As one of the fastest growing segments of the global financial system, Chancellor Rachel Reeves and a broad base of cross-party backbench MPs should take the necessary action to solidify the UK as the Western hub for Islamic finance.
Whilst the UK is already the first country outside the Islamic world to offer ‘sovereign sukuk’, a Sharia-compliant bond, it is essential the UK is able to adapt its legislative framework to support and promote an entire suite of Sharia-compliant financial services. The benefits are manifest, and include unlocking opportunities for economic growth and development across the country – one of Labour’s top priorities for government.
Taking this bold action can broaden the UK’s financial service offering and, crucially, help it achieve a strategic geopolitical goal of forging a closer trading relationship with the Islamic world – particularly the Gulf.
The case for change
The 2023 report on the State of the Global Islamic Economy, found that total Sharia-compliant assets will grow to $5.96 trillion by 2026. This would establish Islamic finance as one of the fastest-growing segments of the global financial system. Despite this, however, current UK legislation does not fully accommodate the unique aspects of Islamic finance, such as the prohibition of interest (riba), and the need for profit-and-loss sharing arrangements like ‘Mudarabah’ and ‘Musharakah’.
In this regard, the lack of a legislative framework not only limits the potential growth of Islamic finance within our borders but also hinders our ability to attract international investors seeking a stable, Sharia-compliant financial environment.
A new legislative framework
To fully understand the barriers to growth in the Islamic finance sector, the wonderful Adam Smith Institute published a comprehensive report identifying specific barriers to growing the UK’s Islamic finance industry. These are robust recommendations that I entirely agree with, and include:
- Digitisation and accessibility: The Bank of England’s Alternative Liquidity Fund should operate continuously during the working week and be fully digitised, moving away from encrypted emails and phone banking to an online portal to increase accessibility and efficiency for depositors.
- Tax simplification: Implementing the recommendations from the ‘Tax Simplification for Alternative Finance’ report is crucial. Aligning Capital Gains Tax rules for alternative finance with mainstream applications will remove existing disincentives for investors and will level the playing field.
- Engagement with foreign banks: Active engagement with foreign Islamic banks is essential to creating a more conducive environment for Sharia-compliant foreign direct investment. Establishing a regular forum for dialogue between the Lord Mayor of London, HM Treasury, and other key stakeholders will ensure London’s investment infrastructure is optimised for Islamic finance.
By embracing these changes, the UK can leverage its existing strengths to bolster its position as an economic powerhouse, but also as a leader in Islamic finance. This can attract increased foreign investment and create high-value economic jobs. The ethical and socially responsible nature of Islamic finance also aligns with the growing demand for ESG (environmental, social and governance) investments.
According to the World Bank, the socially-inclusive aspects of Islamic finance have the potential to contribute to the achievement of UN Sustainable Development Goals. Both factors further enhance the UK’s appeal as a destination for global capital.
Changing the status quo
Implementing these legislative changes requires collaboration with experts, parliamentarians, and other key stakeholders. College Green Group can play a crucial role providing specialised guidance in navigating what is a complex landscape, and offer the necessary support and advocacy to drive change. By partnering with College Green Group, businesses and investors can be assured that they will stay ahead of discussions on legislative transformation, and that their voices and interests will be represented in Parliament.
The time is ripe for this change. By reforming our legislative framework to further support Islamic finance, we can unlock new avenues for growth and solidify the UK’s position as a global leader in ethical and Sharia-compliant finance.
If you want to be a part of this transformative journey, College Green Group stands ready to help you in this endeavour. Let’s seize this opportunity to build a more inclusive and prosperous future for UK PLC.
