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Islamic Banking Development in the UK. By Wseem Al -Taher.


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Islamic Banking Development in the UK …

Islamic Banking Development in the UK
(Are UK Banks Committed?)

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  • 1. 1 | P a g eIslamic Banking Development in the UK(Are UK Banks Committed?)Waseem Zouhair Al-TaherA dissertation submitted in partial fulfilment of therequirements of The University of Salford for the degree ofMSc. International Banking & Finance.Salford Business SchoolMay 2010
  • 2. 2 | P a g eDECLARATIONI declare that this dissertation is all my own work and all the sources of information and matter Ihave used for this dissertation have been fully identified, fully referenced and properlyacknowledged according to the University of Salford guideline provided in the CourseHandbook.
  • 3. 3 | P a g eAbstractIslamic finance has become increasingly significant in financial centres in the West, particularlythe United Kingdom. This study aims to provide an analytical framework for Islamic banking inthe United Kingdom from a marketing perspective in order to investigate the real situation of themarket for Islamic finance in the UK. Also, one of its objectives is to raise the issue of theimportance of Shariah scholars in this industry. A case study of the Islamic Bank of Britain(IBB), the first retail Islamic bank to operate in the UK in the 21stKeywords: Islamic banking, Islamic finance, Shariah, Shariah scholars, marketing, Islamicbanking growth in the United Kingdom.century, has been employed toevaluate whether this industry is growing in size in the UK or not. In addition to this, a sample of159 UK university students was surveyed utilising a short questionnaire containing generalquestions intended to give an overall idea of the extent to which Islamic banking is known in theUK. Also, some questions in this survey related to the willingness of the respondents to deal withIslamic banks and to their opinions of the need for an ethical alternative to the current bankingsystem. In this study, it has been found that, in the United Kingdom, the industry of Islamicbanking is not growing on retail bases. Also, it has been found that there is a lack of awarenessof Islamic banking in the UK. The analysis tools of variance and Chi-Square test are used in thisstudy; the results showed that there is a significant relationship between seeing an advertisementand the willingness to open an account in an Islamic bank; also, the majority of the respondentsdeemed that the current banking system needs to be more ethical. In addition, it has been foundthat, relatively speaking, there is no negative attitude toward Islamic banking in the UnitedKingdom. Finally, there is an urgent need for an aggressive marketing strategy, improvedcustomer service and training, and an improved image of this industry in the United Kingdom.
  • 4. 4 | P a g eAcknowledgementsFirst of all, I am extremely thankful to Almighty Allah, who has empowered and helped me toachieve my missions in life.I owe a heavy intellectual debt to, my supervisor, Dr. Mike Coulburn, for his valued guidance,encouragement, supervision and support, who has taught me how to be critical and investigative.Without his kind supervision, I would never have had the chance to complete my research.My heartfelt gratitude also goes out to Dr. Faiza Zitouni, for her great guidelines and support thatenabled me to work efficiently.And never enough thanks to my great and wonderful Mom, Omayma Abdulkalek, for herprecious lifelong efforts, support and her prayers to bring me to this stage.Thanks Mom!I am proud to dedicate my research to my beloved great Dad, Zuhair Al-Taher who always wantsme to be the best. Also, I will not forget you, my beloved anti Salma & Ebethaj.Many thanks also to the most beautiful sister in the world Dima. Big thank to my big brotherMustafa and congratulation for his engagement. And thank you my brilliant little brother Fares.I owe my deepest gratitude and thankful to Nadif Barghouti, for his invaluable assistance who isresponsible for the successful completion of my study in the UK. Also, many thanks, to mywonderful cousin Hala and her beautiful twins, Basel and Tamer.Also, it would have been next to impossible to write this dissertation without Omar Bargouti helpand support.Thank you so much to my dearest friend Tarifa. Also, many thanks, to Wafa and Osama Skafi.Special thanks also go out to, Mohammad Shipli, Khaled Asi, Zaher Hamwi, MuhammadBataineh, Muhammad Albiek Bader, Almamri, big thank to my house mate, Muntasir Aladwan.Finally, I cannot leave Manchester without say thank you to my beautiful teacher, Lisa Whither.
  • 5. 5 | P a g eContentsDeclaration .................................................................................................................2Abstract ......................................................................................................................3Acknowledgments......................................................................................................4List of Tables and Figures...........................................................................................51 Introduction.............................................................................................................................81.1 Statement of the Problem.................................................................................................101.2 Aim of the Study.............................................................................................................121.3 Objectives of the Study...................................................................................................122 The concept of Islamic Finance.............................................................................................133 The birth of modern Islamic banking ...................................................................................154 Ethics of the Islamic Financial System.................................................................................164.14.2 TheBan on Riba (interest or usury)................................................................................174.3Ban on Al-Gharar (Uncertainty).......................................................................184.4The Ban on Al-Qimar (Gambling) and Al-Maysir (Unearned Income)...................194.5Right to Equal Information.....................................................................................194.6Freedom from Price Control and Manipulation......................................................195 The main instruments of Islamic finance..............................................................................21Risk-sharing and profit-sharing...............................................................................205.15.2Murabaha (Cost-plus sale)......................................................................................215.3 Mudaraba (profit sharing)........................................................................................23Ijarah (Leasing).................................................................................................…..225.4 Musharaka (partnership financing)..........................................................................235.5 Istinaa (Commissioned Manufacture).....................................................................246 The role of Sharia scholars in ruining the modern industry of Islamic finance...................257 Overview of the UK Financial System.................................................................................288 Islamic banking in the United Kingdom..............................................................................309 The case study of the Islamic Bank of Britain plc (IBB).....................................................349.1 Overview of the Islamic Bank of Britain plc (IBB)................................................349.2 The number of branches ..........................................................................................359.3 The image and customer service.............................................................................369.4 IBB Islamic products..............................................................................................389.5 The number of employees.......................................................................................409.6 The assets................................................................................................................419.7 Ownership equity....................................................................................................429.8 Market Value..........................................................................................................439.9 Turnover (revenue).................................................................................................43
  • 6. 6 | P a g e9.10 Number of customers and deposits..........................................................449.11 Review.......................................................................................................4510 Research methodology ................................................................................................4710.1 The Literature review..................................................................................4710.2 Case study..................................................................................................4810.3 Questionnaire.............................................................................................4910.4 Data collection...........................................................................................4911 Results and discussion………………………………………………………….…...5112 Conclusion……………………………………………………….….........................5613 List of References.......................................................................................................5814 Appendix 1: Islamic banking questionnaire…………………………………….......6815 Appendix 2: Frequency Tables………………………………………….…...….......7015.1 Appendix 2.1: Crosstabulation and chi-square test ...........................................75
  • 7. 7 | P a g eList of tablesTable 1: Top countries by value of Shariah compliant assets $bn, 2008……………………….........32Table 2: The Average number of employees and their wages and salaries in £ million at IBB for the fiscalyears 2004-2008....................................................................................................................................40Table 3: Property and equipment, and total assets at IBB for the end of years 2004 to 2008 in £…...41Table 4: Ownership equity after all adjustments, and retained profit & losses account at IBB for the end ofsecond fiscal year 2004 to 2008 in ………………………………………………………….….….…42Table 5: Share price, market value, and number of shares at IBB for the end of second fiscal year 2004 to2008 in unmodified £………………………………………………………………………….….….. 43Table 6: Revenues at IBB for the end of second fiscal year 2004 to 2008 in unmodified £……....… 43Table 7: Number of customers, and total deposits in £, and (calculated) average deposits per customer £,for the period 2004 to 2008……………………………………………………………………….…..44Table 8: Frequency Table ....................................................................................................................50Table 9: Have you seen any advertisement Islamic banking products in the UK................................52Table 10: Do you think that the word Islamic in "Islamic banking" would has a negative impact on thegrowth of this industry.........................................................................................................................54Word count: 12932 words.
  • 8. 8 | P a g e1. IntroductionWith the growing importance of Islamic finance around the world, due to the movement ofIslamic banking it has become more desirable, and enjoys wide interest in the west, particularlyin the United Kingdom.The global market for the Islamic finance industry has grown by 10 -15 percent per year and thetrend is expected to continue (FSA, 2007). Also, the global assets of this industry are in excess of$1Trillion according to Ismail (2006), while some published reports expect this industry to reachUS$4 trillion in the next five years (Zawya, 2010).While, the assets growth in the top 1000 World Banks slumped in 2008 to 6.8% from 21.6% in2009, the top 500 Sharia compliant assets achieved an extremely strong growth rate of 28.6%,rising from US$639 in 2008 to US$822 billion in 2009 (The Banker, 2008).At the present time, there are more than 300 Islamic financial institutions in over 51 countriesoffering Islamic finance compliant with Islamic principles and Sharia law (IMF, 2007). There area further 191 conventional banks around the world that have a Sharia window (The Banker,2008) which implies that Islamic finance is not restricted to Arab or Islamic countries.Despite the fact, that the Islamic form of finance has a centuries-old history (Iqbal & Llewellyn,2002) the idea of modern Islamic banking and finance is still young, and represents only 1percent of global banking assets (Financial Times, 2007).Although, the market of Islamic finance is currently most developed in Arab and Muslimcountries such as Malaysia, Iran, and the Gulf Co-operation Council (GCC) (IFSL Research,2009), this industry is expanding and thriving in other countries where Muslims are a minority,such as the United Kingdom, Japan, and Europe (Buchanan & Solanki, 2009). In addition, arecent study by Wilson (2007) states that many major European banks perceive it as analternative opportunity to create new business, rather than as a threat to existing business.
  • 9. 9 | P a g eHowever, outside the Muslim world, particularly in the UK, Islamic finance is seen as a goodbusiness opportunity that will add diversity to an already highly mature financial sector(Financial Times, 2009). It is not surprising that London is leading the race to be both thewestern and the world centre of Islamic finance, since it has the most expert bankers, the mostadvanced regulation, and a government that remains committed to the sector on both financialand social groundsHowever, despite this remarkably supportive environment for Islamic finance in the UK, thisindustry has been facing many challenges since its origin.(Oakley, 2009). These factors will provide a favourable environment forinvestment opportunity in Islamic finance within the UK; it will also encourage both new Islamicand conventional banks to set up operations in the UK, which will help to establish this youngand promising industry in the western world.From my point of view, the instruments of this industry are still relatively unknown to Muslimsand non-Muslims alike; one of the most vital challenges to face Islamic finance recently is howto catch the attention of both Muslim and non-Muslim people in the UK, in order to enhance anddevelop this industry.Marketing is very important to developing and strengthening any industry. Thus, as Islamicbanking and its products are growing in the UK it is necessary to focus on its marketdevelopment, or, in other words, to adopt a clear marketing strategy.Dixon (1992) has stated that “the west has failed to adopt a positive attitude towards the needs ofIslamic banks”. In general, attitude is an important problem facing the development of Islamicbanking system in the West.Attitude can be defined as “the way people think, feel, and act toward some aspect of theirenvironment” (Hawkins et al., 2004, p.413).This negative attitude not only in the west, but it also among some Muslims can be proven by arecent study carried out by Karbhari et al. (2004, p.528) that found that most potential customersof Islamic banks, whether in non-Islamic countries or Islamic countries, either tend to beunaware of them or try to avoid them.There are many reasons for such attitudes; one of the most important reasons is that the idea ofIslamic banking is relatively new and many are unaware of its advantages. In addition, people
  • 10. 10 | P a g e(Muslims or non-Muslims) in the industrialised world are accustomed to dealing with highlyexperienced conventional banks and are not yet ready to take the risk of using a new financialsystem (Karbhari et al., 2004, p.528).Relatively speaking, the British community is well known as an ethical community. And sinceIslamic banking is all about ethical banking (ISRA, 2008), one of the objectives of this study isto remove the dust of this side, because at the end of the day many investors are looking at theethical side of finance (ISRA, 2008). However, this dust will not be removed as long as themajority of people are still unaware of this industry, which clarifies why a heavy marketingstrategy is a vital issue for Islamic finance and its banks.1.1Statement of the ProblemOver the last three decades there a considerable number of theoretical studies on Islamic bankingand finance have focused on Islamic concepts, modes, and mechanisms, as well as on thechallenges and opportunities that are facing this industry. However, only a few studies have paidattention to the marketing side of it. Thus it seems there is gap in this area of Islamic finance.Many studies have stated that Islamic finance is growing sharply around the globe, and in thewest, particularly in the United Kingdom. The UK has witnessed a significant part of this growthwith many high street banks offering financial products based on Islamic interest-free models,such as HSBC, Barclays, Lloyds TSB, and a number of fully Islamic banks and financialinstitutions, such as the Islamic Bank of Britain.Also, when Prime Minister Gordon Brown was the Chancellor of the Exchequer he declared thathe wanted to make the UK a centre for Islamic investment (BBC, 2006). Brown also said,“Entrepreneurial vibrancy and dynamism of Britains Muslims, combined with Britainsopenness to the world and the historic ties with Muslim countries that makes the ambition tomake Britain the gateway to Islamic finance and trade a realistic and realisable ambition"(Fontanella, 2006).
