Understanding Islamic Banking And Its Prospect In United Kingdom

UNDERSTANDING ISLAMIC BANKING AND ITS PROSPECT IN UK
Dissertation submitted in part fulfilment of the requirements for the degree of Master
of Business Administration at Liverpool John Moores University
SOHAIL BIN MOHAMMAD

MBA
2008
Declaration
I declare that no portion of the work referred to in the dissertation has been submitted
in support of an application for another degree or qualification of this or any other
university or other institute of learning. Further, all the work in this dissertation is
entirely my own, unless referenced in the text as a specific source and included in the
bibliography.
ii

Dedication
This dissertation is dedicated to my beloved Mother; late Mrs. Begum Dilruba, who
passed away on 7th
December, 2007; she was always an inspiration for me and
motivated me to pursue this MBA programme. May God always bless her departed
Soul.
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ACKNOWLEDGEMENTS
I would like to direct my gratitude to my supervisor, Shuaib Masters, for his
encouragement and support during the completion of this dissertation. I also would
like to pass my thanks to Tim Harris (MBA Course Director) and our MBA tutors at
Kaplan.
Special thanks to our administrator; Rory Page and Natalie, for their co-ordination
and prompt responses to all my academic requirements, throughout the MBA
programme at Kaplan.
I send my thanks to Ms. Fatima El Banna and Mr. Samir Alamad (Asst. Manager,
Product & Sharia’a Compliance), Islamic Bank of Britain Plc, Birmingham, UK for
their time, effort and valuable information on Islamic banking.
My sincere gratitude to Ms. Komla Ali for her incomparable mental and financial
supports; throughout this MBA programme, I am ever grateful to her.
Finally, I would like to show my appreciation and my deeply-felt thanks to my
families and friends for their love and support.
.November 2008
Sohail Bin Mohammad
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TABLE OF CONTENTS
Contents Pages
Chapter 1 Introduction
1.0 Changes in perception in the West 1
1.1 Objectives of the Study 2
1.2 Significance and benefits of the study 3
1.3 Historical background of Islamic Bank of Britain Plc (IBB) 4
1.4 Prospect/Challenges for IBB 5
Chapter 2 Literature Review
2.0 Introduction 6
2.1 History of Islamic Banking 6
2.2 Is Shariah the foundation of Islamic banking laws and regulations 8
2.3 Sources of Shariah Law 8
2.4 Principle of Shariah in Islamic Banking 9
2.5 Prohibition of Riba from a legal and moral standpoint 10
2.6 Disputes among Muslims Scholars on Riba 11
2.7 Islamic banking and ethical investment 11
2.8 Conventional Banking vs. Islamic Banking 12
2.9 Why Muslims Countries set aside Shariah Law for a long time 16
2.10 Rebirth of Islamic Finance 17
2.11 The factors that led to the emergence of Islamic banking in UK 17
2.12 Government initiatives 19
2.13 Historical background and prospect of IBB 19
2.14 Review on Consumers attitudes towards Islamic Banking 20
2.15 Conclusion & conceptual framework 22
Chapter 3 Research design and methodology
3.0 Introduction 25
3.1 Research Philosophy 27
3.2 Research approaches 28
3.3 Deductive and Inductive thinking 29
3.4 Research Strategies 30
3.5 Descriptive studies 31
3.6 Exploratory studies 31
3.7 Research Methods 31
3.8 Time horizon 32
3.9 Reliability and validity of Research design 32
3.10 The credibility of research findings 33
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Contents Pages
3.11 Validity of Research findings 33
3.12 Relevant threats to validity for the research 34
3.13 Data collection methods 33
3.14 Primary data 34
3.15 Secondary data 35
3.16 Designing the questionnaire 35
3.17 Population and Sampling 36
3.18 Deciding on a suitable sample size 37
3.19 Ensuring the information needed 37
3.20 Conclusion 38
Chapter 4: Data Presentation
4.1 Presentation of data findings (IBB Customers) 39
4.2 Presentation of data findings (IBB Management) 53
Chapter 5: Discussion
5.1 Analysis of primary data 56
5.2 Linkage between main research questions with the analysis 58
5.2.1 Contradictory primary data findings 61
5.2.2 Lack of risk-sharing attitudes among the respondents 61
5.2.3 Risk of IBB customers switching off to other Banks 62
5.3 Analysis of secondary data 63
5.4 SWOT Analysis 64
5.5 PEST Analysis 66
Chapter 6: Conclusion and Recommendations
6.0 Final discussions 69
6.1 Present and future challenges 71
6.2 Suggestions and Recommendations 73
6.3 Limitations of the Study 74
6.4 Suggestions for future research 75
Chapter 7: Reflections on Learning
7.0 Introduction 76
7.1 Development on my persistency with ambiguous terminologies 77
7.2 Development on Critical Reviewing 78
7.3 Development in choosing the right alternative 78
7.4 Development in interviewing techniques 78
7.5 Development in Analytical abilities 79
7.6 Self realisation on my abilities & conclusion 80
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Contents Page
Reference and Bibliography 82
Appendices
1. Questionnaire to IBB Customers 86
2. Questionnaire to Islamic Bank of Britain Plc 90
3. Glossary of Islamic terminology 92
4. Gantt Chart (Dissertation Time Management) 94
List of tables and charts Pages
Table 2.1 Islamic vs. conventional banking 16
Table 2.2 Conceptual framework with linkage to questionnaire 22
Table 3.1 The research onion 26
Chart 3.2 : The Hourglass notion of research 28
Chart 3.3: Deductive & Inductive thinking 29
Table 4.1.1 to Table 4.1.21 40 - 52
Table 5.1: Variance in data findings 57
Table 5.2 Analysis of secondary data 63
Table 5.3 SWOT Analysis 65
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Chapter One
I. INTRODUCTION
_____________________________________________________________________
This chapter will start with perception, introduction to interest free banking, and brief
review on the history of Islamic Bank of Britain ((IBB). Later it will show the
significance with justification to research objectives.
_____________________________________________________________________
1.0 Changes in perception in the West
Islamic Banking is more or less of an unknown concept in the Western World and at
best only associated with a dislike to interest. But the ideology of Sharia Banking
contains much more than its prohibition of interest in the financial transactions as it
strives for a just, fair and balanced society as envisioned by the Islamic economics,
and therefore cannot finance any project which conflict with the moral value known
to be detrimental to society. The obvious connection of Islamic banking to the religion
Islam might have been causing suspicion among Western citizens, perhaps, more out
of fear for the unknown. The concept behind Islamic banking system to ‘eradicate
injustice in the society’ and for a number of certain other economic reasons the global
society of today the Arab World and its Islamic banking system getting closer to
Western World.
When Islamic banking with its ethical values first appeared as Dubai Islamic Bank in
1975, it was treated as a utopian dream by the financial circles in the world (El-
Qorchi, 2005). But today ‘Islamic banking and finance is attracting widespread
attention and interest in the form of fresh investments and regulators’ mindshare.
Today Islamic finance has come a long way indeed, with approximately USD 1.3
trillion in designated assets and more than 400 financial institutions offering Sharia
compliant products globally.’ (Maiya & Banerjee, 2008).
MBA Dissertation 08 Page 1

The attitudes of both Western and Eastern World, however, are changing gradually
and in the last few years as the neutral conventional banking has begun to trouble the
consciousness of an increasing number of people. There is a reluctance to hand over
funds to banks and financial institutions that invest in companies engaged in unethical
and socially harmful activities. Moreover, new markets are moving towards the
Islamic banking practice not merely because of the religious imperatives, but due to
the positive ‘risk-reward’ expected pay offs (Maiya & Banerjee, 2008).
The primary feature of the modern banking and finance is to generate credit, and
through the process of financial intermediation between savers and investors they
exert immense employment and income generation effects, which ultimately help in
economic advancement and social welfare. This credit system has produced a
dynamic force in the creation of modern world’s wealth, which is highly appreciated
by the capitalist theory. But according to Kniffin (1937) ‘while a banking system, if
badly constructed or badly handled, is capable of inflicting great harm on trade and
industry and may even upset the whole economy.’ The present global scenario of
credit crunch, specially, in the Western World is a strong witness, and for this fixed
interest and excess greediness of Bankers are responsible. However, in Islamic
finance, risks are allocated between Bankers and Clients which makes it much more
even to initiate this kind of financial disasters.
1.1 Objectives of the Study
There are two elements in this study ‘Understanding Islamic Banking & its prospect
in UK’. The first one is to know the prospect of Islamic Banking in UK, and for this to
achieve it is required to understand the full concepts of Islamic Banking, by analysing
the theoretical foundations of Islamic banking and the factors that have contributed to
the emergence of Islamic banking in UK. To carry out the missions I have chosen
Islamic Bank of Britain Plc (IBB) as a model. In dealing with these issues, the study
aims to achieve the following objectives:

