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The industry is small, but the UK remains the leading non-Muslim majority country in Islamic finance.
Posted 13 May 2026
Each month I write a column for the magazine "Islamic Finance News." August 2025 found me in a pensive mood, as I realised that it was now 20 years since my first professional involvement in Islamic finance.
Accordingly in that month's column I looked back at how the industry had developed over that time. You can read it below.
My first involvement with Islamic finance was being asked to write a commentary on the Islamic finance provisions of the UK’s Finance Act 2005. Realising this was 20 years ago made me feel pensive!
Starting in 2001, tax law changes had stopped Shariah compliant mortgages suffering a double charge to the UK’s real estate transfer tax.
However, there were severe tax impediments to Islamic banking in the UK until the FA 2005 changes which facilitated banks providing finance using murabaha and taking profit sharing deposits using mudharabah. (While I am using the standard Islamic finance terms, UK tax law uses different vocabulary for all Islamic finance structures.)
It is no coincidence that the UK’s first standalone Islamic bank, Islamic Bank of Britain (now Al Rayan Bank) was set up in anticipation of the FA 2005 changes.
Subsequent years saw legislation for wakala and diminishing musharaka in 2006, and for sukuk in 2007 although in practice the sukuk provisions were unusable at that time. In 2009 the UK made the necessary changes to its real estate transfer tax and capital gains tax to make sukuk issues feasible in practice.
All these changes occurred under Labour Party governments.
After that, although I was a Conservative Party member from 1983 to 2019, I have to acknowledge that Conservative governments introduced no significant tax changes to promote Islamic finance for 14 years, until the final few months of Rishi Sunak’s premiership when it consulted on Shariah compliant refinancing. See my article “The UK government finally reconsiders Shariah compliant real estate refinancing” in the 7 February 2024 issue.
I had discussions with civil servants about a model for Shariah compliant student finance as far back as 2011. At the 10 Downing Street Eid Reception on 21 October 2013, Prime Minister David Cameron said “And tonight I can announce that we will make sure that there is a type of start-up loan that is totally consistent with all the principles of Islamic finance. We must do that for start-up loans, we must do it for student loans…” In 2014 the Government consulted on a student loans structure using takaful.
Despite that, over a decade later, no scheme is in place. The latest commitment I can find is dated 9 June 2025 in the Department for Education’s guidance “Alternative student finance” which says: “Alternative student finance will become available as soon as possible after the introduction of the Lifelong Learning Entitlement.” The LLE is expected to launch in the 2026-2027 academic year.
More positively, the UK did issue a small £200 million 5-year sovereign sukuk in July 2014. After that matured in 2019, a couple of years later the UK issued another 5-year sovereign sukuk in March 2021 to raise £500 million.
Looking at the 20 years overall, the UK quickly established itself as the leading non-Muslim-majority country in Islamic finance, and I believe it retains that position.
As well as Islamic banks, there is a reasonable range of Shariah compliant investment funds, and some innovative Islamic fintech. Conversely, Islamic insurance has never taken off, and as far as I am aware nobody is providing Shariah compliant annuities.
Sadly, the overall financial results of the UK’s Islamic banks have been lamentable, as set out in my various articles about the individual banks.
Mohammed Amin is an Islamic finance consultant and former tax partner at PwC in the UK.
