The UK’s financial services sector has changed fundamentally — and irreversibly — since the Global Financial Crisis.
It has been reshaped by the emergence of alternative finance providers with disruptive lending and investment models that have defied the status quo.
I know because, for many years, I worked at one of the country’s leading challenger banks.
But not all sectors of UK financial services have been disrupted.
One that is still very much ripe for change, and which has the potential to deliver that change on a truly national scale, is Islamic finance.
And with UK challenger banks now proactively marketing it beyond its current niche, it’s a sector that intermediaries need to get on their radars — and fast.
The concept of Shariah-compliant banking, saving, investment and property finance is currently not well understood among the intermediary community but, in all fairness, with good reason.
To date, it has been a highly niche sector with limited players that has not really promoted itself in any material way beyond specific targeted audiences and geographies. But that’s about to change.
Now’s not the time to bog readers down with the technicalities of, and principles underlying, Islamic finance — whether that’s the growing number of table-topping Shariah-compliant savings products or mortgage alternatives.
The main thing for advisers to grasp at this point is the potential scale of the market and what it could mean for them.
To start with, it’s important to debunk the myth that Shariah-compliant finance products are solely for Muslims.
In fact, a significant percentage of our own customers and clients are non-Muslim.
But in terms of the core market alone, there are roughly three million Muslims in the UK at present, which is an opportunity that cannot be ignored.
As things stand, many of these Muslims opt for high street banking, savings, investment and property finance products that aren’t compliant with their religious beliefs — and they’re usually doing so for the simple reason there is otherwise very little practical choice.
So a Muslim buying a home might finance it through a standard mortgage, which, as a financial agreement that involves the payment of interest, goes against Shariah principles.
Likewise, a Muslim saving a lump sum will often be doing so through a high street bank.
Again, as the receipt of interest is forbidden under Islamic law, they are essentially having to compromise.
The numbers of customers is likely to grow as Shariah-compliant challenger banks make them aware that there is an ‘as-good-as-the-high-street’ option after all; whether a Shariah-compliant alternative to mortgages or a savings account that pays savers a share of the bank’s profit made from ethical investments or finance (something that is acceptable).