a) To introduce the sources of shariah or Islamic legal system as the
foundation for Islamic banking laws and regulations, which have shaped
the evolution of modern Islamic finance.
b) To investigate the issues of the prohibitions of riba (interest), from a legal
and moral standpoint as enshrined in al-Qur’an and the Sunnah (practices
of Prophet Mohammed), and as prevalent in the literature of Islamic
banking.
c) To identify the similarities and differences in the structure and practices of
Islamic and conventional banks.
d) To understand Consumers attitudes towards Islamic Banking in United
Kingdom.
e) To examine the factors which have led to the emergence of Islamic
banking with a brief review of the growth, development and future of
Islamic bank in United Kingdom.
f) To offer some tentative suggestions on the subject based on the findings of
the research
1.2 Significance and benefits of the Study
Islamic banking is a subject which many people, including Muslims, know very little
about. The theory of interest-free banking itself is a revolutionary idea in the banking
business of a country, but this aspect often gives rise to confusion and misconceptions
about the operation of Islamic banking. The growth of Islamic banking partly reflects
demand from Muslims clients for Islamic deposit facilities and fund management
services which involve shariah compliance. At the same time, Islamic banking
methods are viewed as a challenge and opportunity by conventional bankers, many of
whom have sought to get involved in this growing industry. In client driven societies

there is a willingness by those in financial services to learn from the experiences of
Islamic banks. Further, the globalization of trade necessitates the conducting of affairs
of Islamic bank with non-Islamic banks, and vice-versa. Such integrated international
trade demands that business communities, banks and other trade regulatory bodies of
both Muslim and non-Muslim countries should gain some understanding of the
principles of Islamic banking. So the knowledge of current Islamic banking as
compared to the conventional banking is very significant for economists, bankers,
administrators and other peoples involved with international trade and commerce.
Added to these, the increasing number Islamic banks in various countries made it a
necessity for banking communities to have some insight into the workings of Islamic
banks.
Therefore, the present comparative research will familiarize the readers with the
principles of shariah and will provide an insight into the rules and principles of
Islamic banking as well. In spite of the fact, that the Islamic banks are operating
successfully alongside other conventional banks and playing an increasing role in the
economy, there has been little comprehension research on Islamic banking in United
Kingdom.
1.3 Historical background of Islamic Bank of Britain Plc (IBB)
In early 2002, few non-executive directors of IBB in the Middle East discussed the
idea to create the UK’s first stand-alone Islamic bank. Prior to this, UK had only
conventional Banks like HSBC with ‘Islamic window’ providing Shariah products.
FSA regulations welcomed the proposal and in August 2004 IBB came into existence.
Initially it started with £14 million capital invested from the Gulf. IBB is commercial
entity based bank strictly regulated by the Islamic Shariah (Islamic legislation)
principles and believes will meet the financial needs of the British Muslims. Shares
are available to all interested individuals (Muslims and non-Muslims). I have chosen
Islamic Bank of Britain (IBB) to serve the purpose of research and to study Islamic
Banking system as this is only Bank in UK which only runs only on the Shariah
(Islamic legislation) system (www.islamic-bank.com). Currently it has over 50,000

accounts and some 42,000 customers. It is also important to note the Bank has been
making losses since its inception in 2004.
1.4 Prospect/Challenges for IBB
Islamic Banking, based on the Islamic economic system, is not restricted to Muslims
only and it is no longer confined to concepts and ideas only. There has always been a
demand among Muslims for financial products and services, by the immigrant UK
Muslims that conform to Shariah (Islamic Law). ‘Given the UK’s position as one of
the leading international financial centres, it is no surprise that part of this growth has
taken place in London which is now seen as an emerging global ‘hub’ for Islamic
finance. At the same time, the government has wanted to give the UK’s relatively
large Muslim community (around 3% of the population) access to financial services
consistent with their religious beliefs (Michael, 1997). Moreover, the UK government
is coming with lots of initiatives for Islamic Banking system and wants to make
Britain the world's biggest centre for Islamic finance, as Mr. Gordon Brown, while
being chancellor of the Exchequer, in his speech on Wednesday, June 14, 2006,
(www.hm-treasury.gov.uk) pledged to make it possible for banks to increase sales of
Islamic financial services in Britain.
It shows the Islamic banking system in UK doesn’t have to struggle like a decade
before for the help of Government backing. Still we can see IBB is not doing well and
being in loss as par its Financial Statements. It could be the lacking of understanding
and the perceptions of customers towards them in terms of service quality and other
patronage factors to secure customer’s allegiance. This scenario actually prompted me
to investigate the reasons behind these issues, as I believe the growth and increased
demand requires innovation and product developments etc which IBB might be
missing.

Chapter Two
II. LITERATURE REVIEW
_____________________________________________________________________
This chapter critically appraise the appropriate Islamic banking literatures; contrast
and compares relevant sources and support discussion. Ends with questionnaires
linkage to conceptual framework
_____________________________________________________________________
2.0 Introduction
According to Saunders et al. (1997) literature review is a process of reading and
writing to enhance subject knowledge to help in clarifying research questions. With
this literature reviewing, the author aims to dissect the research questions to determine
their relevancy and impacts in Islamic banking industry.
The Muslim scholars started paying strong attention to the issue of the Islamic socio-
economy system soon after world war II and in the 1960’s and 1970’s research
intensified and specialisation emerged in different fields, and among this
specialisation, the economic system of Islam has received the most attention (Chapra,
1985). With the increasing popularity of Islamic banking, books in this area have
become quite common. We see in the last three decades prolific studies and writings
on Islamic Banking within the scope of modern finance industry have started (Haron
et al, 2003). But still the author finds there has been an acute dearth of literature
which tends to be more academic and covers both concepts and application of
procedures.
2.1 History of Islamic Banking
From the very early stage in Islamic history, Muslims were able to establish a
financial system without interest. The system to finance business activities was based

largely on the profit-and-loss sharing (PLS) modes of mudārabah (passive
partnership) and mushārakah (active partnership). Deferred trading and interest-free
loans (qurūd hasanah) were also used to finance consumers’ as well as business
transactions (Haron & Shanmugan, 2001). The system worked quite effectively
during the heydays of Islamic civilisation and for centuries thereafter to mobilise the
“entire reservoir of monetary resources of the medieval Islamic world” for financing
agriculture, crafts, manufacturing and long-distance trade (Udovitch, 1970). They
were used not only by Muslims but also by Jews and Christians to the extent that
interest bearing loans and other overly usurious practices were not in common use.
Schatzmiller (1994) has mentioned that during the time of the ‘Abbasid Caliphate’
(908-932AD), Muslims had started performing most of the basic functions of modern
banks. They had their own markets, something akin to the Wall Street in New York
and the Lombard Street in London, and fulfilled all the banking needs of commerce,
industry and agriculture within the constraints of the then-prevailing technological
environment. The legal instruments necessary for the extensive use of financing
through mudārabah and mushārakah were already available in the earliest Islamic
period. These instruments, which constituted an important feature of both trade and
industry and provided a framework for investment, are found in a developed form in
some of the earliest Islamic legal work (Udovitch, 1970) practices and concepts
already fully developed in the Islamic legal sources of the late eighth century did not
appear in the West, according to Udovitch, until several centuries later provided a
great boost to trade which flourished from Morocco and Spain in the West, to India
and China in the East, Central Asia in the North, and Africa in the South. In Spain and
the Mediterranean and Baltic states, Islamic merchants became indispensable
middlemen for trading activities. The extension of Islamic trade influence is indicated
not only by the available historical documents but also by the Muslim coins of the
seventh to the eleventh centuries found through excavations in countries like Russia,
Finland, Sweden, Norway, the British Isles and Scotland which were on the outskirts
of the then-Muslim world (Kramers, 1952).

