Islamic Finance in London.

London has a lot going for it: financial experience, good infrastructure, a wealth of human capital and an array of diverse markets.

Ratings agency Standard & Poor's last year called London the "sole non-Muslim competitor" of the traditional Islamic financial centers. The agency also said that Britain's sovereign sukuk bond--when it eventually arrives--would be only the second sovereign Sharia-compliant bond worldwide to get an "AAA" rating.

But the collapse and eventual nationalization of lender Northern Rock earlier this year exposed holes in the way the British government supervises the financial sector, while the wider crunch on credit has hurt banks and tightened lending conditions. Meanwhile, Finance Minister Alistair Darling may provoke a business backlash by raising capital gains tax and proposing a fee for non-domiciled foreigners.

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