Amid the United Kingdom’s ongoing search for pathways to sustainable, inclusive economic expansion, a new analysis from leading British think tank Equi has uncovered under-tapped potential in the country’s fast-growing Islamic finance sector, which the research values at an estimated £6 billion and projects could deliver up to £2.5 billion in annual economic benefits for the UK if supported by targeted policy action.
Islamic finance, a framework of financial activities aligned with Islamic moral and legal principles, centers on two core rules: a total ban on interest-based transactions, and prohibitions on investment in sectors deemed unethical, including gambling, alcohol, adult entertainment, and arms manufacturing. Beyond its faith-based foundations, the new report highlights that the sector already occupies a dominant position in Europe, controlling no less than 85% of all regional Islamic finance assets — a standing built largely on longstanding investment ties with Gulf nations.
The research notes that Islamic finance channels have already facilitated billions in Gulf investment into high-profile UK infrastructure and real estate projects, including iconic London landmarks such as the Shard and the redeveloped Battersea Power Station. Islamic banks have also played a key role in directing foreign capital from Gulf investors into UK residential construction, as London remains one of the most attractive global destinations for cross-border real estate investment. Currently, all five fully licensed Islamic banks operating in the UK count Gulf-based shareholders and primarily serve high-net-worth clients from the region, but emerging data shows a rapidly expanding domestic market that is shifting this dynamic.
Between 2020 and 2025, the number of retail Islamic banking customers in the UK grew at an annual rate of 20%, signaling strong untapped domestic demand that extends far beyond Britain’s Muslim community. The report’s consumer surveys bear this out: 64% of British Muslims report preferring Islamic finance products to conventional alternatives, and just over half currently hold an active Islamic bank account. More surprisingly, 30% of non-Muslim consumers said they would be willing to switch to Shariah-compliant financial products if services matched the quality and accessibility of conventional offerings. This trend is not new: in 2013, 87% of customers who opened fixed-term deposit accounts at Al Rayan, one of the UK’s largest Islamic banks, were non-Muslim.
The report also finds that demand from British Muslim consumers is a major driver of growth in ethical and green finance across the UK. Seventy-two percent of British Muslims report awareness of green finance products, compared to just 42% of non-Muslims, and Muslim consumers are 20% more likely to actively use green financial instruments than their non-Muslim counterparts.
Despite these promising metrics, the research identifies key structural barriers that are holding the sector back from reaching its full potential. The current focus on serving wealthy Gulf clients means banks are not leveraging the sector’s full capacity to drive broad-based economic growth across the UK, the report argues. Additionally, British Muslim communities and organizations face widespread financial exclusion: an alarming 42% of British Muslim charitable organizations have reported having their bank accounts abruptly withdrawn without explanation, a practice known as debanking. The report also points out that faith-related financial access is not mentioned at all in the UK’s national Financial Inclusion Strategy, a gap the authors call a “significant oversight.”
To unlock the sector’s full economic value, Equi’s report makes two key policy recommendations to the UK government. First, it calls for the establishment of a dedicated, bespoke Islamic Finance Unit, which would coordinate cross-government efforts to support sector growth, expand access to Shariah-compliant products, and ensure the industry contributes to national goals of broad-based economic growth and improved financial inclusion. Second, the report advocates for launching a sovereign Sukuk (Shariah-compliant bond) program, with specific issuances earmarked for sustainable infrastructure projects to strengthen the UK’s global standing in Islamic finance and help the country meet its legally binding net-zero carbon commitments.
Naz Shah, Labour Member of Parliament and chair of the All-Party Parliamentary Group on Islamic and Ethical Finance, backed the report’s findings, noting that as policymakers prioritize driving sustainable growth, raising productivity, and expanding economic opportunity, the research makes a strong case for re-framing Islamic finance. Instead of being treated as a niche, marginal offering, Shah said, it should be recognized as a significant, underutilized asset for the UK’s long-term economic future.
Javed Khan, managing director of Equi, emphasized that Islamic finance represents a major, overlooked economic opportunity for the UK at a time of sluggish growth. “At a time when the UK is searching for sustainable growth, this is about unlocking billions in investment, supporting innovation and ensuring our financial system works for everyone,” Khan said. He added that with the right policy support, the UK has the opportunity to solidify its position as the global capital of Islamic finance, driving economic growth, boosting productivity, and reinforcing the country’s standing as a world-leading international financial center.