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Financial services
The development of Islamic finance in the UK: the Government's perspective
10 December 2008
The purpose of this paper is two-fold: first, to raise awareness about Islamic finance and its recent development in the UK. Second, to highlight the unique challenges faced by the sector, identifying areas where good progress has been made and providing the Government’s perspective on where further barriers to development lie.
Islamic finance describes the subsection of the financial services industry that complies with the principles of Shariah (Islamic law). Though it has obvious appeal to some Muslims, Islamic finance is available to all consumers and investors.
The Government’s policy objectives for Islamic finance are clear. First, to establish and maintain London as Europe’s gateway to international Islamic finance. Second, to ensure that nobody in the UK is denied access to competitively prices financial products on account of their faith. The Government’s approach to achieving these objectives is characterised by the principles of fairness, collaboration and commitment.
Significant progress towards meeting these objectives has been made. The UK is now the leading centre for Islamic finance outside of the Gulf Cooperative Council and Malaysia. London and Birmingham now host the only standalone Islamic financial institutions in the EU. UK consumers can now access a wide range of Shariah compliant retail financial products and services, which are regulated to the same standard as conventional financial products, conferring the same degree of consumer protection.
The role of the Government in achieving this progress has been important, particularly through the removal of tax and regulatory barriers. The Treasury and the Financial Services Authority will continue to work towards creating a level tax and regulatory playing field between conventional and Islamic finance. Furthermore, the Government will continue to keep the feasibility of issuing sovereign wholesale and retail Islamic finance products under review.
However, it is clear that much of the future work in developing the sector and removing barriers to growth in areas such as standardisation, awareness and skills, must be for industry to take forward, with Government providing support and encouragement where appropriate. Many of the remaining barriers will be addressed as the sector grows and develops. However, where there is a need for further intervention, the Government stands ready to help.
The document is available below in Adobe Acrobat Portable Document Format (PDF). If you do not have Adobe Acrobat installed on your computer you can download the software free of charge from the Adobe website. For alternative ways to read PDF documents and further information on website accessibility visit the HM Treasury accessibility page.
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