In the United Kingdom, Islamic finance is no longer mainly confined to London as the country’s main financial hub, but has expanded in recent years in small steps to the north, namely to Scotland. In recent times, this development even accelerated as Brexit has “cooled down” London‘s finance industry, in particular the housing financing and mortgage market, according to the Islamic Finance Council UK, a Glasgow-based a specialist body focusing on the promotion and support of the Islamic finance industry in the UK.
Islamic banking and financial services reached Scotland in various steps. In 2005, the first Islamic mortgage under Scottish law was created, followed by other commercial real estate deals facilitated by local law firms mainly using musharaka structures along with murabaha-based financing. The next big step followed in 2016, when the first Islamic bank, Birmingham-based Al-Rayan Bank – formerly the Islamic Bank of Britain until it was acquired by Qatar’s Masraf Al Rayan in 2014 – opened a branch in Glasgow to tap into the potential of the country’s reputations as a hub for ethical finance and thus address both Muslims and Non-Muslims.
The opening of Al Rayan’s Scottish branch followed a much-noticed 2015 inaugural conference in Edinburgh of the Global Ethical Finance Forum, an annual event purporting an agenda of a sustainable and inclusive financial industry and economy backed by the Scottish government and the Royal Bank of Scotland, which has since been held annually.
The year 2016 was also the founding year of Edinburgh-based Ethical Finance Hub, a lobby group for the ethical finance industry which also researches and promotes global and domestic trends in the Islamic finance market.
In addition, several educational facilities began offering Islamic finance courses, among them the University of Edinburgh, the University of Dundee in collaboration with the Al-Maktoum College Of Higher Education, as well as the Glasgow School for Business and Society. Larger law firms, including Edinburgh-based lawyers group Shepherd and Wedderburn, also evolved into important pillars for the Islamic finance industry in Scotland with regards to the sometimes complex legal structuring of deals.
The rise of Islamic finance in Scotland as an important component of an ethical finance portfolio culminated in the October 2018 Edinburgh Finance Declaration, in which the Church of Scotland and the Islamic Finance Council UK unveiled an interfaith shared values framework on ethical finance.
The declaration, the first of its kind in the world, has the aim “to co-develop ethical finance solutions open to all society, regardless of faith or ethnicity, and built upon the shared values between the two faith traditions (of Muslims and Anglicans).”
Islamic finance in Scotland is mostly used for property finance and investment solutions, although retail and business banking, as well as Shariah-compliant pension and investment products, are also on offer.
According to Omar Shaikh, advisory board member of the Islamic Finance Council UK, a growing number of large Shariah-compliant property investment deals have been completed in Scotland in recent years.
“With the London real estate market cooling, Scotland is a strong and attractive investment destination and, with expertise in both conventional and Islamic finance, it offers competitive Shariah-compliant real estate opportunities,” he said.
There were Shariah-compliant property investment deals in Scotland worth more than £250 million in the last five years, the council’s data shows.
Among them were 1 Atlantic Quay in Glasgow, a prime office building, and 1 Waterfront Avenue in Edinburgh, headquarters of Scottish Gas, which were sold to the Bank of London and the Middle East in 2018 and 2019, respectively.
Other Shariah-compliant deals were the sale of Westhill Business Park in Aberdeen, Great Western Retail Park in Glasgow and Glasgow’s iconic Sauchiehall Building, a prominent retail location in the city’s central shopping district, to investors from the Middle East.
To highlight other opportunities particularly to Middle East and Asian investors, the Islamic Finance Council UK in March 2020 published a brochure on Shariah-complaint real estate investment in Scotland.
The brochure notes that Scotland offered “competitive Shariah-compliant real estate opportunities” with returns on commercial real estate exceeding the UK average, whereby investors would benefit from ”solid infrastructure and connectivity, a strong economy, a skilled and talented workforce in financial services and a solid legal framework for investments.”
“Scotland has a highly developed financial system with access to specialist Shariah-compliant advisory,” the brochure concludes.
