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The Rise of Islamic Finance in Britain : A Summary

Islamic finance aims to create business activities that generate a fair and equitable profit from
transactions that are backed by real assets. This method of financing avoids usury, uncertainty, short
selling and excessive credit creation whilst encouraging sound risk management procedures. Islamic
finance reached the UK in the 1980s with the first commodity Murabaha transactions and the launch of
the first UK Islamic bank, Al Barakara International in 1982. During the 1980s a number of investment
banks offered bespoke Sharia compliant products to their Middle Eastern clients, mostly in the areas of
trade finance, leasing and project finance.

It was not until the industry received political and regulatory support that momentum started to build. In
2000 an Islamic finance working group was set up under the leadership of Andrew Buxton, former
Chairman of Barclays Bank and Eddie George of the Bank of England. The working group included
representatives from the Treasury, FSA, the Council of Mortgage Lenders, financial institutions and
members of the Muslim community. Since the formation of this working group the UK Government and
regulators have attempted, through the addition of Alternative Finance clauses to various Taxation Acts,
to create a market environment where Islamic banks and their clients are not treated any differently to
their conventional counterparties.

There have been two key policy objectives of the UK Government. First, it aims to establish and maintain
London as Europe’s gateway to international Islamic finance. On 29th October 2013, at the ninth World
Islamic Economic Forum, David Cameron, the former Prime Minister announced the government’s plan
for the United Kingdom to become the first non-Muslim state to issue an Islamic bond and will be issued
on the London Stock Exchange in front of more than 1,800 political and business leaders from over 115
countries. This initiatives hopefully will allow London to ‘stand alongside Dubai and Kuala Lumpur as
one of the great capitals of Islamic finance anywhere in the world’, and that such measures will act as a
catalyst for greater investment and activity in the UK’s Islamic finance sector. Second, it ensures that
nobody in the UK is denied access to competitively priced financial products on account of their faith. As
muslim population grows significantly within the country, the need to cater muslim needs of finance soon
is being recognized as a mean of financial inclusion.

Islamic finance industry currently diversify into Banking, Investment Company, Insurance Company, and
Indices. 5 Islamic Banks operates within fully shariah compliant, while 16 conventional counterparts offer
Islamic products (2015) for widening the market outreach. Sukuk was prior and still becoming the most
appealing instrument for investor to raise fund, both companies or sovereign issuer. Within the
astonishing growth of demand for Shariah-compliant banking which is at an all-time high in the United
Kingdom since 2012 (449 percent in early 2017), Islamic finance has becoming an established part of
British banking and industry as a whole.

Summarize and sourced from UK Excellence in Islamic Finance (www.gov.uk), The Rise of Islamic
Finance in the United Kingdom (Rowley, 2014), and Islamic Finance in Britain and How we benefit from
it and bring it to Indonesia (Mukhlisin, 2017)