UK holds lead as West’s Islamic finance hub despite challenges

By Puja Sharma

The UK has been positioned as the leading Western hub for Islamic finance, supported by the London Stock Exchange serving as a key listing venue for global US dollar sukuk, and English law being used to govern most international sukuk, Fitch Ratings said. In addition, the London Metal Exchange has been accessed by many Islamic banks to facilitate cash financing.

The UK’s financial, professional and legal services, and human capital support the global Islamic finance industry, with UK banks being key arrangers and counterparties in sukuk, Islamic interbank and derivatives markets. Gulf Cooperation Council (GCC) investors are major shareholders in all UK Islamic banks. However, the share of Islamic banking in the UK remains low.

The LSE provides issuers with access to a deep, diverse international investor base, and is the largest listing venue globally for hard-currency sukuk with over a 40% share as of end-1H25, based on Bloomberg data. It is also the second-largest listing venue for hard-currency ESG sukuk globally after Frankfurt Stock Exchange. Nearly all sukuk listed on the LSE originate from GCC countries. Middle Eastern sukuk and bond issuers raised $65 billion on the LSE in the first seven months of 2025, ranking second behind UK issuers.

However, the LSE faces stiff competition for sukuk listing leadership from Euronext Dublin, Frankfurt Stock Exchange and Nasdaq Dubai. Fitch rates about 80% of hard-currency sukuk listed on the LSE as of end-1H25, with about 85% investment grade and most issuers assigned a Stable Outlook.

UK-based Islamic funds are the largest contributors to the domestic Islamic finance industry, with assets under management of over $12.5 billion as of end-June 2025, up 22.1% year on year, based on IFN Investor data. Most of these funds invest in equities (84%), followed by commodities (10%).

UK Islamic banking assets rose by 38% year on year to $11.4 billion at end-2024. The UK gained an additional Islamic bank in 2024, through the conversion of Ahli United Bank (UK) PLC to Kuwait Finance House PLC. Fitch rates two Islamic banks in the UK, both at ‘A’ with Stable Outlooks.

All UK Islamic banks have GCC shareholders, supporting government efforts to attract foreign direct investment. These banks mainly serve GCC clients and offer real estate finance, private banking, wealth management and digital banking products. The UK has over 50 Islamic FinTech firms, including a digital Islamic bank. Europe Arab Bank launched Islamic banking services in May 2025, while FinTech company Offa acquired Bank of Ireland’s Islamic home finance portfolio in late 2024.

However, Islamic banks account for just 0.1% of UK banking assets as of 3Q24. Key obstacles include a lack of understanding, limited product options, higher fees than conventional products, and the perception that Islamic finance is only for Muslims, according to a Gatehouse Bank survey, along with the UK’s minority Muslim population. The UK Treasury began consulting on Phase 1 of the Consumer Credit Act Reform in May 2025. The government intends to assess barriers hindering firms’ provision of sharia-compliant finance and consider measures to address unmet needs in Phase 2. This recognises the importance of facilitating access to Islamic finance and fostering greater inclusivity.

The government aims to introduce Alternative Student Finance, a sharia-compliant student loan scheme, as soon as possible following the introduction of a more flexible student finance system, the Lifelong Learning Entitlement, from the 2026-2027 academic year. The UK was the first western country to issue sovereign sukuk in 2014 and issued a follow-up in 2021. However, the government does not plan to issue sukuk in 2025-2026. Sukuk from UK-based entities was about $740 million outstanding in July 2025, with the majority of sovereign issuances maturing in 2026.