FSA reports steady growth for UK Islamic Mortgages

In a recnt report, published by the Financial Services Authority (FSA) - 'Islamic finance in the UK - regulation and challenges'; it shows that since 2003, the Islamic mortgage market has grown to over half a billion pounds and has witnessed an increase of about 50 per cent in the last year alone.. The FSA believes there is potential for the market to grow as more financial inistuations offer a wider variety of Shariah-compliant products.

The FSA believe that this modest growth can be attributed to two main factors:

• Demand may originally have been overestimated by some financial commentators
• The Muslim community is not a uniform group in terms of relative affluence; (expectations may have been over estimated)

Retail market

The retail market has largely concentrated on providing mortgage and savings.  Products for retail consumers and growth have been modest. The tax and regulatory developments have benefited the market and there are signs of firms expanding their product ranges through providing new saving and investment products.  Interest-free student overdrafts have recently emerged and there seems to be demand for new products targeted at the personal finance and the small and medium-size enterprise (SME) markets.

Wholesale market

Currently, the wholesale Islamic finance activities are offered by the 25 or so firms active primarily in London, including two wholly Islamic banks, range from traditional banking activities and project and trade financing to structured products, asset management and private banking. The report says that the number of firms involved is growing.

Government advisor group

The FSA now has good and growing links with the industry, other regulators and Islamic working groups in international organisations. It is also a participant in the recently established HM Treasury 'Islamic Finance Experts Group' (IFEG)    The Government also announced that the Debt Management Office and HM Treasury would carry out a feasibility study into opportunities for the Government issuing Islamic financial instruments in the wholesale sterling markets, in consulation with the IFEG. 

The future

The report concludes that there is scope to expand the market for Islamic products and services to non-Muslims as well as Muslims. 'The market is not confined to a particular group of consumers and Islamic finance providers can position their products to appeal more to the much larger non-Muslim population. Their success in doing so will in part depend on the ability to demonstrate how the products are underpinned by generally accepted ethical principles'.

Reference:
FSA - www.fsa.gov.uk/pubs/other/islamic_finance.pdf