UK Islamic finance sector worth 6bn and drives Gulf investment report says

A new report by the British think tank Equi has revealed the Britain's Islamic finance sector is worth an estimated £6bn and "could generate £2.5bn a year for the UK government".

The report, published this week, shows that Islamic finance is facilitating significant Gulf investment in Britain.

It recommends that the government set up an Islamic Finance Unit to support the sector's growth and ensure it aids economic growth in Britain. 

Naz Shah, a Labour MP and the chair of the All-Party Parliamentary Group (APPG) on Islamic and Ethical Finance, said: "As policymakers focus on driving sustainable growth, improving productivity and widening opportunity, this work makes a compelling case for recognising Islamic finance not as a niche offering, but as a significant and underutilised asset for Britain’s economic future."

Islamic finance refers to "financial management and transactions that comply with Islamic rules and moral principles".

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The report says: "Primarily, this includes the prohibition of interest and of investing in industries such as gambling, alcohol, pornography and arms manufacturing."

It finds that 64 percent of British Muslims say they prefer Islamic finance over alternatives, and just over half hold an Islamic bank account.

Strikingly, "30% of non-Muslims said they would be willing to switch to Islamic finance products if they were offered a service comparable to conventional products".

It argues that British Muslims drive domestic demand for ethical and green finance. Some 72 percent of Muslims are aware of green finance, compared with 42 percent of non-Muslims, and Muslims are 20 percent "more likely to use green finance products".

Money from the Gulf

British Islamic finance assets make up no less than 85 percent of the European Islamic finance market.

Much of this is due to money from the Gulf. Islamic finance, the report says, "has supported investment in major London landmarks, including the Shard and Battersea Power Station. Islamic banks have also helped channel foreign investment into UK housebuilding, particularly from Gulf-based investors, for whom London remains a leading real estate destination."

The five Islamic banks in Britain all have shareholders based in the Gulf and primarily serve wealthy clients there.

But this could be changing. "Islamic retail banking customers in the UK have increased by 20% annually between 2020-2025, showing strong domestic growth potential for Islamic banking," the report says.

Remarkably, this is not just due to British Muslims.

"Domestic demand for Islamic banking comes from non-Muslim consumers as well," the report notes. "In 2013, 87% of people who opened a fixed term deposit account at Al Rayan [an Islamic bank] were not Muslim."

The report warns that Islamic banks being oriented towards "high net worth clients in the Gulf" means they are not leveraging Islamic finance’s "full potential for economic growth in the UK". 

British Muslims also face significant "financial exclusion". One example of this is debanking, whereby bank accounts are suspended with no reason given. A staggering 42 percent of British Muslim charitable organisations "have experienced a withdrawal of their bank account".

Nor is faith mentioned in the UK’s Financial Inclusion Strategy, which the report describes as a "significant oversight".

It calls on the British government to "establish a bespoke Islamic Finance Unit", which would be a "dedicated unit to support sector growth, improve coordination across government, and ensure Islamic finance contributes to economic growth and financial inclusion".

The report further advocates the establishment of a "sovereign Sukuk (Shariah-compliant bonds) programme" with "specific issuances for sustainable projects, to strengthen the UK’s position in global Islamic finance and support net-zero commitments".

Professor Javed Khan, Equi's managing director, said: "Islamic Finance is not a niche issue but a major economic opportunity hiding in plain sight.

"At a time when the UK is searching for sustainable growth, this is about unlocking billions in investment, supporting innovation and ensuring our financial system works for everyone."

Khan added: "With the right policy support, Britain can become the global capital of Islamic finance, driving growth, boosting productivity and reinforcing our position as a world-leading financial centre."

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