  • 11. 11 | P a g eThus, what has been stated above in addition to the important support and regulatory reforms ofthe UK financial regulatory body, represented by the Financial Service Authority (FSA), it seemsthat the Islamic financial industry is thriving and wide spread in the UK.In fact, this industry could be thriving in the UK and a significant number of specialists,financial legislators, and academics who are involves in this field are well aware of thispromising industry; but from my point of view, a significant part of this problem is that neitherIslamic finance nor its products are yet widely known among the public, and few know muchabout it.Another part of the problem is that Islamic finance is a hot topic in the media. Despite theoverall growth, the penetration on the Islamic retail side has been very modest, and it is still rareto see any promotions or advertisements for any Islamic products in the UK; such promotionswould draw attention to this industry and its retail base, which would create the widest possibleacceptance and distribution of its retail products among ordinary UK Muslims and non-Muslims.Thus, one purpose of this research is to raise awareness of the importance of promotions andadvertisements, and to pay more attention to the image of this industry in order to enhance thegrowth of the existing Islamic banks in term of size and profits.
  • 12. 12 | P a g e1.2 Aim of the StudyVarious studies over the past two decades have shown that Islamic banking is growing in theUK. However, despite the fact that many Islamic financial products are available in the UK froma number of High Street banks and several new fully Islamic banks, the majority of people areunaware of these products. This indicates that an aggressive marketing campaign is needed.Thus, the main aim of this study is to present an analytical framework for Islamic banking in theUnited Kingdom from a marketing prospective.1.3Objectives of the StudyWhile there seems to be a general consensus in the world economy that Islamic banking hasbecome a reality that cannot be ignored (Chung, 2008, p.157), very little progress has been madein marketing Islamic bankingThus, the first objective of this study is to identify the principles and the main instruments ofIslamic banking; it will particularly focus on Islamic banking products that have been offered inthe UK because an in-depth understanding of these will facilitate marketing.The second objective is to explain why marketing Islamic financial service is a vital issue in theUK.The third objective is to raise awareness of the importance of promotions and advertisements forUK Islamic banks.The fourth objective of this research is to arrive at a better understanding of the market forIslamic finance in the UK.And the last objective is to evaluate the growth of the first purely retail Islamic bank in theUnited Kingdom in the 21stcentury in order to determine whether this industry is really growingin the UK or not.
  • 13. 13 | P a g e2. The concept of Islamic FinanceIslamic finance is a financial system like any other financial system, but it is based on Sharia(The Islamic law), which is derived from two main sources; the Quran, the Holy book ofMuslims and the Sunnah which is the way of life, based on the teachings and practices ofProphet Muhammad (peace upon him). At this point, it important to mention that the life of theProphet has been more extensively documented than any other human being in history; hiscompanions meticulously recorded his every spoken word, action, and instruction (Ayub, 2007),in addition to “al Fatwa’s”, which are the rulings of Islamic scholars.The major principle of Islamic finance is the prohibition of giving or receiving interest earningsor usury (Arabic term: riba) (Iqbal, 2001), since earning profit from an exchange of money formoney is considered immoral in Islam (Sufian, et al., 2008, p.2). However, this prohibition is notto be confused with a rate of return or profit on capital, as earnings a profit is encouraged inIslam. It should be noticed that Islam linked the return with productivity in order to ensure amore equitable distribution of wealth (El Qorchi, 2005).However, in addition to the major prohibition of Riba, Islamic finance has a number of normsand principles to govern the rights and obligations of parties to the contracts: “Principlesenunciating justice, mutual help, free consent and honesty on the part of the parties to a contract,avoiding fraud, misrepresentation and misstatement of facts and negation of injustice orexploitation provide ground for valid contracts” (Ayub, 2007, p. 64).However, Islamic finance has been defined differently by different economists and scholars.According to Ayub (2007), “Islamic economics is the knowledge of application of injunctionsand rules of shari’ah that stop injustices in the acquisition and disposition of material resourcesin order to provide satisfaction to individuals and enable them to perform their obligations toAllah and society.”Thus, the Islamic financial system seeks to provide socio-economic justice and equitabledistribution of income and wealth, as well as stability in the value of money to enable the
  • 14. 14 | P a g emedium of exchange to be a reliable unit of account (Association of Islamic Banking InstitutionsMalaysia, n.d.).It is important to note that the Islamic financial system deals with issues such as how to create,distribute, own, and enhance wealth and how to spend it for the benefit of individuals, as well associeties. Hence, it encourages the distribution of wealth between individuals in order to promotethe welfare of the whole society by forbidding the accumulation of wealth in a few hands. Thisimplies that the concept of fair-trade, as it exists in the 21stAt this juncture, an important point should not be forgotten, which is that the structure of theIslamic financial system under the umbrella of Sharia law applies to all Muslims and non-Muslims.century, has been at the core ofIslamic economics for fourteen centuries.
  • 15. 15 | P a g e3. The birth of modern Islamic bankingIslamic finance is old as well as new. It is as old as the religion of Islam itself, which has existedfor more than fourteen centuries, and it is new, because the new form, or modern Islamic financeand its products, have existed for only four decades (Bakar, 2006).The first modern institutions offering Islamic financial services emerged in 1963 in Egypt underthe cover of profit-sharing,Since then, Islamic banking has spread to a large number of Arab and Muslim countries such asMalaysia, Iran, Sudan, and Pakistan; also, many Islamic financial institutions have developed incountries where Muslims are a minority, such as the United Kingdom.without projecting an Islamic image due to political issues; thisexperiment lasted until l967 (Ariff, 1988). However, the actual movement of the modern Islamicbanking and financial system started in the seventies, with the revolution of the oil industry inthe GCC countries. At this time a number of Islamic banks came into existence, such as theDubai Islamic bank and the Jeddah-based Islamic development bank in 1975 (Ayub, 2007, p.15).However, the first attempt to establish Islamic banking in the west was in Luxemburg in 1978,which is now called Islamic Finance House. There is also an Islamic Bank International ofDenmark, in Copenhagen and the Islamic Investment Company, which has been set up inMelbourne, Australia (Ariff, 1988).At the end of the 20thcentury and with the beginning of the 21 century different Islamic bankingmodels have arisen, ranging from wholly Islamic institutions, Islamic subsidiaries ofconventional banking groups, and Islamic banking windows within conventional banks such asHSBC Amanah (HSBC Amanah, 2009).
  • 16. 16 | P a g e4. Ethics of the Islamic Financial SystemIn general, Islamic economics does not accept a profit when doing so would cause harm to othersor when the gain is not matched by real work; also, Islam strongly rejects an economy based onusury and taking money from people wrongly. Prophet Muhammad (peace upon him) said, “thebest profits for the sale of the work of the man with his hand".Hine (2008), head of responsible investment development at Ethical Investment ResearchServices, argues that the current financial crisis is a direct result of people not investing ethically.In relation to this, banks are the main source of money in the economy. In addition, banks havean important role in creating money and providing jobs; also, banks protect the stability of thefinancial system. This implies that the financial systems have a socio-economic responsibility.Thus, it should be noted here, that the fundamental features of Islamic economics and finance issocio-economic and distributing justice (Ayub, 2007, p. 12).Relatively speaking, most business actions, choices, decisions, and judgments have ethicalaspects (Sternberg, 2000, p.16); hence, it seems that ethics is a vital issue in businesses andfinance.Thus, it is important to consider the ethics of the most controversial financial system in recenttimes, which is the Islamic financial system; this is because it is based on ethics as well as onefficiency (profitability) (Siddiqi & Adress, 2001, p.1).Islam is not merely a religion; it provides for Muslims and non-Muslims a complete code ofconduct for all areas of human existence: individual and social, material and moral, economicand political, legal and cultural, national and international (Pervez, 1990, p.259). This indicatesthat Islamic economics and finance has a comprehensive system of ethics and morals.However, from a marketing point of view, in order to market a new product, it is important to puta bright face on it; thus, in order to market Islamic finance in the west it very important toexplain some major norms and practices of Sharia-compliant finance, or the ethics of Islamicfinance.
  • 17. 17 | P a g eThe ban of interest or Riba is the major principle of Islamic finance in general and in Islamicbanking in particular. Hence, giving or receiving interest (usury) is forbidden in Islam.4.1 Ban on Riba (interest or usury)Basically, Islam is based on justice and mercy; thus, the exploitation of people’s need for moneyto satisfy their basic needs or on humanitarian grounds, such as eating or living, by asking themto repay an extra amount of money when they are given the money, is kind of injustice since inIslam people should help each other without waiting for an award. On the other hand, whenpeople borrow money for trade, the lender should share their profit with them, as well as the riskof loss; this is known as profit-loss sharing (PLS).Some argue that, sharing the profit with the lender is an injustice from the borrower’s point ofview; in contrast what in the case of loss, how the borrower will pay off the money. Thus asIslam is encouraging justice and has to pay attention to ensuring a more equitable distribution ofwealth, it has banned charging interest and replaced it with a profit-loss sharing through someIslamic instruments such as Murabaha and Musharaka concepts, which will be explained later.There are many verses in the Holy Quran in reference to Riba; one of them is as follows:“Those who devour riba will not stand except stands as one whom the evil one by his touch hathdriven to madness. That is because they say: “Trade is like riba,” But God hath permitted tradeand forbidden riba. Those who after receiving direction from their lord, desist, shall bepardoned for their past; their case is for God [to judge]; But those who repeat (the offense) arecompanions of the fire: They will abide therein [for ever]” (The Holy Quran, 2:275)However, in the context of banking and financial intermediation, “loans are funded by poolingtogether the savings of the depositors. The reason for injustice from the perspective of thedepositors as lenders is that when loans are made with their money into highly profitableinvestments, the depositor only receives a small share as interest payment, while the borrowerwho has utilized the money retains an unfair proportion, and is able to extract further value byreducing tax liabilities by writing off interest payments” (Bokhari, 2003).
