for Islamic finance products through the expansion of their Islamic finance offering.
10 major global banks operating in the UK have set up units to provide Islamic financial services.
They have been joined by no fewer than 12 Islamic banks, giving the UK more than four times the number of banks offering Islamic financial services than any other country in Western Europe. For example, Switzerland has five and France and Luxembourg each have four.
Rapidly expanding market
Globally, the demand for Islamic financial services is clear, the market, as measured by Shariah-compliant assets, is estimated to have grown more than threefold over the past decade – from around $150bn in the mid-1990s to $500bn in 2006.
Islamic banking accounts for nearly 90% of assets with other products also growing rapidly, albeit from a smaller base.
Over the four years to 2006, sukuk issues increased fourfold to $24bn; equity funds and other investments increased fourfold to $14bn; and Takaful insurance doubled to $3bn.
With all these factors in place, the potential for growth in UK-based Islamic financial services is immeasurable. The UK financial services sector is a springboard for global growth and the partner of choice in the delivery of Islamic Finance excellence in the Western world.