While car finance in the UK has become an established avenue for purchasing a car, the rise of fintech applications has opened car finance to a new generation of individual and business drivers.

Projected growth remains positive – according to EMR, the UK car loan market is projected to grow at a compound annual growth rate of approximately 6.4% between 2024 and 2032. In 2023 the market was estimated to be valued at US$62.48 billion (£49.81 billion). 

Part of the scale-up potential stems from the subsectors of the market to accommodate the needs and preferences of UK drivers. One primary segmentation criterion is the type of financing offered, including auto loans, hire purchases, leasing, personal loans, and dealer financing.

There is also a clear demand for a high standard of service to be delivered which goes beyond the simple provision of a car loan. It is a trend we are seeing across all industries. Customers want to see that the companies they are dealing with are guided by principles that give back to the community. The rise of ESG is an example of this. 

In the car finance market, this principle-led approach is linked to the rise of Halal car finance, whereby drivers can take on a loan which adheres to Sharia in a compliant manner. This is not a sole reflection of the car sector but of the UK finance system more generally. 

Government authorities have been actively implementing policies to make the UK an international hub for Islamic finance. The challenge is that much of this is focused on UK-based services being offered to international clients, typically for complex investment opportunities. From a domestic standpoint, Islamic finance knowledge and awareness is limited. 

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Naturally, we are led to question why this is the case. According to the 2021 UK census, 6.5% of the population identified as Muslim (notably, up from 4.9% of the population in 2011), equating to 3.5 million people.

Not all of these individuals would require Sharia-compliant finance, though it can be argued that the lack of options available means it is not sought after. However, should the options be provided, there is good reason to see a spike in demand, or at least satisfaction knowing such avenues exist. The Sharia-compliant alternative student finance plans are a good example of this, with the government reviewing how it can offer UK students access to halal loans. 

The same thinking can be applied to the car finance market and in particular to business car drivers. The provision of loans to purchase private hire vehicles (PHV) and service public carriage office (PCO) drivers is popular for drivers planning to work for companies like Uber, Bolt and Gett.

In the case of Uber, an estimated 75% of UK drivers are estimated to be Muslim. The need to provide Sharia-compliant car finance in the market seems evident, yet the availability of such services remains limited. So far, the primary approach that current providers have taken to align their offerings with customer needs involves car finance services presented as “rent to buy” and “interest-free.” When properly structured to meet Shariah standards, these can be highly valuable substitutes for conventional financing. Positively, Uber provides Sharia-compliant pension arrangements for its workers which is an important development.  

Looking to the near future, high-interest rates, inflation and subdued consumer spending mean the new car finance market is set to grow by approximately 2% in 2024. There is also the risk of growth dropping should productivity and general conditions remain the same. The ability to unlock a new market segment through Halal car finance and principal-led offerings gives more choice for UK drivers who might have previously not considered such an option. 

A core principle of fintech is democratisation, removing unnecessary intermediaries, integrating sophisticated technology for fast and improved services and ultimately empowering the end user. One could argue that in the UK, not all demographics have been able to take full advantage of fintech across either traditional banking or new finance sectors. 

The convergence of car finance, Islamic finance and fintech is an exciting prospect, empowering a new generation of prospective private and business car drivers. The UK has the population and the conditions to facilitate this convergence, ensuring that Halal car finance becomes an expanding segment of the car finance market.

Abdullo Kurbanov is the Co-Founder & CEO of Ayan Capital 

Shariah-compliant motor finance platform Ayan Capital launches in UK