In today’s purpose-led finance landscape, more businesses are seeking alternatives that align with their ethical values. One of the fastest-growing segments globally, Islamic finance offers a model rooted in fairness, transparency and shared risk.
How Islamic finance works
Islamic finance products — available to both Muslims and non-Muslims — provide a route for funding real estate transactions, including purchasing, refinancing and bridging loans, without relying on interest.
The core principle is that money itself has no intrinsic value. Wealth is only generated by converting money into an asset, and interest (riba) is prohibited. Instead, Islamic finance is based on legitimate trade, avoiding speculative practices.
Ethical responsibilities
This ethical foundation excludes involvement in sectors such as alcohol, gambling, tobacco and arms. There is also an overarching duty for Islamic finance providers to act in the best interests of customers and wider society, reinforcing its appeal to values-led businesses.
While Islamic finance remains largely limited to real estate backed finance, it is commonly used by investors to purchase income-generating property, with rental income repaid as profit. However, SMEs seeking an overdraft or finance on owner-occupied trading premises may find it less accessible, as overdrafts are interest-based and therefore incompatible with Sharia law. As such, Islamic finance is not widely available to SMEs unless they opt for tertiary or bridging finance.
Islamic finance in the UK
Although high-street lenders typically do not offer Islamic finance products, specialist UK banks such as Al Rayan, Gatehouse, Qatar Islamic Bank and National Bank of Kuwait (International) Plc provide viable options, along with bridging finance providers like Offa and Nesta.
Loan facility fees have become much more competitive in recent years, but legal fees can still be higher than in conventional finance. This is because Islamic banks require their own independent legal representation, meaning customers often cover fees on both sides – unlike conventional lenders, who commonly operate on a dual-representation basis.
Despite some limitations, Islamic finance continues to gain traction as a fast-growing, ethical solution for businesses looking to finance growth while staying aligned with their principles.