2.2 Is Shariah the foundation of Islamic banking laws and regulations?
According to Sami Zubaida (2005) Shariah is a ‘body of rules deriving its legitimacy
from the theological premise that it is God’s law.’ In other words, Shariah is the way
which directs man’s life to the right path (Rahman, 1979). The very objective of the
Shariah is to promote the welfare of the people which lies in safeguarding their faith,
their life, their intellect, their posterity and their property (Ghazali, 1937).
The concept of Shariah is not only to govern man in the conduct of his life in order to
realise the Divine Will, but covers all behaviour- spiritual, mental and physical.
Shariah principles are more than law, covering the total way of life that includes faith
and practices, personal behaviour, legal and social transaction. In other words,
Shariah is a comprehensive principle of a total way of life (Haron & Shanmugan,
2001). Shariah is, therefore, expected to provide not only the right path but also to
govern all activities of the Muslims toward the betterment of the whole community,
and this includes the monetary transactions as well. These facts automatically
convince author, that Shariah is the foundation of Islamic banking laws and
regulations, which shaped the evolution of modern Islamic finance.
2.3 Sources of Shariah Law
The author finds is quite important to know the sources of Shariah law as the
underlying theories of Islamic banking principles originates from them. There are four
fundamental sources of Shariah law. The first source is the Islamic Holy Book called
Qur’an. The Holy Qur’an is the original and eternal source of Shariah law. It
constitutes messages that Allah presented to the Prophet (pbuh) for the guidance of
mankind. These messages are universal, eternal, and fundamental. The Hadith, second
foundation of Shariah, is next in importance to the Qur’an. It refers to information,
accounts, narratives, stories and records of Sunnah (practices) of the Prophet (phub).
These were handed down from generation to generation to become the rule of faith
and practice of Muslims. The Sunnah signifies the customs, habits and usages of the
Prophet (pbuh). The third source of Shariah law is the Ijma. Ijma means a consensus

of opinion of mujtahids (learned scholars of Islam or those authorised to exercise
independent legal reasoning), or an agreement of Muslim jurists of a particular age on
a question of law. The fourth and last source of Shariah is the Qiyas which literally
means ‘measuring by’ or ‘comparing with’ (Ali, 1950). Qiyas is the process of
reasoning by analogy of the mujtahids with regards to difficult and doubtful questions
of doctrine or practice, by comparing them with similar cases already settled by the
authority of the Quran and Hadith and thus arriving at solutions of undecided
questions (Klein, 1985). The author believes agrees modern financial products at
Islamic banking came into existence by the decisions through Ijma and Qiyas even
though Islamic way of financing is there for the last 1400 years.
2.4 Principle of Shariah in Islamic Banking
Currently, there is no Muslim country which has succeeded in formulating and
implementing a complete package of Shariah law which covers all aspect of living.
Similarly Islamic banks laws are not comprehensive. But Muslim Scholars are
actively working to make it better. In most cases the law is similar to conventional
banking law except with an additional clause that prohibits the banks from dealing
with interest (Haron & Shanmugan, 2001). The author view is same here and it was
complemented by same opinions from a number of bank managers at Islamic Banks
in Bangladesh.
Islamic banks in all countries are expected to conform to two types of laws. As
normal business entities, Islamic banks are governed by laws and regulations imposed
by the government of their domiciled country. These laws are commonly known as
positive laws. As institutions whose foundations are based on Islamic doctrines,
Islamic banks must also operate within the ambit of Islamic principles and laws.
Positive laws or the laws that are given by a person of authority are distinct from
moral and sacred laws given by God or with God’s guidance (Haron & Shanmugan,
2001). These positive laws refer to Western laws and also to secular statutes borrowed
by Islamic countries. The positive laws, in most cases are in the supervision of that
country’s Central Bank. Islamic banks must conform to all requirements stipulated in

both Acts in all the countries. Similarly, other governments have passed special laws
that govern the operations of Islamic banks in their country. Schacht (1964) a
contemporary historian in Islamic civilizations believes that Islamic law was created
not by an irrational process of continuous revelations but by a rational method of
interpretation. He also claimed that both religious standards and moral values which
were introduced into the legal subject-matter provide the framework for a structural
order (Shariah).
2.5 The prohibition of Riba (Interest & Usury) from a legal and moral standpoint
as stated in the Islamic literature
The author has found the prime concern of Shariah law in Islamic banking is Riba.
But not long ago Islam’s prohibition of riba (interest) was generally regarded as an
almost impossible proposition – even among most Muslim intellectual circles
(Chapra, 1985).
The biggest question author kept in mind through out literature reviewing was ‘What
is Riba?’ and its position in Shariah?
Riba is an Arabic word which literally means ‘increase’, ‘growth’, ‘to rise’ and ‘to
become lofty’ (Ahmed, 1992). From the Shariah (Islamic law) point of view,
however, riba technically refers to the ‘premium’ that must be paid by the borrower to
the lender along with the principle amount as a condition for the loan or for an
extension on its maturity (Chapra, 1992). Throughout literature on Islamic banking,
the author found it is the most important aspect of Islamic banking and its operation
must be conducted without any element of riba, as Islam condemns those who
associate themselves with the practice of riba. The Qur’an explicitly states that the
charging of interest will draw a declaration of war from Allah and His Messenger and
promises total destruction of an economy which allows interest-based transactions.

2.6 Disputes among Muslim Scholars on Riba
While reviewing, the author also found, that there have been some disputes amongst
the Muslim scholars about whether Riba refers to interest or usury. Some scholars
have argued that what Islam prohibits is usury and not interest. They claimed that
interest paid on loans for investment in productive activities would not contravene the
Qur’an for it refers only to usury on non-productive loans which prevailed in pre-
Islamic times when people were not familiar with productive loans and its influence
on economic development. The author agrees with Khan (1987), that there is no
segregation between interest and usury in Islam, and author has the same opinion.
At this point, the author ask the question here ‘Why Islam tends to be so harsh and
intolerable with riba, whereas, accepting and paying interest is an acceptable and
common practice to other communities?’ Those who are used to the conventional
banking system may believe that interest is the ‘life blood’ of the entire banking
system. Without interest, it is argued the system would grind to a halt (Mannan,
1986). Hosein (1997) argues, that interest on a loan is a dangerous form of riba and
that William Shakespeare created the role of the moneylender, Shylock, in his play,
The Merchant of Venice, to highlight the danger of riba and money-lending to the
well-being of the community. The author believes, the prohibition of riba, in Islam, is
to discourage society from conducting business undertakings in such a manner that
will encourage debt and passive participation in the economy. Karim & Archer (2002)
also added, that riba works against the Islamic concept of caretaking in that it is a
means of creating an unjust situation and disadvantaging the poor of society by
creating a situation in which the poor can never escape the chains of debt.
2.7 Islamic banking and ethical investment
To talk about Islamic Banking in UK, the author find it prospective as the philosophy
underlying Islamic banking principles as discussed above is similar to that of socially
responsible investment (SRI) and ethical funds that received wide recognition in the

West for the last two decades (Wilson, 1997). Investing money involving in the
production of armaments, alcohol, and tobacco; possess poor environmental
performance record; engage in indecent advertising and practise cruelty to animals,
which is totally banned in Islam. In the UK, the concern for ethical investment and
socially responsible financial firm has become increasingly popular since the mid-
1970s, and the author believe this would create a positive impact on the image of IBB.
2.8 Conventional Banking Vs Islamic Banking
The ideology of Shariah Banking contains much more than its commonly known
‘prohibition of interest in the financial transactions’ as Mirakhor & Warde (2000)
correctly stated Islamic banks strives for a just, fair and balanced society as
envisioned by the Islamic economics, and therefore cannot finance any project which
conflict with the moral value system of Islam such as financing a brewery factory, a
casino, a night club, affecting environment or any other activity clearly prohibited by
Islam or known to be detrimental to society. Therefore, the idea behind the banking
system is to eradicate injustice in society.
The author believes, ‘Islamic banking’ is conducting banking operations in
consonance with Islamic teachings. He also understands that Islamic banks are not
expected to have philosophies and objectives similar to conventional banks. Islamic
banks perform mostly similar functions to that of conventional banks, but their
approach is distinctly different (Chapra, 2000)
The similarities between the two systems are that in an Islamic system, banks,
although controlled by the rules of the Shariah, essentially perform the same functions
as those in a conventional system; that is, they act as administrators of the economy’s
payments system and as financial intermediaries. The author strongly believes it as
true, and would ask for IBB customers’ views through questionnaires.

