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How Fintech and Open Banking Could Help Boost UK Islamic Finance

Islamic finance is likely to remain a very minor player in the UK for the coming years but can fintech and open banking help boost the sector?

At the end of last year, UK-based Islamic banks held total assets of £5.7billion, representing less than
0.1 per cent of the domestic assets. Globally, UK banks hold nearly 0.5 per cent of total Islamic banking assets.

The two Sukuk issuances (the Islamic equivalent of a bond) by the UK government amount to £750million and Birmingham-based Al Rayan Bank‘s residential mortgage-backed sukuk issued £250million. There are three other Islamic banks in the UK including Bank of London and the Middle East plc, Gatehouse Bank and QIB-UK.

According to S&P Global Ratings’ latest report Islamic Finance In The UK Is Still Learning To Crawl, Islamic finance is unlikely to make significant inroads in the UK’s financial services industry over the coming few years.

The report doesn’t anticipate greater traction until the industry shows a ‘real economic added-value
compared with conventional banking solutions and beyond the compliance with Sharia principles’.

Muted performance

Dr Mohamed Damak, senior director and S&P global head of Islamic finance, told The Fintech Times: “Islamic finance is still a nascent segment in the UK. The total assets of Islamic banks in the UK contributed to less than 0.1 per cent of the UK banking assets at year-end 2021 and there were only three sukuk issuances despite the fact that the cumulative number of sukuk that were listed in the UK, over the past two decades, reached 68 sukuks (including matured transactions) for a nominal amount exceeding $50billion.”

S&P suggests this muted performance is explained by the limited economic added value offered by Islamic finance, apart from its compliance with Sharia. Yet it believes that fintech could help by unlocking some economic added value.

“Fintech could offer the possibility of simplifying the process of sukuk issuance via platforms for issuance of digital sukuk for example,” explains Damak. “It could also open the market for smaller issuers and investors, as the entry ticket on both sides remains onerous currently.

“Islamic fintech could also help by unlocking access to various saving and financing products for both retail and SMEs in a more cost-effective manner. We believe that the presence of young, tech-savvy Muslim customers could yield some growth opportunities.”

S&P reports on a few Islamic fintech entities, one of which is affiliated with a UK-based Islamic bank, with activity ranging from neo-banking to money management or crowdfunding.

Open banking

Separate research by suggests that most leading Islamic finance professionals expect the sector to move rapidly towards greater use of open banking over the next three years.

Its August 2022 study with 346 leading Islamic finance professionals identified that 90 per cent of Islamic finance professionals believe the adoption of open banking by financial institutions, governments, fintechs and other stakeholders will increase by 2025, with nearly two out of five expecting a significant rise in adoption.

Growth of open banking in this sector will partly be driven by more and better regulations and will mean greater use of fintech innovations in Islamic finance such as Waqf, Zakat and Sadaqah.

Islamic finance professionals surveyed believe that the key benefit of open banking in the industry is to meet strong customer demand and offer more choice with the ability of banks to offer more innovative products.

Other benefits include being able to manage the escalating costs of launching new digital services at scale and developing strategies to monetise customer data to generate new revenue streams. The growth of open banking will also enable institutions to meet regulatory requirements to provide higher transparency for reporting data.

“Increased adoption of open banking in Islamic finance brings a wide range of benefits to the sector and research shows Islamic finance professionals are expecting rapid developments in the sector over the next three years,” says Arsalaan Ahmed, chairman of the Global Islamic Finance Forum 2022 (GIFF2022).

“There is a clear need for more and better regulation around open banking and open finance in Islamic finance, and that is recognised by Islamic finance professionals who are expecting strong progress.”


The Association of Islamic Banking and Financial Institutions Malaysia (AIBIM), in partnership with the Central Bank of Malaysia, is hosting the Global Islamic Finance Forum 2022 (GIFF2022) on Oct 5 and 6 in Kuala Lumpur.

GIFF2022 aims to generate an active discourse on the work required to strengthen the Islamic finance’s global leadership position. Key discussions will revolve around topics such as fintech, digitalisation, open banking and embedded finance.


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