The UK’s Role in Islamic Finance
The United Kingdom continues to spearhead Islamic finance in the West, solidifying its position as a pivotal player in this growing global industry. According to Fitch Ratings, the London Stock Exchange (LSE) remains the premier platform for US-dollar sukuk listings, bolstered by the widespread adoption of English law governing international issuances.
The Importance of the London Metal Exchange
Additionally, the London Metal Exchange (LME) plays a crucial role for Islamic banks when it comes to cash financing, highlighting the UK’s integral financial infrastructure. The country’s comprehensive financial, professional, and legal framework, along with its skilled workforce, supports the robust development of the global Islamic finance sector.
Key Players in the UK Islamic Banking Landscape
In the UK, banks operate as essential facilitators within the sukuk market, Islamic interbank transactions, and derivatives markets. Investors from the Gulf Cooperation Council (GCC) remain important stakeholders in these establishments. Despite this involvement, Islamic banks still account for a relatively small portion of the domestic market share.
The LSE is a key asset in the Islamic finance landscape, providing access to a diverse pool of global investors. As of the first half of 2025, it holds over 40% of the global market share for hard-currency sukuk. Notably, it ranks as the second-largest venue for hard-currency environmental, social, and governance (ESG) sukuk, following behind the Frankfurt Stock Exchange.
Sukuk Issuances from the Middle East
A striking majority of the sukuk listed on the LSE originate from issuers in the Gulf region. In the first seven months of 2025, Middle Eastern sukuk and bond issuers raised an impressive $65 billion on this platform, coming in second only to UK issuers. However, competition is intensifying from other exchanges such as Euronext Dublin, Frankfurt Stock Exchange, and Nasdaq Dubai.
Fitch Ratings has analyzed around 80% of the hard-currency sukuk listed on the LSE, with the majority—approximately 85%—being rated investment-grade. Most of these issuances are also described as having a Stable Outlook, indicating a healthy financial climate.
The Growth of Islamic Funds in the UK
UK-based Islamic funds are making significant contributions to the domestic financial landscape, boasting assets under management (AUM) exceeding $12.5 billion as of the end of June 2025—up by 22.1% year-on-year. The allocations within these funds are predominantly directed toward equities (sitting at 84%), with commodities making up 10%.
Islamic banking assets in the UK also saw a notable increase, rising 38% year-on-year to $11.4 billion at the close of 2024. A new Islamic bank was added to the UK’s financial ecosystem in 2024, following the transformation of Ahli United Bank (UK) PLC into Kuwait Finance House PLC.
Fitch has rated two UK Islamic banks with an ‘A’ grade and Stable Outlooks. Notably, these institutions have GCC shareholders and primarily cater to clients from the GCC, offering services such as real estate finance, private banking, wealth management, and cutting-edge digital products.
The Rise of Islamic Fintech
The UK is home to over 50 Islamic fintech companies, including a digital Islamic bank. Recent developments include Europe Arab Bank launching Islamic banking services in May 2025, while Offa acquired Bank of Ireland’s Islamic home finance portfolio in late 2024. Despite these advancements, Islamic banks only represent about 0.1% of total UK banking assets as of the third quarter of 2024.
Several challenges hinder the growth of Islamic finance, including a limited variety of products, higher costs compared to conventional banking options, gaps in consumer understanding of Islamic finance, and the perception that such services are exclusively for Muslims, as highlighted by a Gatehouse Bank survey. The UK’s Muslim population, which is relatively small, also plays a role in this context.
Future Policy and Market Outlook
In May 2025, the UK Treasury commenced consultations on the first phase of reforming the Consumer Credit Act. The second phase will focus on evaluating barriers to sharia-compliant finance and considering steps to enhance access. This initiative underscores a commitment to increasing financial inclusion.
Additionally, the UK government aims to introduce Alternative Student Finance—a sharia-compliant student loan package—promptly following the launch of the Lifelong Learning Entitlement scheduled for the 2026–2027 academic year.
In 2014, the UK became the first Western nation to issue sukuk, returning to the market in 2021. However, there are no plans for additional sukuk issuance in 2025-2026. As of July 2025, outstanding sukuk from UK-based entities was approximately $740 million, predominantly sovereign debt maturing in 2026.
With the continued evolution of Islamic finance, the UK remains a crucial hub, leveraging its established systems and expert resources to foster growth and innovation in this dynamic market.
