Development of Islamic Finance
in the UK
Professor Humayon Dar
Chairman, President & CEO
Edbiz Consulting Ltd
hdar@edbizconsulting.com
http://www.edbizconsulting.com
Introduction
• The history of Islamic banking & finance in UK goes back to
the 1960s and 1970s when a number of investment banks
offered tailor-made Shari’a compliant solutions to their clients
from the Middle East
• Al Baraka Bank, however, is accredited to start offering Islamic
financial services (primarily Islamic property finance) in the
1980s
• But the real impetus to Islamic banking came from the
understanding and favorable approach adopted by the late
Lord Eddie George when he was the governor of Bank of
England (1990s)
What led UK to become a player in Islamic
finance?
• Perceived demand for Islamic financial services by the local
Muslim population in the UK (about 1.75 million Muslims at
the start of the 1990s)
• Leadership role played by the likes of Andrew Buxton (a
former Chairman of Barclays Bank), Richard Thomas (currently
the CEO of Gatehouse Bank), and the likes of Iqbal Khan (the
then CEO of HSBC Amanah)
– Other members of the Bank of England Working Party on
Islamic Banking
What led UK to become a player in Islamic
finance?
• The leadership role played by the likes of Professor Simon
Archer (University of Surrey), Professor Rodney Wilson
(Durham University) and Professor John Presley
(Loughborough University; and the only non-Muslim so far to
have received the prestigious IDB Prize in Islamic Finance)
– The UK produced scores of PhDs and other graduates in
Islamic finance under the supervision of the above three
academicians
• Apart from this, the UK government took a positive view on
engaging with the Muslim world (especially the Middle East)
through Islamic finance
Historical Developments
Development of
Islamic financial
Infrastructure
Leadership role in
The global Islamic
Financial services
Industry
Bespoke
Shari’a compliant
Solutions
Middle Eastern link
Got strengthened
2000s
1980s
1960s –
1970s
Bespoke
Shari’a compliant
Solutions offered by Bespoke Shari’a
the likes of Benson compliant
Kleinwort
Solutions
Regulatory changes
1990s
Islamic retail
banking by the
likes of UBK, HSBC
Amanah and
others
Commodity
Islamic fund
Murabaha
Management
transactions on
Islamic indices
LME by the likes of
(FTSE)
Dawnay-Day
Islamic mortgages Commodity
By Al Baraka Bank Murabaha
transactions
UK
Full range of Islamic
financial services:
retail, investment &
fund management
Regulatory Developments
• 1995: Lord Eddie George (the then Governor of the Bank of
England
Recognition of the “growing importance of Islamic banking in
the Muslims world and its emergence on the international
stage”
• 2003: Double Stamp Duty was abolished on Murabaha-based
Islamic mortgages
• 2004: First full-fledged Islamic bank in the UK – Islamic Bank
of Britain started operations
• 2006: First full-fledged Islamic investment bank in the UK –
European Islamic Investment Bank started its operations
Islamic financial regulation in UK
• Level playing field for Islamic banks
– Non-discriminatory regime
• Taxation regime looks at the substance of Islamic financial
products and taxes them just like conventional products
– Double Stamp Duty abolished
– Murabaha transactions are subject to the same VAT
related treatment as a conventional financial product (as
long as such transactions are conducted by financial
institutions)
The issue of a sovereign UK sukuk
• Previous government intended to issue a pound-denominated
soveriegn sukuk and regulaotry changes were brought in,
after a long consultative process with different stakeholder
• The current government has however changed its stance over
the issuance of sukuk, given change in its fiscal policy that
aims to reduce public sector borrowing
UK and other Islamic financial centres in the
wake of financial crisis
• After the financial crisis, there is only one international player
that has emerged as a winner in its race for assuming the
global leadership in Islamic finance - Malaysia
– The likes of Bahrain, UK, UAE, Singapore, Hong Kong and
others have gone quiet
• Before the crisis, a lot of support institutions like law firms,
consulting firms and others moved from UK to Dubai, because
the real business was there
– The UK Islamic financial institutions have yet to perform
well to justify their existence in London
• Consequently, Islamic financial activity in the UK has
decreased
Future of Islamic banking & finance in the UK
• There is no real scope for expansion of Islamic finance in the
UK
– The market is small and over-crowded
• The demand for Islamic financial services by the UK
Muslim population has not exceeded beyond the 1/4th
of the relevant Muslim population
• The British institutions will continue to play a significant role
in the global Islamic financial services industry
Conclusions
• The UK remains an important player in the global Islamic
financial services industry
• There is a lot to learn from the UK regulatory approach to
Islamic banking
• It is, however, advisable for any new entrants to the Islamic
banking market to avoid deploying a lot of resources in the UK
market
• British expertise provides valuable resources for the
development of Islamic banking & finance