Due to the nature of operation, we see there are a lot of differences between Islamic
and conventional banking. Contrary to Islamic banking, conventional banking has
been defined as ‘accepting, for the purpose of lending or investing, deposits of money
from the public, repayable on demand or otherwise, and withdraw able cheque, draft,
order or otherwise’ (Meenai, 1998). Moreover, the Bank functioning in the way must
reflect Islamic principles in real life. The Bank should work towards establishment of
an Islamic society. So, one of its primary goals is the deepening religious spirit among
the people. (IAIB, 2001). The author finds there are obligations of Islamic banking
towards society are greater than conventional banks due the following reasons:
a) Islamic banking has certain philosophical missions to achieve, and are not free
to do as they wish; rather they have to integrate moral values with economic
actions. There is a moral filter based on the definitions of halal (permissible)
and haram (prohibited and undesirable) operating at different levels, carving
the conscience of entrepreneur and firm, promoting a positive social climate
for society, and providing an expedient legal framework (Chapra, 1992).
b) To provide credit to those who have the talent and the expertise but cannot
provide collateral to the conventional financial institutions, thereby
strengthening the grass-root foundations of society; and to create harmony in
society based on the Islamic concept of sharing and caring in order to achieve
economic, financial and political stability (Chapra, 1992). As par Shariah,
prohibitions like interest, gambling, excessive risks, etc. are to provide a level
playing field to protect the interests and benefits of all parties involved in
market transactions and to promote social harmony (Ahmad, 2000; Chapra,
2000).
The basic important departure of Islamic banking from conventional banking is the
prohibition of riba and the promotion of bai’ or trade, and so the depositors with
Islamic banks have to be mentally prepared for risk of money diminishing as a result
of losses incurred by the bank in its efforts to generate income (Gafoor, 2001). From

this perspective the major differences between the Islamic and conventional banking
systems are as follows:
1. A conventional bank finances its customers based on the contract of loan
where the bank is the creditor and the customer is the debtor. Thus, it is a
creditor-debtor relationship. On the other hand, in an Islamic bank it is run by
a contract of sale i.e. a deferred sale contract on which the bank itself or the
bank appoints the customer to purchase the goods needed and later sells them
to the client with a mark up (cost plus and agreed profit margin). The payment
will be made in instalments over a specified period of time (Chapra, 1985;
Haron & Shanmugan, 2001).
2. The prevailing practice of interest in the conventional banking system involves
injustice to the borrowers since the interest on their loans have to be paid
irrespective of their business positive or negative outcomes (Lewis and
Algaud, 2001; Iqbal and Molyneux, 2005). But, Islamic banking aims to
promote economic growth through risk-sharing (Asquith et al., 1994; Andrade
and Kaplan, 1998)
3. An Islamic bank is said to make a legitimate profit from its trading activity as
it involves risk, an effort as compared to a conventional bank, which merely
finances the customer at a fixed interest rate. According to Gafoor (2001)
profits would have accrued from one year to another according to the
performance of the bank, not according to changes in interest rates.
4. The author has found the nature of Islamic banking is not merely lending the
money as practiced by conventional bank; rather it is involved in buying and
selling the commodity/property. Like with IBB, the Home Purchase Plan is
based on the accepted and widely used Islamic financing principles of Ijara
(leasing) and Diminishing Musharaka (reducing partnership). For example, the
bank may contribute 80% and you 20% of the purchase price. Over a period of
up to 30 years, you will make monthly purchase instalments through which the

Bank will sell its share (80%) of the home to you. With each instalment paid,
the Bank’s share in the property diminishes while your share correspondingly
increases (www.islamic-bank.com). In conventional banking practice, interest
is regarded as the price of the loan.
5. Profit margin imposed by an Islamic bank in some modes of investment e.g.,
in murabahah or cost plus profit is fixed at the time of contract and must be
agreed upon by the customer. Therefore, even if the client does not pay on
time, the bank cannot ask for a higher price due to delay in settlement of dues.
While interest rate, which is also prefixed at the time contract either would be
unchangeable or would change according to the Base Lending Rate (BLR) that
constantly monitored by the Central Bank (Faruq, 2002).
6. Under Islamic banking system, no penalty is charged for late payment of
instalments. In order to get the Islamic type of financing, a customer needs to
open an account with the bank and to deposit some amount of money in the
account so that the deposited money could be set off in case of late payment.
(Faruq, 2002). On the contrary, conventional bank charges penalty for late
payment. There will be the compound interest. The longer the delay the bigger
would be the compounding effect (Faruq, 2002).
7. In Islamic financing, no money is advanced to the clients by the bank. Instead,
the bank, in murabahah for example, itself purchases the commodity required
by the clients. Since these transactions cannot take place unless the clients
assure the bank of their willingness to purchase a commodity, therefore, it is
not possible at all, unless the bank creates inventory. In this manner, financing
is always backed by assets (Chapra, 1985; Haron & Shanmugan, 2001).
8. Islamic banks face a risk not faced by their counterparts. Both have to take
credit risks, capital adequacy, liabilities and asset-matching risks, currency
fluctuation and liquidity risks, but the risk under Islamic banking system is
higher. In the case of the former where Islamic banks are organised mainly on

the basis of profit earning arrangements permitted by Islam, both profit and
loss are possible in every single deal, while in the case of lending at interest by
their conventional counterparts the risk of loss is borne entirely by the borrow
(the client), but the lender (the bank) safeguards himself/herself against any
possibility of loss. (Faruq, 2002)
We can summarise the main differences in the following diagram:
Factor Islamic Banking Conventional Banking
Main Principle The customer shares the
profit and loss with the
bank. High degree of risk
with variable returns
The customer obtains fixed
interest from the banks and
does not share the loss
Stability Higher degree of stability Lower degree of stability
Treatment of interest Uses Profit and Loss
Structure (PLS) accounts.
Interest is prohibited in
any degree.
Interest based on products
Profitability PLS is based on
partnership (musharaka) or
joint investment without
participation in
management (mudharaba).
Based on mark up
principle. Leasing contrast
(Ijara).
Higher concentration leads
to higher interest rates,
which leads to higher
profitability to the banker.
Higher rates of inflation
lead to higher profit
margins.
Ethical funds and
Investment
Practices on ethical funds
and investments, e.g. IBB
cannot invest for
armament or in casinos.
Not concerned about
ethical funding and
investments
Table 2.1 Islamic vs. conventional banking
2.9 Why Muslim Countries set aside Shariah Law for a long time?
Like author, everyone would ask the above common question. Shariah Law came into
existence 1400 years back, still in reality Muslims are constantly bound by mostly
customary and positive laws. This is because through trade activities and colonialism,

Muslim countries began to adopt conventional banking and Islamic banking activities
which were initiated by early Muslims, ceased to exist (Haron & Shanmugan, 2001).
This situation, which prevails in modern times commenced during the medieval age
of Islam when the Shariah was frequently set aside by orders of the Caliph and
governors, especially in matters related to commerce and civil order (Guillaume,
1977). So till modern times we saw in all Muslim countries banking laws were
conventional banking laws or interest-based laws. And author believes like Ali (1988)
that the emergence of Islamic banking in the 1960s and 1970s served as an impetus
for the re-establishment of Shariah law in commercial activities.
2.10 Rebirth of Islamic Finance
The independence of Muslim countries has led to the revival of Islam and there is a
longing to gradually reinstate most of the lost institutions, the Islamic financial system
being one of them. (Chapra, 1985). The ‘so-called’ Islamic resurgence which swept
many parts of the Muslim worlds was the renewal point of Islamic banking system.
The main notion of these resurgences was the application of Islamic teachings in all
aspects of life. Since Islam prohibits interest, it is obvious that the elimination of
interest from the economic and banking system became top priority among Muslims
scholars. The establishment of Mit Ghamr Local Savings Bank in 1963 marked a new
milestone in the revolution of the modern Islamic banking system (Haron &
Shanmugan, 2001). Today it’s a USD 1.3 trillion industry with more than 400
institutions offering Shariah complaint products (Maiya & Banerjee, 2008).
2.11 The factors that led to the emergence of Islamic banking in UK
The author agrees with Islamic bankers, that Islamic finance has grown rapidly across
the world in recent years and part of this growth has taken place in United Kingdom
which is now seen as an emerging global ‘hub’ for Islamic finance. The government
has wanted to give the UK’s relatively large Muslim community (around 3% of the

population) access to financial services in connection with their religious beliefs
(Michael et al., 2007). The UK government wants to make Britain the world’s biggest
centre for Islamic finance which would benefit 1.8 million Muslims in Britain and
companies like HSBC Bank and Lloyds TSB Bank that are already offering some
services which are in line with the Shariah Banking. Mr. Gordon Brown, while being
Chancellor of the Exchequer, in his speech on Wednesday, June 14, 2006, pledges to
make it possible for banks to increase sales of Islamic financial services in Britain
(Michael et al., 2007). The author is concerned with the Islamic bank customers’
knowledge’s, whether they are aware of this fact or they assume UK government is
just not supportive to Islamic banking. As par research work of Omer (1992) much
ignorance is prevailed among Muslims in UK regarding this banking system, and the
author too believes many of them still do having the same lacking of knowledge in
this aspect.
The author agrees with Michael et al. (2007), that most of the growth of Islamic
finance in the UK has taken place in the last six years we can see Shariah compliance
based transactions been taking place in London since the days in 1980s. Products
developed at that time were aimed exclusively at wholesale and high-net-worth
investors as these products were relatively uncomplicated in structure and fell outside
the scope of the regulators.
The author agrees, again, with Michael et al (2007) and has no question, that on a
very limited scale, retail Islamic products started appearing in UK in the early 1990s:
few banks from the Middle East and South East Asia began offering and selling
simple products such as home finance. However, found themselves unfavourably
tough to compete with their conventional equivalents especially in the pricing. The
growth of the retail market remained slow throughout the 1990s and early 2000s as
these products did not fall within the regulatory framework and thus consumers did
not have the same protection as other consumers like the availability of the Financial
Ombudsman Service and the possibility of having support from the Financial Services
Compensation Scheme.

