Historic Overview of the UK Islamic Finance Market

The Early Years (1996-2001)
The United Bank of Kuwait (now known as Ahli United) launched the first ever Islamic home finance product (Manzil) back in 1996, which was based on a Murabaha contract. Initially takeup of the Manzil product was slower than expected which was largely down to the unfamiliarity of the concepts amongst the British Muslim community. The bank was however assisted by the presence of a well known Islamic Finance scholar, Mufti Taqi Usmani, on their Shariah advisory board. To date Ahli United has sold nearly 1,000 such home finance plans. Ahli United was a lone provider in the Islamic home finance market in the early years and attracted a lot of criticism for being too expensive and restrictive.

The Due Diligence Period (2001-2003)
By 2001 many of the major banking institutions began to recognise the commercial potential of the global Islamic Finance market and started developing products of their own. Owing to the inflexibility of the Murabaha product the Shariah scholars allowed banks the additional choice of the Ijara contract.

Governmental Support (2003- )
The purchase and resale required for Islamic home purchases resulted in double stamp duty which significantly increased the costs of Shariah compliant financing. Under pressure from the Bank of England, numerous Islamic organisations and financial institutions, the Government lifted the double stamp duty barrier in 2003. This historic decision paved the way for many institutions to develop commercially viable home purchase products, and cemented the UK’s leading role in the global Islamic Finance industry.

The UK Islamic Finance Boom (2003- )
HSBC’s decision to launch ‘HSBC Amanah’ heralded the entry of mainstream banks into the Islamic Finance arena. Soon afterwards NatWest launched Alif Baa Taa (ABT) commercial finance based on the Murabaha model along with the Bank of Ireland. Thereafter United National Bank, Arab Banking Corporation (Al-Buraq) and Lloyds TSB all established Shariah complaint product offerings.
Shariah scholars then devised the concept of Diminishing Musharaka (DM) that enabled
clients to buy back shares in a house from the bank at regular intervals, rather than at the end of the contract as was the case with Ijarah. The launch of DM represented the introduction of a product that could be favourably compared on cost and flexibility with conventional interest based loans. It is worth stressing DM was only achieved as a result of the experience gained from the earlier introduction of Murabaha and Ijarah.
At around the same time a unique community collective known as Ansar Finance (Manchester) started offering Islamic home finance to its members. The key difference between Ansar and just about all the other Islamic home finance providers was that Ansar’s seed finance was from its members who were mainly from the Muslim community. This won Ansar many plaudits from the Muslim community.

High Street Islamic Bank and the Musharaka Fund Launched 2004 - 2006
2004 witnessed the launch of the UK’s first stand alone bank completely based on Islamic principles - The Islamic Bank of Britain (IBB). The UK underscored its position as the first Western country to grant a licence to a fully-fledged Islamic bank. IBB initially started its product offerings with regular current and savings accounts but then rapidly moved into personal finance and is now contemplating a number of Shariah-compliant products. It has over 12 branches nationally and it is expected to grow rapidly.
The second development worth noting came in 2005 when 1st Ethical Limited launched the ‘Musharaka Fund’. This fund invited investment from the UK Muslim community and then reinvested those funds as venture finance into UK Muslim businesses such as dental practices, optical practices etc. The launch of the fund was the first serious attempt to implement pure Musharaka and move away from the concession approach favoured by the conventional banks.

London – The Global Centre for Islamic Finance (2006- )
During a landmark speech at a major international conference on Islamic Finance in June 2006, the Chancellor Gordon Brown declared his desire to see London become the international global centre for Islamic financial activity. He also fully pledged his support to any legislative changes required in ensuring a level playing for Islamic products. The FSA (Financial Services Authority) has also taken a keen interest in this area and dedicated specialist resource to help develop the requisite regulatory framework.