Status and Recent History of Islamic Finance in the UK

‘Islamic financial transactions are recognised and enforced as valid in English law in a number of circumstances and the Islamic financial industry in the UK is one of the fastest growing and innovative in the then global market. Under the former Labour government, Ed Balls, the then Economic Secretary to the Treasury, said in a speech on 30 January 2007 that the aim of the Treasury was to make the UK ‘a global centre for Islamic Finance’ and explained that ‘since the Bank of England’s first Working Party in 2002 and the Finance Act 2003, when the Government started shaping the tax and regulatory framework to allow for the development of Islamic Finance products, the market has grown from strength to strength.’ Referring to the change made to stamp duty to facilitate the market in Islamic mortgages, he said: ‘In 2003 we removed the double stamp duty land tax charge on murabaha and ijara based mortgages enabling at a stroke the explosion in Islamic home finance.’ Para In this case English law was amended, via the Finance Act 2007 in order to ease the development of Islamic mortgages which work on the basis not of a single transfer of title (from vendor to purchaser) but of two transfers (from vendor to Islamic bank and at the end of the mortgage from Islamic bank to purchaser). Without an amendment to the tax regime, Islamic mortgages would be subject to the payment of two amounts of stamp duty and hence less competitive. The quid pro quo, however, is that recent Finance Acts have provided for the taxation of Islamic financial transactions and by so doing have accepted them into mainstream banking. This is not done purely out of a desire to assist the Muslim community; the prime reason for the Treasury’s actions is clearly economic. The Treasury has now set up a special unit dedicated to understanding (and proposing taxation of) new Islamic instruments. The promotion of Islamic finance is undoubtedly good for the British economy and numerous Islamic banks have been set up on the back of this Treasury support. Such banks are licensed to operate as UK institutions and the transactions they enter into are ultimately governed by English law no matter how they are designated.’[1]

‘In the last few years, the United Kingdom, home to more than 2 million Muslims, has been trying to establish itself as a major Islamic finance center. Gordon Brown, since his days as Chancellor of the Exchequer, as well as the successive Mayors of London, have been for economic as well as political reasons (the integration of an often disenfranchised community) committed to the goal of turning London into a global hub. A number of tax and regulatory changes have ben undertaken to fulfil that goal. Especially notable is the introduction of a new sukuk regime similar to that for conventional securitizations, adding sukuk to the London Stock Exchange, and the announcement that the British government would in the near future be issuing sovereign sukuk. “These changes,” the Treasury said, “will ensure that British Muslims can get competitive financial services and the city remains at the forefront of developments in financial markets around the world.” Recently, five Islamic banks have been created: one retail bank, the Islamic Bank of Britain, launched in 2004; the European Islamic Investment bank, created in 2005; the Bank of London and Middle East, established in 2007; Gatehouse Bank, set up in 2007; and the European Finance House, launched in January 2008. In addition, the big financial institutions such as HSBC and Lloyds TSB routinely offer Islamic financial products and services. Altogether there are now some $30 billion in Shariah-compliant assets in the United Kingdom.’[2]

Notes, citations and paragraph breaks are omitted from the above quotations.

 

[1]  Ian Edge (Barrister), ‘Islamic finance, alternative dispute resolution and family law: developments towards legal pluralism?’ in Robin Griffith-Jones,ed, Islam and English Law: Rights, Responsibilities and the Place of Shari‘a (Cambridge University Press 2013), 116-143 at 119-120.

[2] Ibrahim Warde, Islamic Finance in the Global Economy (2010 Edinburgh University Press), 134.