2.12 Government initiatives
The author agrees the UK government has recently taken important steps to promote
the Islamic Finance industry. For example the Treasury established an ‘Islamic
Finance Expert Group’, in April 2007, to represent a broad cross-section of opinion
from the industry, the City, Muslim organisations and the FSA (www.fsa.gov.uk).
The primary objective of this board is to advise the government on opportunities to
help Islamic finance in the UK. The Chancellor confirmed in his pre-Budget Report
(October 2007), that the group is overseeing an official study by the Treasury and the
UK Debt Management Office on the possibility of the UK government issuing a
sovereign Sukuk in the wholesale market. Sukuk (Islamic Bond) has already achieved
a massive success in the Middle East. Author also finds it prospect, that UK
Government is thinking National Savings and Investment Institute to invest this
Islamic bonds in the market (www.hm-treasury.gov.uk)
2.13 Historical background and prospect of Islamic Bank of Britain (IBB)
In early 2002, few non-executive directors of IBB in the Middle East discussed the
idea to create the UK’s first stand-alone Islamic bank. On this ground alone, author
has chosen IBB for his research work. Prior to this, UK had only conventional Banks
like HSBC with Islamic window providing Shariah products. FSA regulations
welcomed the proposal and in August 2004 IBB came into existence. Initially it
started with £14 million capital invested from the Gulf. IBB is commercial entity
based bank strictly regulated by the Islamic Shariah (Islamic legislation) principles
and believes will meet the financial needs of the British Muslims. Shares are available
to all interested individuals (Muslims and non-Muslims). The researcher has chosen
Islamic Bank of Britain (IBB) to serve the purpose of research and to study Islamic
Banking system as this is only Company Bank in UK which only runs only on the
Shariah legislation. During four years of its operation it has made a good impact in
Islamic Shariah Market. As par financial statements of IBB, author can see in spite of

increase in customer base IBB has been making losses like GBP £8.83 million losses
as at December, 2007. The author takes this information for his research behind these
losses. Currently, the Bank has eight branches, nationwide, and has over 50,000
accounts and some 42,000 customers. The company was listed on the Alternative
Investment Market (AIM) of London Stock Exchange in October 2004. As at 30 June
2008 there were 419,000,000 ordinary shares in issue (www.islamic-bank.com). The
author has found that 57.33% of the ordinary shares are not in public hand. Out of this
15.99% ordinary shares been invested from UK Institute, and rest from the private
equity firms in Middle East.
2.14 Review on Consumers attitudes towards Islamic Banking
The author strongly believes the increasing patronage of customers is behind the
prospect of Islamic banking in UK, and we understand attitudes of customers towards
this banking are the primary step for patronising. A substantial amount of literatures
on individual consumers’ attitudes towards conventional financial products and
services are already in place concerning selection criteria and customer satisfaction.
The following section focuses on individual consumers’ attitudes towards Islamic
banks, it would be useful to first briefly summarise the most-recent findings
concerning individual retail consumers’ attitudes.
Devlin (2002) in his field work in UK market showed that professional advice was the
most significant motivation for the choice of a home loan institution by customers in
the United Kingdom. The author easily agrees with Devlin (2002) as the increasingly
competitive environment in which conventional banks operate has seen customer
satisfaction become the focus of increasing attention. There is a consensus among
many studies that service quality is the primary factor in customers’ satisfaction with
conventional bank services (Taylor and Baker, 1994; Levesque and McDougal, 1996;
Jamal and Naser, 2002). The author noted that, Pont and McQuilken (2005) have also
mentioned, that a high level of customer satisfaction impacted positively on the
continued loyalty of a customer towards a particular bank. Haron’s et al (1994) in his

study on Malaysian bank customers also found fast, efficient serve and confidentiality
were the primary motivations for bank selections. The author is convinced this would
be true in any continent as customer wants importance and good customer services
first. As Wilson (1995) correctly said ‘as a business that is ineluctably in need for
winning over customers whilst retaining the old one’. This necessitates Islamic banks
to really understand the perceptions of their customers towards them in terms of
service quality and other patronage factors to secure customers' allegiance.
Gerrard and Cunningham (1997) surveyed the market in Singapore and found in his
main findings, that non-Muslims were completely unaware of Islamic methods of
finance but Muslims fared little better. The author noted the work of Gerrard &
Cunningham (1997) well to compare the scenario with UK as Muslims are minority in
both the country.
Talking about Gerrard and Cunningham (1997) findings, it is also worth to point that
Omer (1992) surveyed three hundred Muslims in the United Kingdom on their
patronage factors and awareness of Islamic financing methods. During that time,
Shariah-compliant products and services were primarily available though Islamic
finance ‘windows’ at conventional banks like HSBC. The main finding was noted as
high level of ignorance prevailed among Muslims in the UK concerning Islamic
finance principles. The author slightly disagree with this and thinks scenario have
changed a lot in UK with more Muslim population, and want to do research whether
this problem is still prevalent or not. Elsewhere in the literature it is mentioned that
Muslims living in a notionally Muslim country have a greater awareness and
knowledge of Islamic banking than immigrant Muslims. Also added, that although
UK Muslims were largely ill-informed about Islamic methods of finance, religious
motivation comprised the most significant factor in their strong preference for Islamic
banking services. The author agrees with Omer (1992) second findings, that religion
is the primary factory in the choice of an Islamic banking institute and wants to find
out more due to probable change of situation out of fifteen years time gap.

2.15 Conclusion and Conceptual framework
While reviewing the relevant literatures, the researcher has realised one important
aspect that reviewing has actually created a vacuum for more knowledge and raise
more questions in the mind set to distract this thesis work. To keep himself within
track, the author has created the following:
Conceptual frame with link to questionnaires (Questions in blue colour are
administered for IBB Management).
Table 2.2 Conceptual frame work with linkage to questionnaires
Research question # 1 Relevant Questionnaire (1-2)
The sources of Shariah or Islamic legal
system as the foundation for Islamic
banking laws and regulations, which
have shaped the evolution of modern
Islamic finance?
Useful concepts from literature review:
 (Haron & Shanmugam, 2001);
Shariah governs all activities of the
Muslims toward the betterment of the
whole community, including financial
transactions.
 Schacht (1964); both religious
standards and moral values which
were introduced into the legal
subject-matter provide the framework
for a structural Shariah finance .
1) Do you know the concept behind
Islamic banking?
2) Do you know the concept of Al-
Mudarabah products?
What are the issues of the prohibitions
of riba (interest), from a legal and moral
standpoint as enshrined in al-Qur’an
and the sunnah, and as prevalent in the
literature of Islamic banking.

Useful concepts from the literature
review:
 (Ahmed, 1992); Riba is an Arabic
word which literally means
‘increase’, ‘growth’, ‘to rise’ and ‘to
become lofty’.
 (Chapra, 1992) agrees that Riba refers
to the ‘premium’ that must be paid by
the borrower to the lender along with
the principle amount as a condition
for the loan or for an extension on its
maturity.
3) Do you know the meaning of the term
‘Riba’?
4) Do you agree? Islamic banks can
contribute more to the societal balance,
human prosperity and welfare?
To identify the similarities and
differences in the structure and
practices of Islamic and conventional
banks.
review:
(Ahmad, 2000; Gafoor, 2001; Iqbal and
Molyneux, 2005); Islamic banking stands
for equity sharing, risk sharing and stake
taking.
(Chapra, 1992); Islamic banking is a
moral filter based on the definitions of
halal (permissible) and haram
(prohibited) carving the conscience of
entrepreneur and firm, promoting a
positive social climate for society, and
providing an expedient legal framework
5) Do you understand the basic difference
between an Islamic and conventional
banking system?
6) Do you feel the interest based system
in conventional banking is, sometimes,
unjust to customers?
7) Do you believe the present global
recession is due to the interest system and
greediness of conventional bankers?
8)Your view on the following phenomena
that Islamic banking is:
a) Banking without RIBA only.
b) A socially acceptable Just
Banking System
c) Same as conventional banking
with different name only
To understand Consumers attitudes
towards Islamic Banking in United
Kingdom
Would you continue to deal with Islamic
bank even the risk on investment is
higher/more expensive than the
conventional bank?