  • 18. 18 | P a g eThus, in the Islamic financial system, the profit-loss sharing principle is fair for both depositorsand investors because the profits are shared by the depositors in the bank, as well as the users ofthe funds.On the other hand, according to Pervez (1990, p. 264), some argue that the nominal interest rateis justified as it is a fair compensation for inflation; otherwise, the value of money declines overtime. In fact, it is impossible to accurately predict an inflation rate for a reasonable subsequentperiod of time, and there is much involved in charging interest than compensation for theinflation rate alone. Thus, if this is true, why have the prices of goods and property increasedmuch more than is compensated for by the interest rate?Also according to Pervez (1990, p. 264), the role of the interest rate in compensating for inflationand the reduced value of money, has a disadvantageous effect on both the depositors and society,because it has a positive effect on the investors by increasing their wealth at the expense of thedepositors.4.2 TheAll banks try to avoid or minimise the element of uncertainty through their risk managementtools. These tools are well established in Islamic principles through what known as al Gharar oruncertainty (Al-Saati, 2003, p. 3).Ban on Al-Gharar (Uncertainty)Gharar is an element of deception, either because of ignorance, regarding the status of the goods,the price, or the condition of the goods, which is not consistent with the initial description of thegoods. In this case one or both parties stand to be deceived through ignorance of an essentialelement of exchange (Alielgari, 2003, p.12).However, Islam prohibits all forms of Al-Gharar or uncertainty, unless all of the terms andconditions of the risk are clearly understood by all parties (Lewis, 2007, p.3).
  • 19. 19 | P a g eIslam prohibits gains made from games of chance and unearned income (al-maysir), such as theplaying the lottery, or gambling (al-qimar) (Obaidullah, 2005, p.11). Since these games involve ahigh degree of risk and uncertainty, they are prohibited in Islam because it is very difficult if notimpossible to properly assess them based on the available information. In addition, they causeenmity and hatred in the society (Al-Saati, 2003, p.8).4.3 The Ban on Al-Qimar (Gambling) and Al-Maysir (UnearnedIncome)Islam attaches great importance to the role of information in the market. Banks and financialinstitutions try to avoid asymmetric information, which exists when one person knows more thananother (Shefrin & Statman, 1992, p.8).4.4 Right to Equal InformationIn Islam, releasing inaccurate information or hiding some information on purpose is forbidden;also, Islamic scholars state that a transaction must be free from jahalah, or misrepresentation, tobe considered Islamic (Obaidullah, n.d).Fair trade organisations argue that the present global system of ‘free’ trade is characterised byinjustice and exploitation as rich countries often subsidise their exports and restrict imports,while at the same forcing poor countries to liberalise their economies (Khan & Thaut, 2008,p.11); such policies lead to making the poor poorer and the rich richer.4.5 Freedom from Price Control and ManipulationAccording to The British Association for Fair Trade Shops (2010), Fair Trade in Europe startedas a grassroots movement about 40 years ago, while in Islamic economics this principle hasexisted for 14 centuries.In Islam (from a non-religious point of view), according to Obaidullah (2005, p.12) and Ayub,(2007, P. 68) the basic principle with regard to trade is that the market should be fair and left freeto respond to the forces of supply and demand, natural competition, and to avoid injustice on
  • 20. 20 | P a g ebehalf of suppliers of goods and consumers. This means that price controls, tariffs, and anyother barriers should be removed so that trade can be free and fair, and government should not beinvolved in fixing prices except when obvious pitfalls are noticed within the market. However, atthis point, the Islamic economic system is very similar to the capital economic system. Though,the western countries have paid more attention to the concept of fair trade than the currentMuslim countries.Also, Islam prohibits monopolising goods to gain higher returns in the future or to dominate themarket. Though, to be fair, in this context one should note that the west itself has amended itscurricula and enacted a new law to cope with monopolies (Steiger, 1995).In Islamic banking the parties involved in a financial transaction must share both the associatedrisks and profits. Islamic banks do not levy interest, as such, but rather participates in the yieldresulting from the use of funds. The depositors also share in the profits of the bank; there is akind of partnership between the Islamic bank and its depositors, on one side, and between thebank and its investment clients, on the other side. The bank functions as a manager of depositors’resources in productive uses (Lewis, 2007, p.3).4.6 Risk-sharing and profit-sharingHowever, it seems that the Islamic financial system has golden rules of ethics, but the questionsnow, are these rules really exist in the current Islamic financial system?
  • 21. 21 | P a g e5. The main instruments of Islamic financeIslamic markets offer different instruments, or financing methods, to satisfy Muslims’ needs in avariety of ways. In what follows, the most common instruments in Islamic finance will beexplained; also, both their Arabic and English names will be utilised.Murabaha is one of the most popular and widely used instruments for short-term financing; it issimilar in form to purchase finance and around 75 percent of Islamic financial transactions arebased on Murabaha (Iqbal, 1997, p.44). Murabaha is one kind of absolute sale (asset for price);it is selling a commodity for the purchase price plus an agreed upon profit margin, which can bea percentage of the purchase price or a lump sum (Khoja, n.d.).5.1 Murabaha (Cost-plus sale)According to Khoja (n.d.), Murabaha sales are divided into two types:There are two parties in an ordinary Murabaha sale, the seller and the buyer. The seller is anordinary trader who buys a commodity without depending on a prior promise of purchase, andthen he displays it for Murabaha sale for a price and a profit to be agreed upon.Ordinary Murabaha saleThis form of Murabaha sale is used by the Islamic banks; there are three parties involved: theseller, the buyer, and the bank, which acts as an intermediary trader between the buyer and theseller. The bank does not purchase unless the buyer specifies a desire and a prior outstandingpromise to purchase.Murabaha sale connected with a promiseHowever, it is worth mentioning that, the profit margin is benchmarked to the prevalent marketinterest rate (Ibrahim, 2007, p.27).
  • 22. 22 | P a g eAlso, the profit margin is fixed before the deal closes and cannot be increased, even if the clientdoes not take the goods within the agreed time, while conventional financing transactions usuallyprovide for default interest on late payment of amounts due. Such charges are not possible inIslamic finance, since any excess paid above the principal as Riba (interest) is totally prohibitedin Islam (Rowey, et al., 2006). Indeed, this matter could create a problem for the bank, when thecustomer knows that there are no penalties for defaulting on the payment. However, since thereis no real solution to this problem, some Shariah scholars think the bank should be allowed tocharge a payment for default or late payment, but the amount charged must be given to charity inorder to ensure that the financial institution does not benefit from the penalty charged (Gulam,n.d.).However, when using Murabaha methods, it is good to mention that “the debt has to be paidback irrespective of profit or loss to the person or institution that purchase on credit and sufferedloss or the wares destroyed in his ownership” (Ayub, 2007, p. 76).Ijara is another popular instrument of Islamic finance; it accounts for about 10 percent of Islamicfinancial transactions (Iqbal, 1997, p.43). Ijarah, basically, is designed for financing vehicles,machinery, equipment, and aircraft (Iqbal, 1997, p.43). The Ijara is a leasing agreement wherethe bank purchases an asset and leases it out to the customer; the Islamic bank or the financialinstitution owns the asset throughout the lease period and the customer pays the financialinstitution a rental fee each month during the leasing period (Chiu & Newberger, 2006).5.2 Ijarah (Leasing)In addition, the financial institution will recover the capital cost of the equipment plus a profitmargin out of the rent payable (Rowey, et al., 2006).According to Rowey et al. (2006, p.3), there are two types of Ijara: operating leases and leasepurchases. In a lease purchase, the period of the lease is spread over a long period of time;therefore, the lessor is able to repay the costs of the asset with profit and retain relatively higherfinancial security; at the end of the lease period, the lessee has the option to purchase the asset atthe market value.
  • 23. 23 | P a g eHowever this kind of Ijara creates a problem under Islamic finance principles as lease rentalscannot be determined in reference to interest rates, because the amount and timing of the leasepayments should be agreed in advance (Rowey, et al., 2006).Where an asset is financed through operating leases, the usufruct generated by an asset is sold toa lessee for a fixed period and for a fixed price; while the lessor retains the risk in property, thelessee is responsible for usual maintenance. As this lease is for a short period, the risk to thelessor is higher (Ibrahim, 2007, p.29).5.3 Mudaraba (profit sharing)The Mudaraba is a profit sharing contract often used for investment funds (Rowey, et al., 2006);there are two parties involving in this contract, one party providing 100 percent of the capital,and the other party (the mudarib) providing its expertise to invest the capital, manage theinvestment project, and if appropriate, provide labour (Rowey, et al., 2006). In this contract, anyprofits generated will be distributed according to a predetermined ratio, but like the capital itself,profits cannot be guaranteed (Rowey, et al., 2006). However, according to Ibrahim (2007, p.27),losses are rarely reported, or may only be suffered in theory.5.4 Musharaka (partnership financing)The literal meaning of the word Musharaka is sharing. Musharaka is a mode of Islamicfinancing that usually used for financing fixed assets and working capital of medium- and long-term duration; it is similar to a classical joint venture (Iqbal, 1997, p.44).The Musharaka involves a partnership between two or more parties who provide capital towardsthe financing of new or established projects (Rowey, et al., 2006).In Musharaka, all partners share the profit according to a specific pre-agreed ratio, while the lossis shared according to the ratio of the contribution (Rammal, 2004). Also, one or all parties canundertake management of the project, since both parties take on project risk and they will becompensated for their managerial skills (Rowey, et al., 2006). However, it is relatively rare forbanks to participate in Musharaka transactions (Rammal, 2004).
  • 24. 24 | P a g e5.5 Istinaa (Commissioned Manufacture)In Istinaa goods are manufactured with a promise to produce a specific product that can be madeunder certain agreed specifications at a determined price and on a fixed date; the agent contractswith a manufacturer to produce the commodity and the customers make payments to cover theproduction price and the profit margin (Ayub, 2007, p. 77).With these vary financing methods it seems that Islamic banking provides the base fordeveloping a wide range of more sophisticated and complex financial instruments in the future.
  • 25. 25 | P a g e6. The role of Sharia scholars in ruiningthe modern industry of Islamic financeAs mentioned earlier in this study, it has been observed that many Muslims tend to avoid dealingwith Islamic banks, but, why do they take this attitude? Many Muslims were asked by the writer,why they do not prefer Islamic banks. In general, their answers were because that they believethat Islamic banks do not differ from conventional banks, except in name. For instance, theyclaimed that, in many cases this "profit rate" is competitive with the conventional bankingsystems interest rate, but under a different name. However this is not consistent with the findingsof this study and it needs further research.To some extent, this might be true from their point of view. Thus, here the role of the Shariahscholars arises. The Shariah scholars or Shariah board is an important element of the Islamicfinancial institution and the conventional institutions that provide Islamic products, because itgives the institution the right to market themselves or their products as Shariah compliant.In fact, Islamic finance products require a “religious stamp” of approval before any Islamicfinance product such as a bond, mortgage contract, etc. can be marketed as moral according tothe standards of the Holy Quran (Heneghan, 2008).This stamp must be provided by a Shariah scholar or Shariah board (scholars in Shariahmatters); this board has been used to supervise the operations of every Islamic financialinstitution to ensure that the operations and code of conduct of Islamic banks is in accordancewith the rules of Shariah (Iqba & Mirakho, 2004, p.20However, the role of Shariah scholars involves more than applying the avoidance of interest orusury or screening to ensure equitable practice. For instance Barclays offers interest-freeproducts for Muslims and Arabs when they ask for Islamic accounts. Indeed, Islamic finance is acomprehensive system involved in all aspects of life.).
