The UK is well-known as the main centre of Islamic finance in the West. To further highlight the role of the UK in Islamic finance, Refinitiv and TheCityUK, a major stakeholder in the UK’s financial ecosystem, have partnered to release a new report on the state of Islamic finance in the UK.
- The UK is the main centre for Islamic finance in the West.
- The UK is a major provider of professional services that help the global Islamic finance industry operate smoothly and is also one of the world’s largest providers of Islamic finance education.
- The UK ranks 27th globally in Islamic finance development, with particular strengths in Sukuk listing and Islamic fintech.
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LSEG sits on the UK’s Steering Committee for Islamic finance and is a founding member of the High-Level Working Group on Green Sukuk and is pleased to help contribute to Islamic finance’s overall development in the UK with this report, which captures the latest Islamic finance developments in the UK.
The report shares key findings and insights that help illustrate the UK’s importance to the global Islamic finance ecosystem. It outlines the regulatory landscape, the performance of each major segment, and the most innovative developments.
Major hub for Islamic finance service providers
The UK is a vital provider of supporting infrastructure for the global Islamic finance industry. UK-based global law, accountancy, and consultancy firms; financial institutions, asset managers and insurance providers offer a variety of services across all the key components of the global industry.
Moreover, the UK is one of the world’s largest providers of Islamic finance education services, and the use of English common law as the preferred basis for Islamic finance transactions underlines the UK’s core role in the operation and development of the global Islamic finance industry.
Overall, the Islamic finance industry in the UK has had a positive growth story over the past few years, ranking 27th out of a total of 136 countries according to our 2022 ICD-Refinitiv Islamic Finance Development Indicator (IFDI) report.
The UK has outperformed all Western countries (excluding Turkey), with strong performances, particularly on the Islamic knowledge and sustainability indicators.
The UK also ranks 10th globally on sustainability, which bodes well for the further development of Islamic finance in the UK, since there are several potential synergies between sustainability and Islamic finance.
These favourable performances in the IFDI rankings confirm the UK’s leading position among Western markets as the main hub for Islamic finance outside its core markets.
Solid growth in Islamic banking assets globally
Total global Islamic banking assets were $2.8 trillion in 2021, up from $1.7 trillion in 2016, with a compound annual growth rate (CAGR) of 10.1 percent between 2016-2021. Islamic banking assets are forecast to cross the $4 trillion threshold by 2026.
In 2021, UK-based Islamic banks’ assets were $7.5 billion, declining 1.6 percent year on year.
Although the UK makes up just 0.3 percent of global Islamic banking assets, it is the dominant player in Europe, making up 85 percent of total European Islamic banking assets, the most for any single European country (excluding Turkey).
Takaful is the Islamic finance industry’s smallest major segment. Between 2015-2021, global takaful assets had an annual average growth of 8 percent, from $47bn in 2015 to $73bn in 2021.
As one of the world’s largest insurance markets and a leading global centre for both wholesale insurance and reinsurance, the UK is well-placed to support the future growth of takaful business across the world.
London Stock Exchange as a preferred venue for Sukuk listing
Global Sukuk issuance has grown incrementally over the past few years, from $128.3 billion in 2018 to $196.5 billion in 2021.
The London Stock Exchange is well-known as the preferred listing venue in the West for Sukuk, and the UK has spearheaded a few notable issuances, such as its landmark £200m debut sovereign Sukuk in 2014, and two vaccine-focused Sukuk by the International Finance Facility for Immunisation.
Largest European market for Islamic asset management
Total assets under management (AuM) of Islamic funds reached $125.3bn in 2021, and there were 1,418 active funds.
From 2017-2021, AuM of global Islamic funds saw an average annual increase of close to 13 percent. Globally, the UK is one of the largest markets in the world for fund management, and the total AuM of UK-based Islamic funds was $19.6bn in 2021, with 37 active funds.
Conducive ecosystem for Islamic fintech
Globally, the Islamic fintech market remains highly concentrated: most of the market size for Islamic fintech (by transaction volume) emanates from countries such as Saudi Arabia, the UAE, Indonesia and Malaysia. These countries are also where most Islamic fintechs are based.
However, the UK ranked 5th in the 2022 Global Islamic fintech index, and by the end of 2021, there were 68 Islamic fintechs in Europe, 45 of which were headquartered in the UK.
As such, the UK is the first Western country to have created an ecosystem supportive of Islamic fintech, with the existence of supporting stakeholder bodies such as the UK Islamic fintech panel also helping to create conducive conditions for Islamic fintech.