review:
Devlin (2002); professional advice is the
most significant motivation for
customers.
Pont and McQuilken (2005) have also
mentioned, that a high level of customer
satisfaction impacted positively on the
continued loyalty of a customer towards a
particular bank
(Omer, 1992); UK Muslims are ignorant
in the understanding of Sharia Banking
and religion is the primary factor in the
choice of an Islamic banking institute.
9) How would you rate your level of
satisfaction with IBB during your
transactions?
10)Your view on the following
phenomena that Islamic banking is:
d) Banking without RIBA only.
e) A socially acceptable Just
Banking System
f) Same as conventional banking
with different name only
11) Do you think that Islamic bank of
Great Britain (IBB) are good with their
customer services like their conventional
counterparts?
To examine the factors which have led
to the emergence of Islamic banking
with a brief review of the growth,
development and future of Islamic bank
in United Kingdom
review:
 Author agrees with (Ainley et al.,
2007) United Kingdom which is now
seen as an emerging global ‘hub’ for
Islamic finance.
 (Haron & Shanmugam, 2001);
Islamic banks must be competitive
not only within itself but also with the
conventional financial system to
survive.
12)Do you believe the fact, that UK
Government is easing the ways for
Islamic Banks, regulation wise, and want
London to be the ‘hub’ of Islamic Banks
in the World?
13)Do you think you are spending enough
on advertising to improve the views of
potential customers on Shariah Banking?
14)What are the factors responsible for
IBB’s losses? What areas you are
concentrating to improve this trend?
15)What’s the present and future
challenges for IBB?

Chapter Three
III. RESEARCH DESIGN AND METHODOLOGY
_____________________________________________________________________
This chapter justifies methodological approach in relation to the research questions.
_____________________________________________________________________
3.0 Introduction
People undertake research in order to find things out in a systematic way, thereby
increasing their knowledge (Jankowicz, 1995). Methodology refers to the choice and
use of particular strategies and tools for data gathering and analysis (Saunders et al.
1997).
So we can say research methodology is a careful and diligent search using a certain
strategies of analysing data. We find all research projects share a goal of furthering
our understanding of a society and thus share certain basic stages as suggested by
Bailey & Harvey (1982):
1. Choosing the research problem and defining specific hypotheses or research
questions;
2. Formulating the research design.
3. Gathering data;
4. Coding, preparation of the results and analysis;
5. Interpretation and presentation of data.
With reference to the above definition author would carry out working his chosen
topic ‘Understanding Islamic Banking and its prospect in UK’. We can see there is
two parts in this topic a) to understand Islamic Banking in full details, and b) Prospect
of this Banking system in Great Britain at the moment and in the future. This is the

first step in defining the basic programme that author is going to endeavour. Next is to
pursue on these matters looking at the extensive materials from books, journals,
internet search, interviews, etc. In this second step where author would formulate a
research design, and decides on how to go about finding things out and gather
relevant information. Third stage of research comprises of gathering data only; the
author would then look at the information that have been collected and consider how
this fits into his idea of good thesis writing. In research terms, this fourth stage is
called coding and analysing data (Saunders et al., 1997). Finally, after weighing all
the options, the author would decide the best route that would help in to work
smoothly. This fifth and the final stage of a research is the analysis and the
presentation of the results, and then author would come to a conclusion.
Saunders et al. (2003) defined the so-called research process as ‘onion’, consisting of
five different layers, as in Figure 3.1 below:
Layer Approaches
Research philosophy Positivism, Interpretivism (or Phenomenology),Realism
Research approaches Deductive, Inductive
Research strategies Experiment, Survey, Case study, Grounded theory,
Ethnography, Action research
Time horizons Cross Sectional, Longitudinal
Data collection
methods
Sampling, Secondary data, Observation, Interviews,
Questionnaires
Table 3.1The research onion (Saunders et al., 2003)
3.1 Research Philosophy

Philosophers treat Research Philosophy as logical reasoning. All research is based on
assumptions about how the world is perceived and how we can best come to
understand it (Trochim, 2006). According to Saunders et al. (2003), research
approach includes positivism and phenomenology approach. The positivism approach
to research owes much to what we would think of scientific research. The
phenomenological approach is based on the way people experience social phenomena
in the world in which they live. The author’s research is related to a part of natural
science and is attached to the social phenomena where he is trying to understand
‘what is it?’ and ‘possibility’ (Saunders et al., 1997). The characteristic of the
research, which author is conducting is linked to this phenomenological approach, as
Easterby-Smith et al. (1991) states this method is appropriate while studying a small
number of people and researchers in this tradition are more likely to work with
qualitative data. The author believes this is appropriate due to time constraints and
other factors like expenses.
In this approach, the author appreciates the flexibility to changes, but also understands
its draw back like data analysing may be difficult and time consuming. Understanding
the nature of problems, author has taken adequate steps to counter the difficulties by
following his research schedules, well in advance.
3.2 Research approaches

Usually all research process originates with a broader area of interest with the initial
problem on deciding a topic. Researchers have to narrow questionings down to one
that is feasible and reasonably can be studied; formulating a hypothesis or a focus
question. Keeping following diagram into consideration, author engaged in narrowing
broader perspective to a research question of interest
Chart 3.2: The Hourglass notion of search
(Source: www.socialresearchmethods.net)
Once the basic information is collected, the author began to understand and analyze
the scenario of Islamic banking. It has been found, that for a certain area of interest
there are a number of analyses that can be conducted and finally author managed to
formulate a basic question that address the original broad question of interest in
Islamic banking.
3.3 Deductive and Inductive Thinking

Quite often researchers refer to two broad methods of reasoning as the deductive and
inductive approaches (Saunders et al., 1997)
Chart 3.3: Deductive & Inductive thinking
(Source : www.socialresearchmethods.net/kb/strucres.php)
As par the above diagram and according to William et al. (2006) deductive approach
works from the more general to more specific. This is also called “top-down”
approach and its conclusion follows logically from available facts. The author would
use this approach to test the prospect of Islamic banking in UK, which is he narrows
down from what he collects or observes to address the second part of his topic chosen.
On the other hand, inductive approach is where observation will take first and then
pattern and tentative hypothesis will be described (William et al., 2006). To obtain
result on the first research objective, author uses inductive approach to understand
‘Islamic banking’ moving from specific Sharia laws on finance to broader
generalization in Islamic banking. Further, William et al. added, this approach
involves a degree of uncertainty. In order to avoid unwanted uncertainty, the author
applied this approach only to specific areas. Both deductive and inductive (multi-

method) approaches have been implemented in this research to serve different
purposes and triangulation of results (Saunders et al., 1997).
3.4 Research strategies
According to Saunders et al. (1997) research strategy is a general plan of how author
would go about answering the research questions he has set. He also added, that
research strategy contain clear objectives, derived from his research questions; specify
the sources from which he intends to collect his data and also considered the
constraints which he would inevitably have.
Robson (1993) listed three traditional methods as research strategies:
 Experiment;
 Survey;
 Case study.
There is no scope for author, in this research, to work on experiment basis. Both
survey and case study basis have been used to conduct the research, as two questions
in the topic require two different methods for better results.
Survey: The author has chosen survey method to answer for the second part of his
chosen topic ‘prospect of Islamic banking’. Survey allows the collection of a large
amount of data from a sizeable population in a highly economical way. Based most
often on questionnaire, these data are standardised, allowing easy comparison. Much
time is spent in designing and piloting questionnaire and the progress is delayed due
to independence on others for information (Saunders et al., 1997). So, the author has
been careful in setting the number of questions and only the most relevant ones are
used. Apart from this problem, the survey approach actually gives the author better
control over his research process.