  • 26. 26 | P a g eThere is a general consensus that there is a shortage in Shariah scholars around the world, and Iadd here that there is shortage of qualified & efficient Shariah scholars.Shariah scholars must first study Islamic law or Shariah for many years, and then master finance(Foster, 2009). They should be fluent in the English and Arabic languages, since almost allpublications regarding the science of finance science are in English and the Holy Quran andIslamic principles are in Arabic; it is difficult for those who are not native speakers of Arabic toget a deep understanding of Islam in order to apply it in financial science. Unfortunately, there isa shortage of scholars familiar with all these fields.However, to answer the question of how the Shariah scholars would ruin the Islamic financialsystem it is important to look at what an investment banker based in Dubai, working for a majorWestern financial organisation has said:“We create the same type of products that we do for the conventional markets. We thenphone up a Sharia scholar for a Fatwa (seal of approval), confirming the product isShariah compliant. [...] If he doesnt give it to us, we phone up another scholar, offer hima sum of money for his services and ask him for a Fatwa. We do this until we get Shariahcompliance. Then we are free to distribute the product as Islamic." (Foster, 2009).Also according to Foster (2009), it should be noted that Shariah advisers or scholars can earn upto $100,000 per fatwa, or religious edict, on a contract. Thus it seems that in "Fatwa shopping"by offering some extra money you could make any product compliant with Shariah.Prophet Muhammad (peace upon him) said “The scientists are the heirs of the prophets, they didnot inherit Dinar or Dirham (money), but they inherited science, and who has taken it, has takenan immense well”.The above quote shows that for Muslims, money should not be matter for Shariah scholars, sincethere Fatwa should be for the benefit of Islam in general and Islamic finance in particular.Another explanation for the shortage of qualified scholars is what Mr. Majid Dawood, chiefexecutive of Yasaar, a UK-based Islamic finance consultancy says: "Everything that is notforbidden in the Holy Quran is OK” (Foster, 2009). What Dawood had said only reflects half of
  • 27. 27 | P a g ethe picture, since if something is not forbidden in the Holy Quran, it does not mean that it iscomplies with Shariah, since as previously stated, Islamic sources are not only derived fromQuran, but also from other sources.Therefore, as the basic principles of Shariah have been set by God, as Muslims believe, thissystem should be the ideal financial system; hence the wrong practice of some banks based onwhat some scholars have approved could negatively affect the whole Islamic financial system.
  • 28. 28 | P a g e7. Overview of the UK Financial SystemThe United Kingdom has a long history of financial industry. Banking in the United Kingdomstarted in the 17th century. The industry grew out of the profession of goldsmiths, as after thedissolution of monasteries, makers of gold and silver plate started to have significant stocks ofgold (History of Banking in the UK, n.d.). Also, the United Kingdom has the second oldestcentral bank in the world, “The Bank of England” (, 2010), which was founded in1694 to act as the governments banker and debt-manager (Bank of England, n.d).Additionally, the United Kingdom has two of the oldest conventional banks in the world: TheBank of Scotland (now Halifax Bank of Scotland), which was established in 1695 and C. Hoare& Co. in London, which was established in 1672 (Lankow, 2008).Due to the Industrial Revolution and growing trade the number of banks increased, especially inLondon, and by 1784 there were around 100 provincial banks (History of Banking in the UK,n.d.).According to the FSA, there are more than 300 deposit-taking financial institutions and about100 non deposit-taking financial institutions operating in the United Kingdom in 2010 (FSA,2010), which makes London the largest financial centre in the world (BBC, 2008).According to Heffernan (1996), the UK financial system is characterised by a specialist anddifferentiated financial system in the following categories:• Commercial banking;• Investment and merchant banking;• Insurance;• Fund management;• Housing finance;• Securities trading.
  • 29. 29 | P a g eLondon is the largest market in the world for foreign exchange dealing, and the largest centre forinterbank transactions and syndicated loans (Wilson, 1999, p.425In addition, London is well-known for taking the advantage of any new financial trend. Also, it isrecognised as being willing to innovate and respond flexibly to any new ideas; it has the mostexpert bankers and the most).advanced regulation in the world. London has a deep and liquidmarket and the exchanges are the most frequently used venue for listing and trading financialinstruments globally (Ainlev, et al., 2007).Moreover,Thus, all these factors enhance the UK position as the leader in every new financial industry.the UK financial services industry has a proven record of developing and deliveringnew products and a large pool of legal, accounting, and financial engineering skills. (Ainlev, etal., 2007). Another important point to note is that the English law the preferred legal jurisdictionfor many international business and financial firms (Ainlev, et al., 2007).
  • 30. 30 | P a g e8. Islamic banking in the United KingdomTo go back to recent history, it seems that the relations between the Islamic financial system andEuropean banks started in the 1920s when the Eastern Bank, the predecessor of StandardChartered, was asked the ruler of Bahrain if the bank could open a branch in Bahrain if itavoided all interest based transactions (Wilson, 2007, p.2). This indicates that the Europeanbankers started to learn about Islamic finance more than eighty years ago, thus it is not surprisingto see the western world, particularly the UK, in the lead of this industry.London is considered to be a global cynosure for managing and attracting foreign capital, inparticular it is seen as a safe store for Islamic wealth, which looks for safe investment.In addition, many factors have facilitated Britain in becoming the leader of Islamic banking andfinance among the European countries, which makes it looks forward to becoming in the nextfew years to the global centre of the Islamic finance and banking industry. On top of thesefactors is the government support for success of this industry (McKenzie, 2009), IFSL’s Directorof Economics, said, "The UK has benefited considerably from supportive Government policiesintended to put Islamic services on the same footing as conventional services" (Beckford, 2009).The second factor is the law firms; the UK is a major global provider of specialist legal expertiserequired for Islamic finance (McKenzie, 2009, p.6). Also, English law is the preferred legalsystem for many international companies and organisations around the globe.Another important factor that enhances the position of the UK as the leader in this industry is theprofessional service firms; the Big Four professional services firms (PricewaterhouseCoopers,KPMG, Ernst & Young, and Deloitte) have each established an Islamic finance team in Londonto provide specialist services including advice on tax, listings, transactions, regulatorycompliance, management, operations, and IT systems (McKenzie, 2009, p.6).The last factor, but not the least, is Education and training; it is widely agreed that there is aglobal shortage of experienced professionals in the Islamic finance sector (Ainlev, et al., 2007),and in this context the UK has become the leader in providing training, education, and research
  • 31. 31 | P a g ein the Islamic banking and finance field with 55 institutions providing Islamic finance skills andcourses (McKenzie, 2009, p.6). The UK has done more than any country in the world in this areawith its courses ranging from small course to a masters degree, such as that offered at theUniversity Of Salford.The steps taken by the UK to facilitate Islamic banking indicate that the there is a growinginterest in Islamic finance in the UK.London has been providing Islamic financial services for 30 years (Cahn, 2007). Yet, only in thepast few years has this industry begun to receive greater attention.However, there are currently three types of Islamic financial providers in the UK:• Conventional banks which provide different types of Islamic products through what iscalled an “Islamic window”• Retail Islamic banks• Wholesale Islamic banksAccording to McKenzie (2009, p.1), there are 22 banks, including five that are fully Shariacompliant operating in the UK (Raza, 2008). Thus, the UK comes in the foreground among theEuropean countries that offer Islamic banking services.The fully Islamic banks in the UK are:• Islamic Bank of Britain plc (IBB).• ABC International Bank plc.• Bank of London and the Middle East plc (BLME).• European Islamic Investment Bank plc.• Gatehouse Bank.• In addition to these banks there is a group of UK financial institutions which offerIslamic financial services such as The Ahli United Bank (UK) plc, HSBC AmanahFinance, and Lloyds. TSB (McKenzie, 2009, p.1).However, according to Foster (2009), the potential wealth locked up in oil-rich Gulf countriesencouraged the conventional banks to enter the Islamic finance field.
  • 32. 32 | P a g eIslamic finance has developed rapidly in the UK over the past few years, and according toTimewell & DiVanna (2008) the UK comes eighth in the rank of total Islamic assets worldwidewith over $18 billion (see table 1); it is the highest ranking country of all western countries.Table 1: Top countries by value of Shariah compliant assets $bn, 2008Source: Timewell & DiVanna (2008), Top 500 Islamic financial institutions..Moreover, a study has been done by Ahmad (2008) that states that Islamic banks operating in theUK have not been affected by the current financial crisis, despite the fact that the prices of stocksin many banks in the UK are in retreat in the midst of the recession, strengthens the position ofIslamic finance in the UK. However, from my point of view, the current financial crisis has alsohit the Islamic sector, but Islamic banks are better able to withstand it because of their moreconservative stance.Also, according to HM Treasury (2008), the UK Government will continue to support thedevelopment of Islamic finance in the UK, to the benefit of UK consumers and taxpayers alike.However, this could be one reason for such support. On the other hand it could be, as somestudies have stated, that one of the reasons for the current financial crisis is the deregulation inthe financial system. As previously established, Islamic finance is well regulated and supervisedby the Islamic scholars. This suggests Adam Smith’s assumption that free-markets are inefficientRank Country Shariah compliant assets $bn1 Iran 235.32 Saudi Arabia 923 Malaysia 67.14 Kuwait 63.15 United Arab Emirates 49.16 Bahrain 37.47 Qatar 21.08 United Kingdom 18.19 Turkey 15.810 Pakistan 6.3
  • 33. 33 | P a g eis correct (Foster, 2009). Another reason for such support could be that the UK governmentwants to attract more wealth from the oil countries to enhance its economy, by allowing thisenormous fund to move into the UK financial system, rather than move outside it to anotherEuropean country.To sum up, the UK government and the City of London are actively promoting the Islamicfinancial industry, and the innovation and flexibility of the UK financial system, in addition tothe historical links with the Middle East, will pave the way to make London a global centre forIslamic finance, or at least to be the centre of the Islamic finance in the west in the short run.
  • 34. 34 | P a g e9. The case study of the Islamic Bank ofBritain plc (IBB)In this study the growth of the Islamic Bank of Britain plc (IBB) will be taken as a case study.This bank has been chosen for two reasons; because it was the first purely Sharia compliantretail Islamic bank to operate in the UK in the 21st century (Islamic Bank of Britain Plc, 2010)and it is the only fully Islamic bank that has a branch in Manchester, where the author lives.9.1 Overview of the Islamic Bank of Britain plc (IBB)The bank was the first fully Islamic bank in the UK to be authorised by the Financial ServicesAuthority in 2004 (Islamic Bank of Britain Plc, 2010).The IBB has its headquarters in Birmingham, which is the home of the largest Muslimcommunity in the UK; it opened its first branch in central London in September 2004 (BBCNews, 2004), and by 2010 it had eight branches around the United Kingdom (Islamic Bank ofBritain Plc, 2010).The IBB was launched on the London Stock Exchange (AIM market) on the 12th of October2004; the aim of the bank is to aim to provide a friendly, inclusive, and personal service for allits customers. Also, the bank is a member of the Financial Services Compensation Scheme(Islamic Bank of Britain Plc, 2010).The bank provides many services, such as saving accounts, current accounts, personal and homefinance, and business banking in a Halal way; also, it provides an online and telephone bankingservice (Islamic Bank of Britain Plc, 2010).
  • 35. 35 | P a g e9.2 The number of branchesAs stated above, the bank has eight branches throughout the UK, which is a very humblenetwork in terms of geographical expansion in a country of more than 61 million, 2.4 million ofwhich are Muslims (Kerbaj, 2009).The bank stated that it would “open branches throughout the UK, wherever there are significantconcentrations of the Muslim community” (Islamic Bank of Britain Plc, 2010), while almost allresearchers and studies state that Islamic finance and banking are for both Muslims and non-Muslims.However, despite the fact that the target group for such banks are Muslims, they should have atleast one branch in the centre of each big city, with an outstanding image and services, in orderto attract the attention of non–Muslims and Muslims alike to this industry. The reason for this isthat in the end they are commercial institutions, not religious charities.In addition, the lonely branch of the IBB in the third largest city in the UK (Manchester), islocated in neither a wealthy nor a commercial area (Longside), though it is easy to find huge andcrowded mosques in the heart of the city centre and in several wealthy areas.
