Islamic finance and UK economic prosperity: A vision for growth

Islamic finance is one of the fastest-growing segments of the global financial system. In a recent report, the London Stock Exchange Group (LSEG) forecast that Islamic finance assets worldwide will approach the $10trn mark by the end of this decade, a rapid rate of growth for a relatively new industry: Islamic finance assets only surpassed $1trn in 2010 and reached their second trillion in 2014. While it currently accounts for roughly £1 in every £80 of global financial assets, the sector has sustained annual growth of 10-12% in recent years, consistently outpacing growth in the wider industry.

For the year ending December 2025, the Cambridge Islamic Wealth Management Report 2026 estimated that there is $27.8trn of wealth held by Muslims globally, with around $24trn not yet deployed through Shariah-compliant channels. Demand side preferences are also shifting. Research from Jersey Finance indicates that a majority of Muslim ultra-high-net-worth (UHNW) individuals favour Shariah-compliant investment, with 62% willing to accept marginally lower returns in exchange for compliance, highlighting a significant and persistent opportunity gap.

The UK is well positioned to capture this opportunity as the leading Western hub for Islamic finance. It is also underpinned by a robust legal and regulatory framework and strong record of attracting Shariah-compliant investment. As Muslim-majority markets intensify their transition towards Shariah-aligned financial systems, and as global institutional investors and family offices apply more structured Shariah governance, the opportunity for the UK to attract and intermediate Shariah compliant foreign direct investment (FDI) is growing.

Objective

‘Islamic finance and UK economic prosperity: A vision for growth’ sets out the strategic contribution Islamic finance can make to the UK’s economic growth, with a focus on cross-border capital flows.

Drawing on research, stakeholder engagement and bilateral dialogue, the report:

Examines global market and policy developments across key Islamic finance jurisdictions including the Gulf, Southeast Asia and beyond, and draws out implications for UK policy and commercial strategy.
Evaluates the UK’s strength in attracting Shariah-compliant FDI and the enabling policy and regulatory environment that underpins the sector’s development.
Identifies the regulatory and policy reforms needed to enhance the UK’s competitiveness as a destination for Shariah-compliant investment, in the face of growing competition from markets such as Luxembourg, Singapore and Hong Kong.
Sets out targeted and actionable policy recommendations to deepen two-way investment flows, expand trade links and maintain the UK’s position at the forefront of global Islamic finance innovation.

Overview

Islamic finance represents a significant growth opportunity for the UK. Its asset-based and asset backed, risk-sharing model aligns with UK priorities in infrastructure, clean energy and real estate – sectors at the heart of the UK’s industrial and infrastructure strategies. With global Islamic finance assets projected to reach $7.5trn by 2028 and wealth held by Muslims estimated at approximately $27.8trn, the scale of the opportunity is both significant and immediate.

Investor behaviour has started to shift. A majority of Muslim UHNW individuals now favour Shariah compliant investments, with 62% of respondents from a recent survey conducted by Jersey Finance indicating they would always choose a Shari’a-compliant investment even if it underperformed a conventional alternative. There are signs that this is a durable reallocation of capital rather than a cyclical trend.

Realising this opportunity will require a coordinated and strategic approach across government and industry. While the UK’s fundamentals are strong – underpinned by deep capital markets, legal and regulatory certainty, world-class advisory expertise, and a proven track record in attracting Shariah compliant investment – several gaps constrain its ability to capture the opportunity at scale.

Opportunity for UK Islamic finance sector

Inbound FDI and portfolio flows – Gulf and Southeast Asian institutional Shariah-compliant capital seeking UK real estate, infrastructure, and increasingly renewable energy, healthcare and technology.

Financial and related professional services exports – London’s legal, structuring, custody and advisory expertise sits at the heart of global Islamic capital market transactions, generating significant value regardless of where underlying assets are located. In the UK, pension funds are increasing their focus on Muslim customers, which presents growth potential.

Tokenised and digital Sukuk – There’s a growing investor appetite for digitally-native Shariah-compliant products and digital first national initiatives across the Gulf and Southeast Asia.

With the appointment of a Wholesale Digital Assets Champion and initiatives such as the Digital Securities Sandbox (DSS) and the Digital Gilt Instrument (DIGIT) programme, the UK is well positioned to deepen the convergence between its digital capital markets agenda and Islamic finance.

Gaps to address

Fragmented pipeline – UK investable opportunities are perceived as dispersed and difficult to identify, increasing transaction costs for international investors. Even where opportunities exist, many are not yet ‘investor-ready’.

Intermittent sovereign signalling – Inconsistent sovereign Sukuk removes the benchmark corporate Sukuk issuers depend on, constraining market depth and investor certainty.

Limited international awareness – The UK’s Islamic finance strengths are under-appreciated in priority markets despite genuine competitive advantages.