Case study: To answer the first part ‘understanding Islamic banking’ the author has
chosen case study basis method as Robson (1993) mentioned this approach has
considerable ability to questions the author. ‘What is Islamic Banking?’ ‘Why it’s
essential to understand Islamic Banking?’ etc. These questions actually boost to draw
attention to search for relevant data to find out ‘the prospect of IBB in UK’.
According to Emory and Cooper (1991) a well constructed case study can enable
author to challenge an existing theory and also provide a source of new hypothesis.
The author used multi-method approach, which include ‘descriptive research and
exploratory research’ in terms research queries as well as by the research strategy
used (Robson 1993).
3.5 Descriptive studies
The object of descriptive research is ‘to portray an accurate profile of persons, events
or situations’ (Robson, 1993). To identify the clear picture on Islamic banking
industry author has arranged self-administered questionnaires and telephone
interviews to get an average profile pictures of IBB customers, and secondary data
primarily (collected through numerous database, websites and articles) to get the
historical and present profile of Islamic banking. This may be an extension of, or a
forerunner to exploratory research (Saunders et al, 1997).
3.6 Exploratory studies
A search of the literature, talking to experts in the chosen field and conducting focus
group interviews are three suggested exploratory research by Emory and Cooper
(1991). The author, by conducting research, would like to understand the reason
behind Islamic banking concept, comparative analysis between conventional and
Islamic banking and UK government’s outlook and contribution towards operations of
Islamic Banking, etc. To answer all of these questions exploratory studies are
valuable means of finding out ‘what is happening; to seek new insights; to ask
questions and to assess phenomena in a new light’ (Robson, 1993).
3.7 Research Methods

There are two types of researches: qualitative and quantitative (Saunders et al, 1997).
As per the author’s view, qualitative research is the best suitable as data meanings
are expressed through words, which are relevant in this kind of research. Qualitative
research results in the collection of non-standardised data which requires
classification, and is analysed through the use of conceptualisation. The process of
‘understanding Islamic banking and its prospect in UK’ involves the development of
data categories, allocating units of original data to appropriate categories, recognising
relationships within and between categories of data, and developing and testing
hypothesis to produce well-grounded conclusions (Saunders et al, 1997). Interviews,
questionnaires, observation etc will help the author in the process of this qualitative
analysis.
3.8 Time horizon
The time horizon is the time, that author have taken for his research. It initiates an
important question: ‘Do I want my research to be a snapshot taken at a particular time
(cross-sectional studies) or do I want it to be more akin to a diary, and be a
representation of events over a given period (longitudinal studies)?” (Saunders et al,
1997). Due to the nature of research, the author has kept it on longitudinal studies
basis as he finds the flexibility in studying over a period of time and makes changes
and developments accordingly (Saunders et al, 2003).
3.9 Reliability and validity of Research design
According to Saunders (1997) to reduce the possibility of getting the answer wrong
attention has to be paid to two particular areas of research design: reliability and
validity.
3.10 The credibility of research findings
The credibility of research findings is translated by Saunders et al (1997) as reducing
the possibility of getting the answer wrong. Raimond (1993) has also raised question

like ‘how would author know that the evidence and the conclusion collected by the
author is up to the closest scrutiny?’ Omer (1992) collected data from 300 UK
Muslims through self-administered questionnaire and the information may not be
same now in 2008. ‘Will the measure yield the same results on different occasions?’
(Easterby-Smith et al., 1991). The author finds this has nothing to do with credibility
but it is a change of situation over the time.
There are four threats asserts by Robson (1993) to reliability. One of the two threats
considered important by author for this research is subject error. To avoid this error
author has to arrange the interview at the ‘neutral’ time instead choosing different
time, where people could be found in different mood.
Second is subject bias. Interviewees may have been saying what they thought their
bosses wanted to say. The author is aware about this potential problem and will be
taking elaborate steps to avoid this situation not only whilst designing but also whilst
analysing data.
3.11 Validity of Research findings
According to Saunders (1997) validity is concerned with whether the findings are
really about what they appear to be about. The author would be taking care while
designing the research that could help to get the right result related to his research.
The author will be taking care of some of the threats to validity described by Robson
(1993). Author has chosen to interview people related to Islamic banking industry,
and those who are willing to give interview can give valid and right information.
3.12 Relevant threats to validity for this research
Testing: If the bank officer believe that the results of the research may disadvantage
them in some way, then this is likely to affect the results.

Confidential problem: The bank officer may be worried about intimating some
information which he assumes should remain confidential.
3.13 Data collection methods
Data Collection is an important aspect of any type of research study. Inaccurate data
collection can impact the results of a study and ultimately lead to invalid results as
Saunders et al (1997) pointed out nicely ‘Is it logical to assume the way your data is
going to yield valid data?’ So the author has taken careful step in choosing the
following methods of data collection:
The aim of data collection procedure is to get worthwhile data for the problem as
defined. Data collection method consists of presenting a stimulus to respondents or
subject and recording his / her responses.
Two types of data are available to a researcher:
1. Primary data
2. Secondary data
3.14 Primary data:
Consists of raw information, which would be collect by means of administering
questionnaire as well as conducting oral interviews. First hand information to be
collected by the researcher. Questionnaire is used as the major instrument to gather
information along with few personal interviews (on phone and face to face).
3.15 Secondary data:
These are already published data and developed for some other purposes, which are
different from the research problem at hand, compiled through the internal and or
external source. Internal secondary data are collected within the organisation and this
includes the company’s in-house magazines, annual reports, and employee handbook,
etc. While the external secondary data were collected principally from the library and

these include journals, textbooks, handout, lecture notes and some other unpublished
materials within the campus.
Now let’s elaborate few things in the following:
a) Face -to -face interviews: according to Leedy and Ormod (2001), this
interviews yield highest response rates in survey research. To clear the
ambiguity of responses from questionnaires author would arrange face to face
interviews with IBB customers. It will be very useful to take in-depth ‘non-
standardised interview’ to find out what is happening to seek new insights
(Robson, 2002).
b) Questionnaire: It is a general term, which includes all techniques of data
collection in which each person is asked to respond to the same set of
questions in a predetermined order (Saunders et al, 1997).
3.16 Designing the questionnaire
When designing, individual questions researchers do one of three things (Bourque and
Clarke, 1994):
 Adopt questions used in other questionnaires;
 Adapt questions used in other questionnaires;
 Develop their own questions.
The author would be comparing his findings with previous authors’ relevant work in
UK and so he finds this ‘adopting’ and ‘adapting’ questions as to some extent
necessary, as this would allow reliability to be assessed.
The questionnaire would be divided into two sections:
Section A and B

In section A of the questionnaire the demographic data of the respondents are to be
sought while the Section B contains mainly of questions, which are expected to be
used in data analysis and interpretation of findings and other variables.
An assumption is any important fact presumed to be true but not actually verified. The
questionnaire assumptions in this research work are as follows:
 That the questionnaire could get the correct information accurately.
 That the questionnaire is possible to measure respondent.
 That respondent will answer the questions.
 That what they say is their personal opinion unbiased.
3.17 Population and Sampling
The author like most researchers would find impossible to collect or to analyse all the
data available due to restrictions of time, finance and access. And, in this situation
sampling techniques enable the author to reduce the amount of data he needs to
collect by considering only data from a sub group rather than all possible cases
(census). The full set of cases from which the sample is taken is called the population
(Saunders et al., 1997)
Henry (1990) suggests using sampling enables a higher overall accuracy than does a
census. So it implies collecting data from fewer cases author can actually collect more
detailed information for the research.
3.18 Deciding on a suitable sample size
Probability and non-probability are two types of sampling. The author is considering
probability sampling as Saunders et al (1997) implied probability sampling is a
compromise between the accuracy of finding and the amount of time and money the
author invest in collecting, checking and analysing the data. The author would be

taking data from 100 individual as population of 50 or under is often no need to
sample (Saunders et al., 1997).
The group of people the author is going to generalise is called population from
Muslims community in UK and sample is the selected people, mostly IBB customers,
for the research (Saunders et al., 1997). Thinking practically, the author is not
expecting everyone selected would respond. The group that actually completes the
author’s study is a subsample, and doesn’t include non-respondents or dropouts
(Henry, 1990)
3.19 Ensuring the information needed
The researcher finds it important to select appropriate characteristics to answer his
research questions and address his objectives. As par Ghauri et al. (1995) suggestion
he gives utmost importance to:
 Reviewing relevant literature carefully, and
 Discussing his ideas with colleagues, project supervisor and other interested
parties.
Moreover, where possible the author will use his findings to relate to earlier research
work of Omer (1992) on his self-administered questionnaire’s findings and work
result in United Kingdom.
The author understands the essence of full fledged understanding of Islamic Bank of
Britain as an organisation. Without this it is easy to make mistakes, such as using the
wrong terminology, and to collect useless data (Ghauri et al., 1995).
3.20 Conclusion

Planning on any methodology is stressful; however, author found it enriching as it
helped him mapping out how data to be collected and analysed on the suitable proven
path of past researchers. It’s very analytical and satisfying giving the confidence to
move forward in a planned way.
Chapter Four
IV. DATA PRESENTATION
_____________________________________________________________________

The chapter presents the data collected from 75 respondents and from IBB Head
Office in Birmingham, UK.. The data have presented in pie diagrams.
_____________________________________________________________________
4.1 Presentation of data findings (IBB Customers)
The chapter will be able to confirm the answers to questions stated in chapter one of
this research work. This would involve analysing the responses received against the
questionnaire, which were collected and examined with reference to the research
questions. For effective analysis, clarity and comprehension, tabulation has been
made and respective percentage was found based on the frequency of response to the
questions.
The questionnaires were administered on one hundred and twenty IBB customers
from three branches (London & Birmingham) but only seventy five were returned.
The data has been analysed and only question that are directly relevant to the research
questions have been further tabulated and percentage of responses calculated.
The author has applied simple description analysis of average and percentage in
analysing the collected data; and the presentation of the analysis is in the pie chart
form. The questionnaire is divided into 2 sections; A and B.
The data collected is summarised according to the numerical order of the
questionnaire and analysed according to the importance and need of the study. Some
of the questions are analysed in details and some are not due to the requirement of the
study. Total response frequency for each of the question is 75.
Section A: Demographic Profile of IBB customers
Section B: Descriptive analysis of the variables of the study.
Section 1: Analysis of Demographic Profile
Distribution of Respondent by sex

Sex Frequency Percentage
Male 49 65
Female 26 35
Total 75 100
Table 4.1.1 shows that 49 of the respondent were male representing 65% while 26
were female representing 35%.
Table 4.1.1a:
Remark: Female respondents are almost half of the male respondents.

