Islamic finance is moving into the mainstream. It’s experiencing remarkable growth within the UK’s financial services sector, and for compelling reasons.

It presents a secure, stable, and ethically sound alternative to conventional commercial finance. At a time when Environmental, Social, and Governance (ESG) standards are increasingly vital for businesses and regulatory bodies, Islamic finance is becoming a particularly attractive proposition.

Indeed, the term ‘Islamic Finance’ (IF) is increasingly being referred to as Ethical Finance – a label that more accurately reflects its core ethos and explains its growing appeal among both Muslim and non-Muslim businesses alike. This rising popularity is, in fact, creating a bottleneck in demand, prompting financial institutions to scramble to quickly develop products that cater to a wider range of investment levels.

So, what are the factors that make IF ethical, and therefore in demand?

IF is based on the principles of Islamic, or Sharia, law and a fundamental principle is that financial organisations have a duty to act not only in the best interests of their customers, but also of society as a whole.

It prohibits investments in industries which are deemed unethical by most reasonable standards, such as alcohol, pornography and weapons.

Transactions must be linked to an underlying trade or asset (such as property) and operate on the basis of a fixed, pre-agreed payback/profit rather than interest, which is strictly forbidden.

Islamic bank savings and current bank accounts also operate on an extremely low-risk profit-sharing basis. In IF, the short selling and speculation that caused the catastrophic financial crash and resulting social hardship of 2009, simply cannot happen.

While it complies with the principles of Sharia law, the main tenets of Islamic Finance are based on universally accepted values – so much so that the Vatican has openly praised the benefits and ethics embedded within it.

The demand for IF has placed the UK as a leader in Europe with a market value in the estimated region of $6 billion, with the current market predominantly being driven by a younger generation of Muslims keen to align their business practices with their religious beliefs – an option not previously as readily available to their parents and grandparents.

But it’s easy to see why a system that combines asset-based financial security with social responsibility is gaining traction in the broader commercial arena, particularly the real estate sector. Indeed,the UK Government is actively promoting its use as a way to attract investment in large scale regeneration projects across the country.

The historic, perceived drawbacks to Islamic Finance – the highly complex legal documentation required and its higher cost – are diminishing, due to the impact of more streamlined documentation and an increased competitiveness driven by market demand.

As one of only a handful of UK commercial lawyers specialising in Islamic finance, I am confident there is a huge untapped market for IF. As products are brought to market that cater for investments below the current average of £5 million, and as it becomes more widely accessible, I anticipate its reach extending to customers in the general residential market.

What we need now is for more UK-based mainstream banks and secondary and tertiary lenders to step forward and meet that growing demand.

Farooq Zar is a Real Estate and Islamic Finance specialist, if you would like to speak to Farooq about your options, get in touch.

This article appeared in the Yorkshire Post, June 2025 Why Islamic Finance is becoming an increasingly attractive proposition: Farooq Zar