The UK has built a strong record of firsts in Islamic finance. It was the first western country to issue a sovereign Sukuk and the first western central bank to offer a non-interest-based deposit facility for Islamic banks. As global competition intensifies, the task is to turn that record into sustained leadership.
Our new report, ‘Islamic finance and UK economic prosperity: A vision for growth’, considers how the UK can build on that position. This is increasingly important as key Muslim-majority markets embed Islamic finance in their national strategies and competing financial centres are investing to strengthen their capabilities.
Underpinned by a robust legal and regulatory framework, Sukuk listings on the London Stock Exchange and access to a broad and diverse asset base, the UK has a distinctive role as a ‘translation hub’ that bridges Shariah-aligned structures with conventional market infrastructure, legal certainty and deep capital-markets expertise.
The market is moving, and the UK’s opportunity runs both ways
Major Muslim-majority markets are placing Shariah-compliant finance at the heart of their national economic strategies. The UAE’s strategy sets targets of AED2.56 trillion in Islamic finance assets and more than AED660 billion in listed Sukuk by 2031. Saudi Arabia’s Vision 2030 makes the expansion and international positioning of Islamic finance an explicit priority, while the sector remains a central pillar of Malaysia.
These developments point to sustained demand for Shariah-compliant investment in infrastructure, clean energy, technology and real assets. Jurisdictions with well-understood Islamic finance frameworks are well placed to benefit.
For the UK, the opportunity runs both ways. As well being a destination for capital seeking the types of assets that shape the industrial and infrastructure strategies, while London’s legal, structuring and advisory expertise can support Islamic capital-markets transactions internationally.
Maximising these dual opportunities requires a clear international proposition, embedded in the UK’s international financial services strategy and tailored market by market. The UK should deepen investment and capital markets links with the Gulf and Malaysia, while expanding exports of its advisory, legal and structuring expertise to markets such as Indonesia, Turkey and countries across Africa.
The UK already has existing mechanisms to facilitate this, such as JETCO with Malaysia, Memoranda of Understanding and bilateral capital markets dialogues with Gulf partners, Islamic finance working groups with Indonesia, amongst others Islamic finance should become a standing item within these mechanisms, with a practical focus on removing barriers to cross-border trade and investment flows.
Sovereign signalling: Sukuk and export finance
Growth in Islamic finance is typically underpinned by clear signals and investment instruments from government. The UK has two instruments: a sovereign Sukuk and UK Export Finance (UKEF). .
A UK sovereign Sukuk provides a benchmark against which UK corporate issuance can be priced. It also offers international investors a familiar structure through which to commit capital and signals that the UK intends to remain a long-term participant in the market. At home, it supplies the sterling high-quality liquid assets that UK Islamic banks need and that remain in short supply.
The 2014 and 2021 issues were significantly oversubscribed, and stakeholders interviewed for our report, both in the UK and internationally, expressed continued appetite for further UK sovereign issuance. With the 2021 issue having matured in July this year, the government should begin planning the next issuance while exploring the potential for innovative structures.
UKEFhas already demonstrated its Shariah-compliant capability abroad, from the Emirates A380 Sukuk in 2015, the first guaranteed by an export credit agency, to the Qiddiya City Murabaha facility in 2024. These transactions strengthen the UK’s credibility internationally, support UK exporters in priority markets and lay the groundwork for reciprocal inward investment. However, UKEF’s Shariah-compliant capacity remains underused by practitioners. Raising awareness of what UKEF can do in priority markets and building the commercial pipelines to use it would be a practical step with near-term impact.
Tokenisation, Takaful and retakaful: keeping pace with market development
Tokenisation deserves particular attention because it adds a new dimension to the UK’s role as a translation hub. Industry estimates put tokenised financial assets at around $2trnby 2030, and Islamic capital markets are already beginning to experiment with tokenised structures.
Shariah-compliant finance and institutional digital assets both depend on clear links to underlying assets, strong governance, and transparent audit trails. This is why Islamic capital markets are well placed to adopt tokenised structures.
International markets are already demonstrating how quickly tokenised Islamic finance is developing. Malaysia’s sovereign wealth fund Khazanah completed the country’s first tokenised Sukuk in April 2026. Dubai’s regulator has operated a tokenisation sandbox involving nearly 100 firms, while the UAE has launched digitally distributed retail Treasury Sukuk.
If the next generation of Shariah-compliant capital is issued, settled and serviced on digital infrastructure, the UK will need to be able to do the same to maintain its intermediary role. It already has foundations on which to build, including the Digital Gilt and the appointment of a Wholesale Digital Markets Champion. Our report therefore encourages the government to explore a digital sovereign Sukuk as part of its wider Islamic finance and tokenised capital markets strategy.
The same principle applies to Takaful and retakaful, broadly understood as the Sharia-compliant alternatives to the conventional insurance and reinsurance. As operators in Malaysia, Indonesia and the Gulf seek international risk capacity, London’s specialty insurance and reinsurance market is well placed to support these transactions. TheCityUK will bring together our members to develop a stronger UK proposition.
Delivering this does not require new institutions or wholesale legislative change. The immediate priority is to use the UK’s existing tools, expertise and international relationships more effectively, with greater coordination, consistency and pace.
The UK built its record of firsts in Islamic finance by recognising changes in the market early and acting decisively. To remain the leading western centre for Islamic finance, it must now turn that legacy into the next generation of investment, trade and financial innovation.
