Market Trends of UK Islamic Finance Industry
This section covers the major market trends shaping the UK Islamic Finance Market according to our research experts:
Digital Disruption of the Financial Services
Five years ago, Western economies experienced a surge in fintech start-ups offering more effective and efficient services through the creative application of software. Consequently, traditional finance institutions are now competing with challenger brands and neobanks to appeal to consumers, investors, and businesses.
In the UK, fintech challenger brands like Monzo and Revolut have become part of the banking landscape. Established banks like JPMorgan have responded by launching their own challenger brands to rival the new competition.
The scale and pace of digital disruption led by startups initially focused on the delivery of traditional financial services. The success of this first fintech wave has encouraged a new generation of start-ups, which are applying technology to deliver products and services designed specifically for certain demographics.
The creation of tech-enabled Sharia compliant banks is on the rise in both Western and Islamic jurisdictions. Particularly in regions like Central Asia where countries are undergoing economic modernisation, fintech companies are playing an important role in giving consumers and investors the digital tools needed to effectively manage their finances. As more investment is directed into these Islamic fintech companies we are likely to see the sector grow.
Growing Market awareness of Islamic Finance by big Financial Institutions
Take Sukuk (an Islamic financial bond that effectively acts as a trust certificate) as an example. Sukuk supply has been rising in both Islamic and non-Islamic markets. Most Sukuk issuances are hybrid, with debt making up no less than 30 per cent.
According to Fitch, the global amount of outstanding Sukuk reached $754.1bn in Q2 2021, which is 5 per cent higher than the same figure recorded in Q1. As the first western nation to issue a sovereign Sukuk, the UK has raised more than $50bn through 68 Sukuk issuances on the London Stock Exchange.
While there is general awareness of Islamic finance, actual knowledge of its basic principles is not typically high among financial professionals based in non-Muslim jurisdictions. This is an issue that has been raised on numerous occasions in the UK.
There have been attempts by the government to make the financial environment more religiously inclusive in the UK, yet the overall lack of available Sharia-compliant products has been a topic of recent debate. There are calls for the introduction of Sharia-compliant student loans by September 2022, enabling more students to access university education in the UK.
Moves to make the UK’s financial system inclusive and diverse will remain a top objective in 2022 and beyond. Part of this is due to the growing customer base. In the UK, there is estimated to be more than 100,000 Islamic finance retail customers. Government also puts the value of net assets of Islamic funds in the UK to £600m, with this figure set to rise in the ensuing years.
