On Tuesday 20 June 2023, Fitch Ratings, the globally recognized credit rating agency, predicted that despite Islamic finance being niche domestically, the UK will maintain its status as a Western hub for the industry. The government's promotion of the London Stock Exchange (LSE) as a key international sukuk listing venue, along with its sizeable Islamic funds segment and capable human capital, contributes to this status. The UK's leading role is further reinforced by English law governing international sukuk and its prominence as a listing hub.
With over 55 sukuk listed on the LSE, totaling more than USD50 billion, the UK has made significant progress. It became the first Western country to issue sovereign sukuk in 2014 and continues to support its Islamic finance credentials. UK-based conventional banks play a crucial role in arranging international sukuk, and the London Metal Exchange (LME) facilitates cash financing for Islamic banks.
Despite being niche, the UK's domestic Islamic finance segment faces challenges in gaining mainstream relevance. The total assets of domestic Islamic banks represent a mere 0.1% market share of overall system assets. Limited domestic sukuk issuance and an underdeveloped takaful segment contribute to its niche status.
The UK government has enacted regulatory frameworks to support Islamic banking, and Islamic banks operate under the same rules as conventional banks. The presence of Gulf Cooperation Council (GCC) shareholders boosts foreign direct investment initiatives.
However, the demand for Islamic products in the UK is restrained. Limited public awareness, sharia sensitivity, confidence in compliance, a small distribution network, and fewer product offerings compared to conventional banks hinder growth.
While the UK remains a prominent international financial center, the domestic Islamic finance industry is expected to continue operating within a niche market. Overcoming barriers is crucial for the industry to realize its full potential.
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