  • 36. 36 | P a g e9.3 The image and customer serviceIBB branch in Manchester.Source: (Al-Taher, 2010).During a visit to the branch it was observed that there are some issues regarding the bank’simage and its services.First, the exterior and interior image of the bank looks modest, not exceptional. It is of vitalimportance to have an impressive appearance in order to attract people to any unknown and newservice or good. Wilson (1997) claims branding and image are of some significance whencustomers chose to place their financial business with a particular bank, rather than another.For instance, recently Barclays bank has opened a new branch in the city centre of Manchester,where hundreds of thousands of people pass by every day, of different sex, race, colour, andnational origins, including a significant number of international students, including Arabs,Muslims, and non-Muslims, due to the existence of three large universities nearby.Due to the exceptional image of Barclays bank in this area, I and some of my friends havedecided to open a bank account in the bank. In fact, it is an injustice to compare one of thelargest banks in the world, with a new bank such the IBB, even though image plays a vital role inattracting customers.
  • 37. 37 | P a g eAlso, this can be proven through many studies have been done in this field, for instance a studycarried out by J.D. Power and Associates (2009), found that the “most important driver forselecting a bank is banks brand image”Also, some questions have been raised about the customer service person at the IBB bank, inregards to opening a bank account.When speaking to her you feel that she does not want you to open a bank account. However,after she was told that I am student, she said, we cannot open a current account for the studentsbecause they do not work! Then she added, your salary should be transferred to the IBB bank ifyou are working. She continued by saying, also the saving account we have will not be useful foryou because you will not get a debit cards, thus you will not be able to use the cash machines.To sum up, the customer service representative had decided that I am not entitled to open a bankaccount because, as a student, I am not working. She should have asked whether I am working ornot before making such a decision.The most important matter here is that what the customer service representative affirmed is indisaccord with what the bank declares in the media: “Islamic bank of Britain Provide bankingservices to Muslims in the United Kingdom & other parts of Europe” (HEMSCOTT, 2010), and“The bank intends to offer its services to Muslims across Europe” (BBC News, 2004).The bank also states in its official website that “UK non-residents who require banking serviceswhile in the UK can now take advantage of banking services from Islamic Bank of Britain, theUK’s only totally sharia’a compliant British bank” (Islamic Bank of Britain Plc, 2005).The question remains, do the people working in Europe and the UK non-residents have totransfer their salaries to the bank in the UK in order to benefit from its services?!Furthermore, the dialogue reported above was carried out without any smile from thereceptionist, which reflects a lack of proficiency with dealing with the customers.
  • 38. 38 | P a g eHowever, when the same question was asked of Barclays and HSBS banks they offered a warmgreeting in terms of customer service, and the condition of “Working” was not required in orderto benefit from their Islamic current accounts.9.4 IBB Islamic productsDespite the growing numbers of Islamic banks in the United Kingdom, there are still few retailproducts available. In this section the limited range of IBB products will be reviewed.The IBB Home Purchase PlanThe Islamic Bank of Britain’s Home Purchase Plan follows the Islamic financing principles ofIjara (leasing) and Diminishing Musharaka (partnership). This plan allows the customer and theBank to both contribute to purchasing the property and effectively become partners. Thecustomer can then make monthly payments and eventually purchase the bank’s share. As eachrepayment is made, the bank’s share in the property is reduced and the customer’s is increaseduntil the agreement is completed and the customer owns the property out-right (IslamicMortgages, 2010However, is this home purchase plan competitive and in compliance with Shariah?).First, based on the purchase agreement, the Rent Rate = Base Rate + a margin of 4.25%,currently 4.75% (Islamic Bank of Britain Plc, 2010). Thus, according to the IBB, it seems thatthe margin is variable, which indicates it is based on the UK interest rate, hence there is nodifference between this purchase plan and a conventional mortgage.Second, according to the Islamic Bank of Britain Plc (2010), the minimum finance offered is£100,000, while in any conventional bank the minimum finance offered is much less than thisamount, which makes it uncompetitive with the market.Third, the minimum term for this agreement is 7 years (Islamic Bank of Britain Plc, 2010),which means the bank wants to guarantee a minimum return before the client can buy the house.
  • 39. 39 | P a g eCurrent accountAccording to Islamic Bank of Britain Plc (n.d) the current account is a loan to the bank, which isused by the bank for investment and other purposes and it has to be paid back to the client, infull, on demand. And obviously there is no interest rate paid or received.However, there are some disadvantages to this account.First, the client’s salary must be paid into this account (Islamic Bank of Britain Plc, n.d), whileno conventional bank asks for this condition.Second, an initial deposit of £500 must be made (Islamic Bank of Britain Plc, n.d), while manypeople could not afford such a large deposit.Third, in an interview conducted by the writer, the client cannot have a debit card for thisaccount. This means that the client has to open an account with a conventional bank to have adebit card for his everyday transactions. Thus, as the client has to use a conventional bank, thereis no point in having an account with this Islamic bank.Fourth, the IBB will charge the Client £15 for any letters sent by the bank to the client advisingof any mismanagement, moreover, clients will be charged £2 when using an IBB counter tomake a deposit of cash or cheques, a withdrawal of cash, or a transfer of money to either an IBBor other bank account (Islamic Bank of Britain Plc, n.d). Thus, it can be seen by what kind ofunfair means this bank is providing services.In addition, the bank provides other kinds of products such as, savings accounts, personalfinance, and telephone banking.
  • 40. 40 | P a g e9.5 The number of employeesTable 2: The Average number of employees and their wages and salaries in £ million at IBB for thefiscal years 2004-2008.Date 2004 (5 months) 2005 2006 2007 2008Average number ofemployees63 102 144 175 147Wages and salaries (£million) 779,777 2,914,193 3,777,164 4,344,913 4,323,265Source: IBB final results for 5 month period 2004 and annual reports & financial statements for the years2005-2008.Over the first 17 months, from 2004 to the end of 2005, the number of employee almost doubled,rising from 63 to 102, which is a logical result of the bank’s expansion of operations and itsincreasing number of branches.From 2005 to 2007 there was an overall increase in the number of employees. This was followedby slight interruption in 2008, when numbers fell slightly from 175 to 147, which leaves thequestion of whether or not the bank is growing. Since the bank is still in its expansion stage, itshould not reduce the number of employees.There was gradual increase in wages and salaries from 2005 to 2008, but the increase was not asfast as the increase in the average number of employees.
  • 41. 41 | P a g e9.6 The assetsTable 3: Property and equipment, and total assets at IBB for the end of years 2004 to 2008 in £Date 2004 2005 2006 2007 2008Commodity Murabaha andWakala receivables andother advances due frombanks47,022,681 78,037,676 100,286,964 141,768,471 151,687,736Property and equipment 3,547,073 3,798,951 3,965,370 3,443,355 3,265,745Total Assets 51,004,026 89,289,500 118,012,095 164,936,827 180,799,300Source: IBB final results for 5 month period 2004 and annual reports & financial statements for the years2005-2008.Table 2 shows the total assets of IBB and their sources for five years. Generally speaking, therewas an overall growth in the value of total assets. The figure for property and equipmentremained fairly stable hovering at around £3.6 million throughout the five years despite a slightdecrease in 2008.On the other hand, the value of Murabaha and Wakala receivables increased steadily from just£47.022.681 million in 2004 to £151.687.736 million in 2008, which accounts for most of thegrowth in total assets.
  • 42. 42 | P a g e9.7 Ownership equityTable 4: Ownership equity after all adjustments, and retained profit & losses account at IBB for theend of second fiscal year 2004 to 2008 in £.Data 2004 2005 2006 2007 2008Total Equity 47,014,047 40,564,540 31,731,287 24,825,309 18,943,536Retained deficit -5,923,208 -12,372,715 -21,205,968 -28,137,072 - 34,046,165Source: IBB final results for 5 month period 2004 and annual reports & financial statements for the years2005-2007.As can be observed from Table 3, the IBB has had uninterrupted poor performance over the fiveyear period 2004 to 2008, which has led to cruel losses to the bank. The retained earnings havebeen negative since the first year, which has created a deficit. Following a big loss during thefirst year there was a steady, dramatic increase in the bank’s deficit, which reached £34,046,165by the end of 2008.As a result, by the end of 2008 the bank had lost more than 60% of the money that was originallyinvested by the original shareholders, which mean that in the event of a company-wideliquidation the shareholders will receive only18, 943,536 instead of 47,014,047 the amountwhich has originally invested. Also, according to the bank’s financial reports there were nodividends during the whole five years, which is a logical result.
  • 43. 43 | P a g e9.8 Market ValueTable 5: Share price, market value, and number of shares at IBB for the end of second fiscal year 2004to 2008 in unmodified £Source: IBB final results for 5 month period 2004 and annual reports & financial statements for the years2005-2008 and YAHOO FINANCE data on share prices.The table shows the market value of the IBB from 2004 to 2008. As can be seen, there wereadditional shares issued from 2004 to 2005. However, after the first actual operating year 2005,the general trend was downwards and ended the year in 2008 at £25,140,000, a decline from£121,510,000 in 2005. This decline indicates that the bank had lost 79% of its market value inthree years. Here it should be noted that that the market value is always given as a snapshot, anddoes not measure the average market value over time.9.9 Turnover (revenue)Table 6: Revenues at IBB for the end of second fiscal year 2004 to 2008 in unmodified £2004 (5 months) 2005 2006 2007 2008Revenues 676,398 2,207,961 3,010,979 4,696,862 4,928,210Source: IBB final results for 5 month period 2004 and annual reports & financial statements for the years2005-2008.Indeed, the figures above show that there were steady increases in the bank’s revenue over time.However, just reviewing the turnover gives only half of the pictures in terms of profits, since thecosts for the bank have increased as much, and more.Data 31/12/2004 31/12/2005 31/12/2006 31/12/2007 31/12/2008Share price 0.28 0.29 0.16 0.08 0.06Number of shares 343,705,882 419,000,000 419,000,000 419,000,000 419,000,000Market value 96,237,646 121,510,000 67,040,000 33,520,000 25,140,000
  • 44. 44 | P a g e9.10 Number of customers and depositsTable 7: Number of customers, and total deposits in £, and (calculated) average deposits per customer£, for the period 2004 to 2008.Date 2004 2005 2006 2007 2008Number of customers N/A 14,023 30,814 42,000 47,000Deposits from customers N/A 47,714,593 83,853,383 134,640,612 158,000,000Average amount ofdeposits from eachcustomerN/A 3403 2721 3206 3362Source: IBB final results for 5 month period 2004 and annual reports & financial statements for the years2005-2008, and IBBs website.As can be seen in table 7, in general the numbers of customers and their deposits have beengrowing during the five operating years; however, during 2008 the increases in the number ofcustomers and their deposits were not sufficient in comparison to the previous years, whichconfirm the poor performance of the bank, especially in 2008.In addition, the figure above does not tell much of the real situation of the bank in terms ofgrowth; in particular, the average amount of deposit does not tell us whether the deposits camefrom new or old customers or from major IBB shareholders.At this point, it important to include the statement the bank released on its financial summary on30 June 2005, that, “Customer deposits increased to £33.9m (as at 31st December 2004, £2.1m)inclusive of £14m deposit from major IBB shareholder” (Islamic Bank of Britain Plc, 2005).
