1.2
The Development of Islamic
Finance in the UK
Michael Ainley, Ali Mashayekhi, Robert Hicks,
Arshadur Rahman and Ali Ravalia, The Financial
Services Authority
Introduction
Most of the growth of Islamic finance in the UK has taken place over the
last five years. But the existence of Shari’a-compliant transactions in
London’s financial markets dates back to the 1980s. Commoditymurabaha^1
type transactions through the London Metal Exchange were used, in
significant volumes, to give liquidity to Middle Eastern institutions and
other investors that fostered the development of a wholesale market in the
UK. This did not, however, cater for retail Muslim consumers, as the
products developed at the time were aimed exclusively at wholesale and
high-net-worth investors. These products were relatively uncomplicated in
structure and fell outside the scope of the regulators.
Retail Islamic products first appeared in the UK in the 1990s, but only on
a very limited scale. A few banks from the Middle East and South East Asia
began to offer simple products, such as home finance. However, these
compared unfavourably with their conventional equivalents in several
respects, including their generally uncompetitive pricing. Most of these
products did not fall within the regulatory framework, so consumers did not
have the same protection as other consumers; for example, the availability
of the Financial Ombudsman Service and the possibility of redress from the
Financial Services Compensation Scheme. The growth of the retail market
remained slow throughout the 1990s and early 2000s.
Much has changed since then; both on the wholesale and the retail side,
the quality of products has improved, a wider range of products has become
available, and more players have entered the market. Today, London is seen
by many firms, including Islamic as well as non-Islamic, as an increasingly
important global centre for Islamic finance.(^1) Murabahais an agreement of sale of goods at a pre-determined profit mark-up on the price. Commodity
murabahais a mechanism used to create a Shari’a-compliant form of short -term deposit/placement by way
of transactions in commodities, usually metals.