The Islamic finance industry in the UK is forecast to post significant growth, as asset growth continues and conventional lenders shift to Shariah-compliant banking.

Despite being a niche, the size of the industry is poised to reach $15 billion in the medium term, up from $10 billion at the end of 2023, Fitch Ratings said in its new report.

The ratings agency expects that asset growth of Islamic banks and funds, conversion of a conventional bank to an Islamic bank and supportive regulations will boost the Islamic finance industry in the UK.

The UK continues to serve as a western hub for the Islamic finance industry, Fitch said. The country has at least four Islamic banks, all with GCC ownership. Most of the players in the industry offer wealth management and real estate financing solutions to clients in the Gulf Cooperation Council (GCC) region.

As of the end of 2023, the assets of Islamic lenders represented only 0.1% of the assets in the UK banking system. However, Islamic banks’ total assets have expanded significantly, growing by 26% year-on-year (YoY) to $8.2 billion by the end of last year.

Assets of public Islamic funds domiciled in the UK also grew 115% YoY to $1.8 billion at the end of 2023, overtaking conventional public funds’ AUM, which posted a 17.5% YoY growth to $3.4 trillion.

Fitch also noted that the London Stock Exchange is the third-largest listing venue for US dollar sukuk globally, with a global share of 35% and around $80 billion outstanding at the end of the first half of 2024.

“English Law is the governing law for most dollar sukuk and Islamic syndications globally,” Fitch said.

“UK banks are among the key sukuk arrangers, and Islamic interbank and derivatives counterparts for Islamic banks. Additionally, London Metals Exchange is accessed by Islamic banks in many countries to facilitate cash financing through tawarruq contracts.”