  • 45. 45 | P a g e9.11 ReviewIn fact, it is not easy to determine whether the IBB has grown or not in terms of size whendepending only on the available information and data; however, the available information anddata do give an indicator and general view of the bank’s growth and its performance.There is a conflict in the available figures and results; while the numbers of customers andbranches have increased, as well as assets governed by the bank, which would be a sign thatthere has been growth, the bank has reduced the number of employees for the same period. Thiscould mean that the bank is struggling to afford the costs for the 28 employees. In addition, themarket values of the company and the ownership equity have plummeted steadily downwards.The simple answer regarding falling rate of ownership equity is that the bank is expanding, andinvesting more money than it is making to build up the bank, and the humble number of branchescan confirm this!However, an important question arises at this point, which is why has the market value declinedso much (by 79%)?Indeed, there are several possible answers; first, an external factor, which is the current financialcrisis, has affected the whole financial sector in the UK and the whole world economy. Despitethe fact that this would be right, the bank is still on its launching stage, and was not involved inany the causes of the crisis, such as toxic assets, subprime mortgages, or the fluctuations of theinterest rate; thus, the losses should not be this much.Second, the fact that the bank was unable to turn losses into profits during five working years,due to its poor management.Third, it could be to the lack of a clear marketing strategy or the bank’s abstention fromfinancing advertisement and promotions programs.Fourth, it could be that retail Islamic banks are unable to grow and it is an unprofitable industryin the United Kingdom. However, it is too early to form such opinions.
  • 46. 46 | P a g eIn addition, the limited range of Islamic products available and the bank’s very strict conditionsleave Muslims without a real choice for fulfilling most of their financial needs.In conclusion, it is enough to say that the value of the IBB has sharply declined during its firstfive operating years.
  • 47. 47 | P a g e10.Research methodologyAs the main aim of this research is to present an analytical framework for Islamic banking in theUnited Kingdom from a marketing perspective, in addition to a number of objectives that wereaffirmed earlier, the next step is to determine how the aim and objectives will be achieved.These will be achieved through the completion of the following steps:10.1 The Literature reviewThe literature review is the first step in this research as it will help the reader and the researchergain knowledge and understanding of the concept and the main principles of Islamic finance; thisknowledge is also important to explaining why marketing this industry is a vital issue and how itwould be beneficial to the community and to the whole financial system. The literature reviewwill also identify some wrong practices and threats that would negatively affect this new market,which is the UK.Also in this part it is important to bring the reader up to date on current literature about some ofthe main challenges from different points of view.However, as the majority of the previous studies in this area of finance have focused onpresenting the glossy side of this industry, I will be more critical and investigative regardingsome issues of this modern industry in order to be unbiased and to present a relativelycomprehensive view topic. Here it is good to mention that the modern Islamic industry will becriticised only, since the core of Islamic finance (form the Islamic point of view) cannot becriticised as its main principles have been set by Allah (God) and his messenger prophetMuhammad (peace upon him).
  • 48. 48 | P a g e10.2 Case studyThe second step will be the case study of the Islamic Bank of Britain (IBB). In this case study thegrowth of the IBB will be measured, in order to determine whether the first purely retail Islamicbank in the UK is growing or not.It should be noted that this case study will only focus on the growth in the size of the IBB. Thus,it is important to note that some performance measurements will not be used, such as return onassets, return on equity, productivity per employee, etc.The question now is, how will the growth of the bank be measured?To evaluate the growth of this bank the following aspects will be looked at:The number of branches will be examined in order to evaluate its geographical spread and thebank’s image and its customer service will be compared with some conventional banks operatingin the UK. After this, the increase of the number of employees will be measured in comparison totheir salaries and wages.Following these three steps, the bank’s assets, the ownership equity, and its revenues will beanalysed, in order to gain insight into the growth of this bank.Another important measurement that will be taken in account is the bank’s market value; thisanalysis will show its potential future growth. This measurement has been chosen because whenthey select stocks some investors look at a company’s market value (Hagstorm, 1999, p. 65).Also, the number of customers and deposits will be looked at.All these measurements will be used to give the best possible view of the growth of this newindustry represented by the first fully retail Islamic bank to operate in the UK in the 21stcentury.
  • 49. 49 | P a g e10.3 QuestionnaireThe third step in this research will be a questionnaire. Since the main aim of this study is topresent an analytical framework for Islamic banking in the United Kingdom from marketingprospective, an assessment of people’s opinions is important.The questionnaire is intended to give an overall idea of the extent to which Islamic banking isknown in the UK.The data were collected through a self-administered questionnaire. The questionnaire soughtresponses from a cross-section of Salford University students. The utilizable data (n = 159) werecollected from a survey distributed to 500 undergraduate and postgraduate students. Also,about10 percent of the data were collected from some prayers at the Salford University mosque;while a sample of 159 students is very small in relation to actual UK population, the sample sizeis deemed sufficient for the study since Sekaran (2003) stated that “a sample that is larger than30 and less than 500 is appropriate for most research”.The university students have been chosen as a sample since they reflect different social-classes,regions, races, religions, ethnicities, and backgrounds. The questionnaire, together with responsefrequencies, Crosstabulation and descriptive statics, is shown in appendix 1 and 2. In order tosummarise the findings of each question the cross-tabulation techniques of the SPSS programwill be used. Also, the Chi-Square statistical test will be used to compare observed data withdata we would expect to obtain on the topic, to see if there are any significant relations betweensome pieces of data.The questionnaire included 14 questions and consisted of four parts. Part A sought informationfrom students regarding the following demographic factors: gender, age, religion, and level ofeducation.Part B, asked closed-end questions, in order to give an overall idea of the extent to which Islamicbanking is known in the UK. Part C sought information of knowledge and awareness of Islamicbanking in general and its products in particular. Part D, asked questions about the respondents’attitudes to the word “Islamic” in reference to Islamic banks.
  • 50. 50 | P a g e10.4 Data collectionA triangulation method will be used in this research since it involves the careful reviewing ofdata collected through different methods in order to achieve a more accurate and valid estimateto the related topic (Hoyo, Allen & Dee, 2006).The data will include various sources, such as data from a questionnaire, books, case studies,company reports, statics, articles from journals, research papers submitted to universities andother publications; in addition to these it will use some electronic mediea sources available onthe internet, as well as quotations from people about their experiences and beliefs about Islamicfinance. Finally, observations of and live visits to some banks, and some visual data such asphotography will be used; the combination of all of these data sources will allow for acomprehensive study and result.
  • 51. 51 | P a g e11.Results and discussionTable 8: Frequency TableDescriptions Frequency Percentage Cumulative (%)GenderMaleFemale956459.740.359.7100.0AgeUnder 1818-2021-2425-30More than 302414648221.325.828.930.213.81.327.056.086.2100.0ReligionMuslimNon-Muslim986161.638.461.6100.0Education LevelUndergraduatePostgraduate1025764.235.864.2100.0Source: primary data.As can be seen from the Frequency Table above, the data consists of responses from 159persons, 95 male and 64 female. With regard to the education level, most (64.2 percent) of ourrespondents are doing an undergraduate degree, while only 35.8 percent of the sample is doing apostgraduate degree.
  • 52. 52 | P a g eThe respondents are divided into five age groups: while people under the age of 18 represent1.3% of the sample, the largest group were from the ages of 25-30 years-old (30.2%); alsopeople who are between the ages of 21-24 represent 28.9% of the sample and 25.8% of thepeople are between the ages of 18-20. The rest are over 30 years old and account for 13.8% ofthe sample.The researcher intended to focus on the 25- 30 year-old category because a study carried out byKhan et al. (n.d.) shows that most of the customers of Islamic banks are between 25- 35. But inthis study the researcher has contracted the age range to 25-30 from 25-35, in order to get morespecific results.The third questions, asked about the religion, are you Muslim or Non-Muslim? In this survey thereligion is very important since it wanted to know whether the unawareness of Islamic bankingin the UK is limited to non-Muslims, or if it is true for Muslims as well, as has been suggested.Muslims account for 61.6 % of survey participants, while 38.4 % were non-Muslims.The logical result that has been found in this survey is that 62.9 % of the respondents say theyhave heard about Islamic banking (see appendix 2); however, this could be due to the fact that61.6 % of respondents are Muslims.In this survey it has been found that 54.10 % of participants know the difference between Islamicbanks and non-Islamic banks (see appendix 2). In this context, it is good to mention that 46.20%of the female respondents and 44.9% of male respondents have heard about Islamic banking.However, when the Chi-Square test was used to determine whether the association betweenfemale and male respondents who had heard about Islamic banking is significant or not, theresult was as follows:x2This indicates that, the relation is insignificant.= 1.589, df = 2, p > 0.05On the other hand, the most surprising result was that 70.7 % of the students between the ages 18and 20 have heard about Islamic banking, while the figures for the other age groups are asfollows: for 25-30 years of age, 66.7 %; for 21-24 years of age, 58.7 %; and for those over 30years of age, 50 % (see appendix 2). However, it seems that if we stretch the age group of 25-30
  • 53. 53 | P a g eto include those over 30 or to include those aged 25 to 35, it will show a higher percentage,which supports the findings of Khan et al. (n.d.), which were discussed above.Another important question that was asked in this survey is, have you seen any advertisement forIslamic banking products in the UK?From the table above it can be seen that 7.5 % answer yes and 19.5 % answered Yes, but Icannot remember. This is further proof that a heavy marketing promotion is needed in order toraise awareness of this industry. From the other side , this result explained what have concludein the case study of IBB earlier which is the bank is not growing in size , which is a logicalresult as the majority have not seen any advertising or promotion for the bank, thus how thisbank will grow.In related to this, a question about the awareness of any Islamic banks operating in the UK hasbeen asked and the result was that, 63.5 % are unaware of any Islamic bank operation in the UK.Thus, how this industry will thrive in the UK!However, again it seems that the majority of students who are aware if any Islamic banksoperating in the UK are more than 30 years old which count 45.5 % (see appendix 2).Chi-Square test also employed in this context. The result showed that;x2From the above Chi-Square result we can conclude that there is a significant relationshipbetween the participants’ age and their awareness of Islamic banks.= 16.085, df = 4, p < 0.05 (see appendix 2.1).Table 9: Have you seen any advertisement Islamic banking products in the UK?Frequency Percent Valid PercentCumulativePercentValid Yes 12 7.5 7.5 7.5Yes, but I cannot remember 31 19.5 19.5 27.0No 116 73.0 73.0 100.0Total 159 100.0 100.0
  • 54. 54 | P a g eAlso, it has been noted that only 10.7 % of the respondents know what products Islamic banksare offer. Although, when they were asked if they could list any of its products, the majority didnot answer this question and left it blank.One of the fourteen questions in this survey was; do you think that the current banking systemneeds to be more ethical?This question was intended to measure their desire for an alternative for conventional banks, orin other words, to find out whether the participants were satisfied with the conventional bankingsystem or were looking for a more ethical banking system. 34.6 % of the respondents answeredyes, the current banking system needs to be more ethical, and 47.2 % answered yes, to someextent (see appendix 2); therefore if we combine the two groups 81.8 % felt that the currentbanking system needs to be more ethical. Thus, it seems it is a golden opportunity for the Islamicbanks to focus on the ethical side in their promotions in order to develop their business based onwhat their potential customers want; unfortunately they Do NOT do this!The unexpected result here was that 73.7 % of Non-Muslims said the current banking systemneeds to be more ethical (see appendix 2), which seems, again, to suggest it the right time forIslamic banks to start an aggressive marketing strategy to enhance their position in the UK. Theycould benefit from such an attitude toward the current banking system, now that the way isalready paved.Also in this study, Chi-Square tests were utilised to determine if there is a significant relationshipbetween seeing the advertisement of Islamic banks and the desire to open an Islamic bankaccount, the test result was as follows;x2From the above result it can be noted that the Chi-Square test assumes a significant relationbetween seeing the advertisement and the willingness to open an account in an Islamic bank.= 13.064, df = 4, p < 0.05 (see appendix 2.1)On the other hand, 35.2 % of the respondents have showed their unwillingness to open anaccount in an Islamic bank, when they were asked, “Based on your knowledge of Islamicbanking, would you like to have an account with Islamic bank?” (See appendix 2). The goodnews here is that only 4.4 % out of the 35.2 % (see appendix 2) said they did not want to open an
  • 55. 55 | P a g eaccount in Islamic bank because of the word Islamic, although it should be noted that 30 % outof 4.4 % were Arab Muslim and they said they felt this way because they think that Islamicbanks only differ from conventional banks in name; also, these respondents had had a badexperience with Islamic banks in terms of customer service.In order to understand to what extent the word Islamic has a negative impact on the growth ofthis industry, a related question has been asked, as is explained in the following table:Do you think that the word Islamic in "Islamic banking" would has a negative impact on thegrowth of this industry?Frequency Percent Valid PercentCumulativePercentValid Agree 45 28.3 28.3 28.3Neither agree nor disagree 67 42.1 42.1 70.4Disagree 33 20.8 20.8 91.2Strongly disagree 14 8.8 8.8 100.0Total 159 100.0 100.0As can be seen from the above table, only 28.3 % agree that the name will have a negativeimpact, while 42.1 % neither agree nor disagree; here it should be noted that the majority of therespondents have said they neither agree nor disagree due to the fact that they have no idea ofwhat Islamic banking and finance is. The rest of the responses ranged between disagree tostrongly disagree. Thus, again it seems that the name Islamic is not a barrier to the growth of thisindustry.
