The Islamic finance market was hit by the global downturn in 2009, but the UK remains the key Western hub, says International Financial Services London.

The Islamic finance market rose quickly in value in 2008, with the global market increasing by 25 per cent to reach $951 billion at the year end, IFSL estimates.

However, the sector was hit by the financial crisis as Islamic banks were exposed to real estate markets and faced difficult liquidity constraints and the sukuk market – a Shariah law-compliant form of bond – is being tested by several defaults, although it escaped being hit by a default on its Nakheel $4 billion sukuk by Dubai World after Abu Dhabi came forward with a $10 billion loan.

Growth in London’s Islamic finance market has halted to reflect this downturn: sukuk listings on the London Stock Exchange were just two last year, after three in 2008 and 12 in 2007; there were three fund launches in 2009 compared with six in 2008; no new licences to Shariah law-compliant banks were sought to add to the five established since 2004; and the one independent takaful (Islamic insurance) operator in the UK ceased to take new business in 2009, ISFL said in a press statement.

Despite this, the UK’s position as a provider remains strong, with 22 banks offering Islamic finance products – more than any other Western country – and a strong professional infrastructure in the areas of law and accounting. And as reported by WealthBriefing, the UK government last week introduced measures to support the Islamic finance market and the issuance of corporate sukuks, with the objective of increasing international competitiveness.

“The UK is the only western country to feature prominently in provision of Islamic finance and remains in eighth position with assets of $19 billion in a global ranking of Shariah-compliant assets by country,” said Duncan McKenzie, IFSL’s director of economics.