UK Economic Secretary And City Minister Works With Industry To Improve Access To Retail Islamic Finance Products

Economic Secretary and City Minister Kitty Ussher today chaired the second meeting of the Islamic Finance Experts Group, which focused on how to improve access to and awareness of retail Islamic finance products.

The Islamic Finance Experts Group (IFEG) acts as an industry sounding board for HM Treasury and the Financial Services Authority (FSA) on Islamic finance.

Speaking after the meeting, Kitty Ussher said:

"The UK is at the forefront of developments in Islamic finance and London continues to seize new opportunities. We have made tremendous inroads in the wholesale markets, where it is estimated that the market is worth more than £250 billion worldwide and growing at 15 percent a year.

"But there is also an important domestic market which we want to be accessible and open. There are nearly two million Muslims living in the UK and, thanks in part to legislative changes introduced by this Government, the Islamic mortgage market is now worth over £500 million. Going forward, the Government and industry want to continue to do all we can to see the retail market flourish and ensure that everyone - regardless of faith - has equal access to competitive financial products."

The Government's aims for Islamic finance are:

• to continue the growth of the global wholesale Islamic finance market in the UK, as part of the city competitiveness agenda being pursued by the Chancellor's High-Level Group on City Competitiveness; and
• to create a level playing field in alternative finance and investments, such as Islamic finance, in the retail market.

Presentations on the takaful (Islamic insurance) market were followed by a detailed discussion on the issues which seem to be preventing further growth in the Islamic finance retail market. This covered:

• better marketing of products;
• the need to ensure that Islamic Finance products are competitively priced; and
• the role of Sharia'a standardisation in building consumer confidence in the Islamic retail market.

A presentation on National Savings & Investments' examination of the feasibility of the Government becoming an issuer of retail Islamic financial products was made to the Group. NS&I will report on this in Spring 2008.

These and other issues will be discussed in more depth at the next IFEG meeting, to be held in 2008. The Treasury, the FSA and HM Revenue & Customs will take forward the retail Islamic Finance products agenda and continue strong and beneficial dialogue with the industry.

Background

1. The UK's Muslim population is in the region of two million people and fully sharia'a compliant banks have more than 30,000 customers across the UK. Across the UK as a whole the industry is beginning to see more innovation in retail Islamic products as diverse as Child Trust Funds, sharia'a compliant business loans, and takaful insurance.

2. Increased availability of these types of financial products is vital to ensuring the Muslim community in Britain has equal access to business opportunities. Banks such as Lloyds TSB, Royal Bank of Scotland, and HSBC are all offering sharia'a compliant products, and London is also the home to a number of fully sharia'a compliant retail banks. Since 2003 the Islamic mortgage market has grown to over half a billion pounds - an increase of about 50 per cent in the last year alone.

3. The Chancellor announced in Budget 2006 a commitment to work with the financial sector to establish a High-Level Group, with senior representatives from across the financial sector, to develop and support a new strategy to promote London as the leading international financial centre. The Islamic Finance Experts Group was established as a result. This was its second meeting; the last was chaired by Kitty Ussher in August 2007. A high-level summit on Islamic finance was chaired by Ed Balls, the then Economic Secretary to the Treasury in April 2007.

4. Membership of the Islamic Finance Experts Group is as follows:

5. Government measures introduced to promote Islamic finance this year are:

• Budget 2007 introduced new measures for sukuk, enabling them to be issued, held and traded in the same way as corporate bonds. This is expected to increase primary issuance in the UK, and there is also a growing secondary sukuk market in London.
• HMRC issued guidance alongside Budget 2007 on the treatment of musharaka, a common structure used for Islamic mortgages, and takaful products, to provide more clarity and encourage growth in these markets.
• On 6 April 2007 the FSA introduced new protections in the housing market for consumers wanting to buy their homes in a way that complies with sharia'a law through a Home Purchase Plan (HPP).
• UK Trade and Investment will continue to promote the UK as a gateway for Islamic Finance, as part of a wider strategy on promoting London and the UK as an international financial centre.