  • 56. 56 | P a g e12.ConclusionIn general, the Islamic financial system possesses, in principle, the essential elements that qualifyit as a competitor to the conventional financial system, if it meets the challenges facing the wholeIslamic industry.First, although London is leading the race as the major western centre for Islamic finance so far,and despite the support of both the Financial Services Authority and the UK government, thedevelopment and the performance of Islamic banking has been disappointing.Second, despite of the wide acceptance of this industry among the UK Muslim and non-Muslimpopulations, and the need for an ethical alternative to the current banking system was proven inthe survey, Islamic banks so far have basically failed to serve the United Kingdom’s Muslimcommunity; this failure, then, begs the question of how it would serve the non-Muslimcommunity on retail basis.Third, even though London has been providing Islamic financial services for three decades(Cahn, 2007), there are still limited ranges of retail Islamic products on offer, and it seems thatthe UK Islamic banks are reluctant to take the initiative by promoting Shariah compliantproducts for the local market. Furthermore there are no hopeful signs for the future promotion ofsuch products. At this point it is good to clarify that this situation has not come about becauseIslamic finance is conservative and not able to accommodate the evolution and the developmentof the 21 century and the needs of the UK community, but to the very conservativemismanagement of the people who have the power over these Islamic retail banks in the UK.Fourth, Islamic banking in the UK also has great challenges due to its potential customers’ lackof awareness of Islamic banking; for example, some major UK retail banks that have Islamicwindows, such as HSBC bank that has branches in Arab countries, have adopted a heavymarketing strategy in order to promote this promising industry and enhance its profitability,while in the west the idea of Islamic banking is relatively new and you do not see any furthersteps in regards to marketing, which is really required.
  • 57. 57 | P a g eFor instance, you can see on the front page the HSBC website in the Arab countries a promotionfor Islamic products, while on their UK website, despite the large number of Muslims inresidence who are looking for Islamic financial products and services that comply with theirfaith, it is difficult to find information about the Amanah Islamic account. This is a strikingparadox!Also, this could be one of the reasons why the first fully Islamic bank operating in the UK in the21 century (IBB) is not growing in size, as was stressed in the case study.Fifth, during some visits to the banks that provide Islamic services in the UK, it was found thatthere is a lack of experience and knowledge of Islamic finance among the employees of thesebanks. Also, the response of their staff when they were asked about opening an Islamic accountwas quite astonishing.Also, during the research it has been noted that one of the vital problems in the development ofIslamic banking is the lack of good and trained customer service representatives in the purelyIslamic banks.Last, but not least, despite the fact that the importance of Islamic scholars is outstanding for thedevelopment of this industry, it has been observed that there is a lack of qualified Islamicscholars in this sector and because of this shortage it is difficult to modernise this industry. Thus,sooner or later this problem will affect the growth of Islamic banking in general and in the UK inparticular.The Islamic banking and finance industry will not develop and grow as long as it cannot stay trueto its principles.
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  • 66. 66 | P a g eSteiger, D.J., (1995).Federal Trade Commission,5The crucial role of competition law and police in the new Europe . In:thEastern European regional conference The European Union and central and easternEurope the new legal environment. Brussels, Belgium, 6 July 1995, Federal TradeCommission: Washington, DC.Sternberg, E., (2000). Just Business: Business Ethics in Action.2ndUniversity Press.ed. Oxford: OxfordThe banker, (2008). Banker survey shows the growth in Islamic finance. [Online] (Updated 28October 2009). Available at: <ttp://>[Accessed 22 February 2010].The British Association for Fair Trade Shops, (2010). About Fair Trade. [Online]Available at: <>[Accessed 19 March 2010].The Financial Services Authority, (2007). Islamic Finance in the UK: Regulation andChallenges. [Online] Available at:<>[Accessed 26 February 2010].Timewell, S. & DiVanna, J., (2008). Top 500 Islamic Financial Institutions. The Banker,[Online] 03 November 2008.Available at:<>[Accessed 14 March 2010].Wilson, R. (1997). The interface between Islamic and conventional banking. In: Iqbal, M. &Llewellyn, D. 2002. Islamic Banking and Finance: new perspective on profit-sharingand risk. . Cheltenham: UK. Northampton, MA, USA. Edward Elgar.Wilson, R., (1999). Challenges and Opportunities for Islamic Banking and Finance in the West:The United Kingdom Experience. Thunderbird International Business Review, [Online]July-October 1999 41(4/5), pp. 421-444.Available at: <>[Accessed 17 February 2010].Wilson, R., (2007). Islamic Finance in Europe. [OnlineAvailable at: <>[Accessed 3 March 2010].
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  • 68. 68 | P a g e14. Appendix 1Islamic banking questionnaireHello, my name is Waseem Al-Taher; I am student in Salford University, currently writing upmy dissertation on Islamic banking in the UK. In order to complete my research, an assessmentof people’s opinion should be looked at.The questionnaire is intended to give an overall idea of the extent to which Islamic banking isknown in the UK.I would be grateful if you could spend 1 or 2 minutes answering some questions.Q1. What is your gender?1. 󲐀 Male 2. 󲐀 FemaleQ2. How old are you?1.󲐀 under 18 2. 󲐀 18-20 3. 󲐀 21-24 4. 󲐀 25-30 5. 󲐀 More than 30Q3. Are you muslim?1.󲐀 Yes 2. 󲐀 NoQ4. What is your educational background?1. 󲐀 Undergraduate 2. 󲐀 Post graduateQ5. Have you heard of Islamic banking?1.󲐀 Yes 2. 󲐀 NoQ6. Are you aware of any Islamic banks operating in the UK?1.󲐀 Yes 2. 󲐀 NoQ7. Do you know what products (if any) they offer?1.󲐀 Yes 2. 󲐀 NoQ8. Do you know how Islamic banks work?1.󲐀 Yes definitely 2. 󲐀 Yes, to some extent 3.󲐀 No
  • 69. 69 | P a g eQ9. Have you seen any advertisements for Islamic banking products in the UK?1.󲐀 Yes 2. 󲐀 Yes, but I cannot remember where 3. 󲐀 NoQ10. Do you know the difference between Islamic banks and non- Islamic banks?1.󲐀 Yes definitely 2. 󲐀 Yes, to some extent 3. 󲐀 NoQ11. Do you think that the current banking system needs to be more ethical?1.󲐀 Yes 2. 󲐀 Yes, to some extent 3. 󲐀 NoQ12. Based on your knowledge of Islamic banking, would you like to have an account withan Islamic bank?1.󲐀 Yes definitely 2. 󲐀 Yes, to some extent 3. 󲐀 NoQ13. If your answer for Q13 is No, is that because of the word “Islamic”?1.󲐀 Yes 2.󲐀 NoQ14. Do you think that the word Islamic in “Islamic banking” would has a negative impacton the growth of this industry?1. 󲐀 strongly agree 2. 󲐀 agree 3. 󲐀 neither agree nor disagree4. 󲐀 disagree 5. 󲐀 strongly disagreeThank you for your help!