Underdeveloped (re)Takaful proposition – London market capacity in Islamic insurance (Takaful) remains feasible yet invisible to international counterparties.

Speed of execution and first-mover advantage – the UK has an emerging strategy and the enabling frameworks (DSS, DIGIT, a Wholesale Digital Markets Champion), but slower execution risks the convergence between its digital capital markets agenda and Islamic Finance stalling. With Gulf and Southeast Asian markets already moving from pilot to mainstream, the first-mover advantage is real but time-limited.

Recommendations for securing the UK’s future as the leading western hub for Islamic finance

Develop a coherent Islamic finance investment proposition, a dedicated one-stop Islamic finance Investment Portal, and a world class Islamic investment management ecosystem.

Maintain consistent sovereign engagement on Sukuk.

Deploy and actively promote the UK Export Finance (UKEF’s) Shariah-compliant toolkit to sustain UK competitiveness amid rising Sovereign Export Credit Agency (ECA) activity in Islamic finance, including from jurisdictions such as Sweden and Italy.

Create a more enabling environment for Takaful and retakaful.

Position the UK at the convergence of Islamic finance and digital capital markets.

Designate Islamic finance specialists within HMRC and the FCA to provide clear, timely guidance on emerging Shariah-compliant structures and address potential barriers to investment.

Recommendations for the UK’s international engagement on Islamic finance

Position the UK to capture a greater share of global Shariah-compliant capital by embedding Islamic finance within its international financial services strategy.

This reflects a growing structural shift in key markets, where government policies, regulatory reforms and economic diversification programmes are increasing demand for Shariah compliant investment across infrastructure, clean energy, technology and real assets. The UK should present a clearer international proposition as both a destination for Islamic investment and a partner of choice for global Shariah-compliant capital.

Adopt a market-specific approach to Islamic finance, supported by stronger regulatory, tax and capital markets connectivity.

In the Gulf and markets such as Malaysia, the UK should focus on attracting inward Shariah compliant investment, strengthening Sukuk and capital markets links, and positioning London as a gateway for Islamic institutional and family office capital. In Indonesia, Türkiye, and Africa, the UK’s comparative advantage lies in exporting advisory, legal, regulatory and structuring expertise, supporting the development of local Islamic finance markets and sustainable financing ecosystems. Across all priority markets, the UK should reduce practical barriers to cross-border activity, including greater clarity through double taxation treatment, and clearer pathways for Sukuk listing, distribution and investment.

Raise awareness of UKEF’s Shariah-compliant capacity across international markets, and build commercial pipelines to unlock it.

UKEF is demand-driven, and its market risk appetite and country capacity are publicly available but underused by practitioners. Across the priority markets examined in this report, stronger industry engagement to identify Shariah-compliant infrastructure, export-linked and trade finance opportunities would help convert the remaining capacity into investable projects at scale.

These international recommendations respond to a structural shift now underway: major Muslim majority markets are placing Shariah-compliant finance at the heart of their national economic strategies.

Pakistan

Through constitutional, judicial, and central-bank mandates, Pakistan has committed to eliminating interest-based banking and transitioning its financial system toward Shariah compliant models by 2028.

United Arab Emirates (UAE)

Under a Cabinet-approved national strategy in May 2025, the UAE has positioned Islamic finance and the halal economy as core pillars of its long-term economic growth, with quantified targets for Islamic banking assets and capital-market instruments extending to 2031.

UAE also established a centralised Shariah board, referred to as the Higher Shariah Authority. This authority sits under the umbrella of the Central Bank of the UAE and regulates Shariah compliance of Islamic financial solutions including capital markets and private market solutions.

Saudi Arabia

In Saudi Arabia, the first pillar of Vision 2030 is the Kingdom’s role as the heart of the Arab and Islamic worlds, with the Financial Sector Development Program explicitly prioritising the expansion, governance, and international positioning of Islamic finance as part of national financial-sector reform.

Qatar

Qatar’s National Vision 2030 and associated financial-sector strategies identify Islamic finance as a strategic component of capital-market development and international financial positioning.

Southeast Asia

Malaysia and Indonesia both feature centralised Shariah committees and have explicit national strategies to integrate Shariah-compliant finance across banking, capital markets, and the halal economy.

Türkiye

Türkiye has adopted a more incremental approach. While the financial system remains predominantly conventional, successive governments have sought to expand ‘participation banking’ as a complementary pillar, supported by state-owned participation banks and targeted policy measures. This reflects a pragmatic model in which Islamic finance is positioned as a parallel growth segment rather than a wholesale transformation of the financial system. Turkiye’s incremental approach has also led to them building stronger relationships with Gulf states to attract Islamic liquidity from the region. Any upcoming legislative development remains an area to watch.