  • 70. 70 | P a g e15. Appendix 2Frequency TablesWhat is your gender?Frequency Percent Valid Percent Cumulative PercentValid Male 95 59.7 59.7 59.7Female 64 40.3 40.3 100.0Total 159 100.0 100.0Source: primary data (spss)How old are you?Frequency Percent Valid PercentCumulativePercentValid Under 18 2 1.3 1.3 1.318-20 41 25.8 25.8 27.021-24 46 28.9 28.9 56.025-30 48 30.2 30.2 86.2More than 30 22 13.8 13.8 100.0Total 159 100.0 100.0Source: primary data (spss)Are you: Muslim or Non-MuslimFrequency Percent Valid PercentCumulativePercentValid Yes 98 61.6 61.6 61.6No 61 38.4 38.4 100.0Total 159 100.0 100.0Source: primary data (spss)
  • 71. 71 | P a g eWhat your educational background?Frequency Percent Valid PercentCumulativePercentValid Undergraduate 102 64.2 64.2 64.2Post graduate 57 35.8 35.8 100.0Total 159 100.0 100.0Have you heard of Islamic banking?Frequency Percent Valid PercentCumulativePercentValid Yes 100 62.9 62.9 62.9No 59 37.1 37.1 100.0Total 159 100.0 100.0Are you aware of any Islamic banks operating in the UK?Frequency Percent Valid PercentCumulativePercentValid Yes 58 36.5 36.5 36.5No 101 63.5 63.5 100.0Total 159 100.0 100.0Do you know what products(if any) they offer?Frequency Percent Valid PercentCumulativePercentValid Yes 17 10.7 10.7 10.7No 142 89.3 89.3 100.0Total 159 100.0 100.0
  • 72. 72 | P a g eDo you know how Islamic banks work?Frequency Percent Valid PercentCumulativePercentValid Yes definitely 14 8.8 8.8 8.8Yes, to some extent 51 32.1 32.1 40.9No 94 59.1 59.1 100.0Total 159 100.0 100.0Do you know the difference between Islamic banks and non-Islamic banks?Frequency Percent Valid PercentCumulativePercentValid Yes definitely 26 16.4 16.4 16.4Yes, to some extent 60 37.7 37.7 54.1No 73 45.9 45.9 100.0Total 159 100.0 100.0Do you think that the current banking system needs to be more ethical ?Frequency Percent Valid PercentCumulativePercentValid Yes 55 34.6 34.6 34.6Yes, to some extent 75 47.2 47.2 81.8No 29 18.2 18.2 100.0Total 159 100.0 100.0Based on your knowledge of Islamic banking, would you like to have an account withIslamic bank?Frequency Percent Valid PercentCumulativePercentValid Yes definitely 57 35.8 35.8 35.8Yes, to some extent 46 28.9 28.9 64.8No 56 35.2 35.2 100.0Total 159 100.0 100.0
  • 73. 73 | P a g eHave you seen any advertisement Islamic banking products in the UK?Frequency Percent Valid PercentCumulativePercentValid Yes 12 7.5 7.5 7.5Yes, but I cannot remember 31 19.5 19.5 27.0No 116 73.0 73.0 100.0Total 159 100.0 100.0Do you think that the word Islamic in "Islamic banking" would has a negative impact on thegrowth of this industry?Frequency Percent Valid PercentCumulativePercentValid Agree 45 28.3 28.3 28.3Neither agree nor disagree 67 42.1 42.1 70.4Disagree 33 20.8 20.8 91.2Sstrongly disagree 14 8.8 8.8 100.0Total 159 100.0 100.0If your answer for Q12 is No, is that because of the word"Islamic"?Frequency Percent Valid PercentCumulativePercentValid Yes 7 4.4 11.7 11.7No 53 33.3 88.3 100.0Total 60 37.7 100.0Missing System 99 62.3Total 159 100.0
  • 74. 74 | P a g e15.1 Appendix 2.1:Crosstabulation & Chi-Square TestsWhat is your gender? * Are you: Muslim or Non-Muslim CrosstabulationCountAre you: Muslim or Non-MuslimTotalYes NoWhat is your gender? Male 61 34 95Female 37 27 64Total 98 61 159Have you seen any advertisement Islamic banking products in the UK? * Based on your knowledge of Islamic banking, would youlike to have an account with Islamic bank ? CrosstabulationBased on your knowledge of Islamic banking, wouldyou like to have an account with Islamic bank ?TotalYes definitelyYes, to someextent NoHave youseen anyadvertisement Islamicbankingproducts inthe UK?Yes Count 12 0 2 14% within Have you seen anyadvertisement Islamicbanking products in the UK?85.7% .0% 14.3% 100.0%Yes, but I cannot rememberwhereCount 21 7 13 41% within Have you seen anyadvertisement Islamicbanking products in the UK?51.2% 17.1% 31.7% 100.0%No Count 71 16 78 165% within Have you seen anyadvertisement Islamicbanking products in the UK?43.0% 9.7% 47.3% 100.0%Total Count 104 23 93 220% within Have you seen anyadvertisement Islamicbanking products in the UK?47.3% 10.5% 42.3% 100.0%
  • 75. 75 | P a g eWhat is your gender? * Have you heard of Islamic banking? CrosstabulationHave you heard of Islamicbanking?TotalYes NoWhat is your gender? Male Count 60 35 95% within What is yourgender?63.2% 36.8% 100.0%Female Count 40 24 64% within What is yourgender?62.5% 37.5% 100.0%Total Count 100 59 159% within What is yourgender?62.9% 37.1% 100.0%CrosstabHave you heard of Islamicbanking?TotalYes NoHow old are you? Under 18 Count 1 1 2% within How old are you? 50.0% 50.0% 100.0%18-20 Count 29 12 41% within How old are you? 70.7% 29.3% 100.0%21-24 Count 27 19 46% within How old are you? 58.7% 41.3% 100.0%25-30 Count 32 16 48% within How old are you? 66.7% 33.3% 100.0%More than 30 Count 11 11 22% within How old are you? 50.0% 50.0% 100.0%Total Count 100 59 159% within How old are you? 62.9% 37.1% 100.0%Chi-Square Tests
  • 76. 76 | P a g eValue dfAsymp. Sig. (2-sided)Chi-Square 13.064 4a.011Ratio 14.380 4 .006Linearon8.916 1 .003Cases 159s (22.2%) have expected count less than 5. The minimum expected count6.What your educational background? * Have you heard of Islamic banking? CrosstabulationHave you heard of Islamicbanking?TotalYes Nor educationalnd?Undergraduate Count 61 41 102% within What youreducational background?59.8% 40.2% 100.0%% within Have you heard ofIslamic banking?61.0% 69.5% 64.2%Post graduate Count 39 18 57% within What youreducational background?68.4% 31.6% 100.0%% within Have you heard ofIslamic banking?39.0% 30.5% 35.8%Count 100 59 159% within What youreducational background?62.9% 37.1% 100.0%% within Have you heard ofIslamic banking?100.0% 100.0% 100.0%
  • 77. 77 | P a g ee TestsValue dfAsymp. Sig. (2-sided)Exact Sig. (2-sided)Exact Sig. (1-sided)Chi-Square 1.163 1a.281Correction .824b1 .364Ratio 1.176 1 .278xact Test .308 .182Linearon1.156 1 .282Cases 159.0%) have expected count less than 5. The minimum expected count is 21.15.puted only for a 2x2 tableMuslim or Non-Muslim * Do you think that the word Islamic in "Islamic banking" would has a negative impact onof this industry? CrosstabulationDo you think that the word Islamic in "Islamic banking" would has anegative impact on the growth of this industry?TotalAgreeNeither agreenor disagree DisagreeSstronglydisagreemYes Count 29 32 24 13 98% within Are you: Muslim orNon-Muslim29.6% 32.7% 24.5% 13.3% 100.0%No Count 16 35 9 1 61% within Are you: Muslim orNon-Muslim26.2% 57.4% 14.8% 1.6% 100.0%Count 45 67 33 14 159% within Are you: Muslim orNon-Muslim28.3% 42.1% 20.8% 8.8% 100.0%
  • 78. 78 | P a g eChi-Square TestsValue dfAsymp. Sig. (2-sided)Pearson Chi-Square 13.093 3a.004Likelihood Ratio 14.533 3 .002Linear-by-LinearAssociation3.938 1 .047N of Valid Cases 159a. 0 cells (.0%) have expected count less than 5. The minimumexpected count is 5.37.Are you: Muslim or Non-Muslim * Do you know the difference between Islamic banks and non-Islamic banks?CrosstabulationDo you know the difference between Islamic banksand non-Islamic banks?TotalYes definitelyYes, to someextent NoAre you:Muslim orNon-MuslimYes Count 24 48 26 98% within Are you: Muslim orNon-Muslim24.5% 49.0% 26.5% 100.0%% within Do you know thedifference between Islamicbanks and non-Islamicbanks?92.3% 80.0% 35.6% 61.6%No Count 2 12 47 61% within Are you: Muslim orNon-Muslim3.3% 19.7% 77.0% 100.0%% within Do you know thedifference between Islamicbanks and non-Islamicbanks?7.7% 20.0% 64.4% 38.4%Total Count 26 60 73 159% within Are you: Muslim orNon-Muslim16.4% 37.7% 45.9% 100.0%% within Do you know thedifference between Islamicbanks and non-Islamicbanks?100.0% 100.0% 100.0% 100.0%
  • 79. 79 | P a g eChi-Square TestsValue dfAsymp. Sig. (2-sided)Pearson Chi-Square 39.802 2a.000Likelihood Ratio 42.509 2 .000Linear-by-LinearAssociation35.913 1 .000N of Valid Cases 159a. 0 cells (.0%) have expected count less than 5. The minimumexpected count is 9.97.
  • 80. 80 | P a g eHow old are you? * Do you know what products(if any) they offer? CrosstabulationDo you know what products(if any)they offer?TotalYes NoHow old are you? Under 18 Count 1 1 2% within How old are you? 50.0% 50.0% 100.0%% within Do you know whatproducts(if any) they offer?5.9% .7% 1.3%18-20 Count 4 37 41% within How old are you? 9.8% 90.2% 100.0%% within Do you know whatproducts(if any) they offer?23.5% 26.1% 25.8%21-24 Count 3 43 46% within How old are you? 6.5% 93.5% 100.0%% within Do you know whatproducts(if any) they offer?17.6% 30.3% 28.9%25-30 Count 9 39 48% within How old are you? 18.8% 81.3% 100.0%% within Do you know whatproducts(if any) they offer?52.9% 27.5% 30.2%More than 30 Count 0 22 22% within How old are you? .0% 100.0% 100.0%% within Do you know whatproducts(if any) they offer?.0% 15.5% 13.8%Total Count 17 142 159% within How old are you? 10.7% 89.3% 100.0%% within Do you know whatproducts(if any) they offer?100.0% 100.0% 100.0%
  • 81. 81 | P a g eChi-Square TestsValue dfAsymp. Sig. (2-sided)Pearson Chi-Square 39.802 2a.000Likelihood Ratio 42.509 2 .000Linear-by-LinearAssociation35.913 1 .000N of Valid Cases 159a. 0 cells (.0%) have expected count less than 5. The minimumexpected count is 9.97.
  • 82. 82 | P a g eChi-Square TestsValue dfAsymp. Sig. (2-sided)Pearson Chi-Square 13.093 3a.004Likelihood Ratio 14.533 3 .002Linear-by-LinearAssociation3.938 1 .047N of Valid Cases 159a. 0 cells (.0%) have expected count less than 5. The minimumexpected count is 5.37.Are you: Muslim or Non-Muslim * Do you think that the word Islamic in "Islamic banking" would has a negative impact on thegrowth of this industry? CrosstabulationDo you think that the word Islamic in "Islamic banking" would has anegative impact on the growth of this industry?TotalAgreeNeither agreenor disagree DisagreeSstronglydisagreeAre you:Muslim orNon-MuslimYes Count 29 32 24 13 98% within Are you: Muslim orNon-Muslim29.6% 32.7% 24.5% 13.3% 100.0%% within Do you think thatthe word Islamic in "Islamicbanking" would has anegative impact on thegrowth of this industry?64.4% 47.8% 72.7% 92.9% 61.6%No Count 16 35 9 1 61% within Are you: Muslim orNon-Muslim26.2% 57.4% 14.8% 1.6% 100.0%% within Do you think thatthe word Islamic in "Islamicbanking" would has anegative impact on thegrowth of this industry?35.6% 52.2% 27.3% 7.1% 38.4%Total Count 45 67 33 14 159% within Are you: Muslim orNon-Muslim28.3% 42.1% 20.8% 8.8% 100.0%% within Do you think thatthe word Islamic in "Islamicbanking" would has anegative impact on thegrowth of this industry?100.0% 100.0% 100.0% 100.0% 100.0%
  • 83. 83 | P a g eHave you seen any advertisement Islamic banking products in the UK? * Based on your knowledge of Islamic banking, would youlike to have an account with Islamic bank ? CrosstabulationBased on your knowledge of Islamic banking, would youlike to have an account with Islamic bank ?TotalYes definitelyYes, to someextent NoHave youseen anyadvertisement Islamicbankingproducts inthe UK?Yes Count 10 0 2 12% within Have youseen anyadvertisement Islamicbanking products inthe UK?83.3% .0% 16.7% 100.0%% within Based onyour knowledge ofIslamic banking, wouldyou like to have anaccount with Islamicbank ?11.6% .0% 3.6% 7.5%Yes, but I cannot rememberwhereCount 18 5 8 31% within Have youseen anyadvertisement Islamicbanking products inthe UK?58.1% 16.1% 25.8% 100.0%% within Based onyour knowledge ofIslamic banking, wouldyou like to have anaccount with Islamicbank ?20.9% 29.4% 14.3% 19.5%No Count 58 12 46 116% within Have youseen anyadvertisement Islamicbanking products inthe UK?50.0% 10.3% 39.7% 100.0%
  • 84. 84 | P a g eChi-Square TestsValue dfAsymp. Sig. (2-sided)Pearson Chi-Square 13.093 3a.004Likelihood Ratio 14.533 3 .002Linear-by-LinearAssociation3.938 1 .047N of Valid Cases 159a. 0 cells (.0%) have expected count less than 5. The minimumexpected count is 5.37.% within Based onyour knowledge ofIslamic banking, wouldyou like to have anaccount with Islamicbank ?67.4% 70.6% 82.1% 73.0%Total Count 86 17 56 159% within Have youseen anyadvertisement Islamicbanking products inthe UK?54.1% 10.7% 35.2% 100.0%% within Based onyour knowledge ofIslamic banking, wouldyou like to have anaccount with Islamicbank ?100.0% 100.0% 100.0% 100.0%
  • 85. 85 | P a g e