Table 4.1.2 Distribution by Age Group
Remarks: The table shows clearly Islamic Banking is more popular with the 41-54
age group followed by the people in their twenties.
Table 4.1.3 Distribution by academic qualification
Remarks: IBB is popular with people educated up GCSE level. Least popular with
highly educated people.
Table 4.1.4 Distribution by Employment Status category

Remarks: 69% of the respondents are employed; there are more unemployed
customers with IBB than retired customers. Shows least popular with senior citizens
Table 4.1.5 Distribution by ethnic origin
Remarks: Asian (mostly Indian subcontinent origin) comprises 84% of the
respondents, while only 4% respondents are European.

SECTION B
(Following questions related to knowledge/awareness of Riba concept/
Sharia principles)
Question 7: Do you know the meaning of the term ‘Riba’?
Table: 4.1.7
Remark: 97% respondent knows the meaning of Riba; much more than researcher had
expected.

Question 8: Do you know the concept of Al-Mudarabah products?
Table: 4.1.8
Question 9: Can you explain the full concept behind Islamic banking?
Table: 4.1.9 Remark: None of the respondent marked ‘No’

Question 10: Do you agree? Islamic Banks can contribute more to the societal
balance, human prosperity and welfare?
Table: 4.1.10 Remark: None of the respondent ‘Disagreed’
(Following questions related to understanding
the differences between Islamic and conventional banking)
Question 11: Do you understand the basic difference between an Islamic and
conventional banking system?

Table 4.1.11 Remark: None of the respondents marked they don’t understand the
difference
Question 12: Do you feel the interest based system in conventional banking is,
sometimes, unjust to customers?
Table 4.1.12
Question 13: Do you believe the present global recession is due to the interest
system and greediness of conventional bankers?
Table 4.1.13

Question 14: Are you motivated to use Islamic product on religious ground or due to
any other reason?
Table 4.1.14 .
Remarks: None of the respondent marked ‘other reason’. All the respondents opened
accounts with IBB due to religious reason.
Question 15: Do you have account with any other bank?

Table 4.1.15
Remark: It shows 99% of the respondents have accounts with other banks
Question 16: In your opinion how much are the services charges of
Islamic/Conventional bank as compared to conventional/Islamic banks?
Table: 4.1.16. None of the respondent marked ‘Low’. It shows IBB service charges
are quite high compared to the conventional banks
Question 17: Would you continue to deal with Islamic bank even the risk on
investment is higher/more expensive than the conventional bank?

Table 4.1.17
Remarks: Majority (43%) marked this ‘no comment’ to this questions. It clearly
shows respondents are in dilemma; otherwise, they don’t want to express their true
reaction to any future high risk involved dealing with IBB transactions.
(Following questions related to consumers outlook/approaches
towards Islamic Banking)
Question 18: Do you think that Islamic bank of Britain (IBB) are good with their
customer services like their conventional counterparts?

Table 4.1.18
Remark: None of the respondents strongly agreed
Question 19: Your view on the following phenomena that Islamic Banking at IBB is:

Table 4.1.19
Remark: Only 1% respondents believed banking at IBB is just like conventional
banking
Question 20: How would you rate your level of your satisfaction with IBB during
your transactions?
Table 4.1.20
Remark: Majority (61%) are content with IBB customer services

Question 21: Finally, how would you evaluate the development level Islamic Bank of
Britain has achieved in the past 4 years in United Kingdom?
Table 4.1.21
Remark: Majority (48%) rated as ‘satisfactory’ with IBB developments
4.2 Presentation of data findings (IBB Management)
Questionnaire addressed to: Mr. Samir Alamad.
Position: Assistant Manager, Product & Sharia'a Compliance
Email: Samir.Alamad@islamic-bank.com
Name of Respondent: Fatima El Banna
Email: Fatima.ElBanna@islamic-bank.com
Organisation: Head Office, Islamic Bank of Britain PLC

Email Sent date: Monday, 10th
November, 2008
Response receipt date: Tuesday, 11th
November, 2008
Questionnaire with Responses (in bold orange colour)
1) Demographic Profile of customers (Age, sex, occupation, education, religion &
marital status).
2) Your average customers are low/middle or high income earners?
(No answers received for the above two questions)
3) Purpose of your customers’ using this Islamic Bank:
Investment/Savings/Borrowings/Others? All
4) Do you have non-Muslim customers? Yes
5) In previous studies in UK (1992 & 2004) it was established, that there is high
level of ignorance prevailing among UK Muslims customers regarding the Islamic
products and only religious factors work as motivation to use these products. Would
like to know whether your Bank believes the same? More education is needed
6) If so, what step your Bank taking to educate the UK Muslims’ perceptions about
Sharia banking? Events, online information, public speeches
7) Do you believe the fact, that UK Government is easing the ways for Islamic
Banks, regulation wise, and want London to be the ‘hub’ of Islamic Banks in the
World? Yes
8) Islamic Banks can contribute more to the societal balance, human prosperity and
welfare? Does IBB makes efforts to preach this truth to the UK population? Do you

think you are spending enough on advertising to improve the views of potential
customers on Sharia Banking? We try to, however, educating everyone would not
be within most marketing budgets
9) Do you think you have enough firms having business accounts with your Banks?
What step your bank taking to increase it? We have business accounts and
constantly look to offer our services to more business customers.
10) Sukuk (Islamic Bonds) getting huge applause in the financial world specially in
Middle Eastern, South East Asian countries and some countries in Europe ? Is your
Bank thinking to market this Bonds, near future, in the retail/whole sale market? We
are a retail Bank, Sukuk are distributed by Investment Banks
11) Do you think its quite expensive/problematic to recruit and train staff who deal
with the Islamic products compared to the high street conventional banks? We have
in house training, and external Sharia’a training is developing staff
professionally.
12) Does Islamic bank distribute higher profits as compared to conventional bank? Do
not understand question. However most Banks are listed on the Stock Exchange
and if the question relates to dividends this can be checked on stock exchange
websites
13) Do you feel Islamic products are more costlier than interest bearing products? Not
always, depends on the provider and the product. Some of our products have
been in the Top 5 of the Moneyfacts bestbuys of UK finance providers over the
last year or two
14) What are the factors responsible for IBB’s losses? What areas you are
concentrating to improve this trend? Banking is a high fixed cost industry. It takes
time for the marginal profits to cancel out the high fixed costs so early in a

business such as Retail Banking
15) What’s the present and future challenges for IBB? Sharia’a education, market
growth and customer expansion
16) Any comment you would like to add regarding this topic? Islamic banking is
still in the early growth phase within the UK, and education is still needed but
the institutions are showing that they can be innovative and competitive and the
future bodes well for the industry.

Chapter Five
V. DISCUSSIONS
_____________________________________________________________________
The chapter discusses on the critical analysis of data presented in chapter IV; find
linkage to original research questions and key concepts and then test the findings
with SWOT and PEST analysis to find position of Islamic Bank of Britain.
_____________________________________________________________________
5.1 Analysis of primary data
The survey-study has tested a number of perceptions using pre-designed
questionnaires. After scrutinising the answers of the respondents following points can
be summarised:
Demographic Profile:
Sex: There are more male (65%) customers than female (35%) at IBB. Almost double
than that female respondents (table 4.1.1)
Age Group: IBB is more popular with 41-54 age group. Shows matured and working
people are more into it. And least with senior citizens and age group below 20 (table
4.1.2)
Qualification: 48% are high school qualified, found less popular with highly
qualified Muslims (4.1.3).
Employment Status: 69% are employed. To my surprise found 24% of the
respondents are unemployed and living on dole money (4.1.4).

Ethnic Origin: Popular with South East Asian Origin (Indian, Pakistani &
Bangladeshi) (4.1.5).
Table 5.1 Variance in data findings (the researcher vs. Omer, 1992)
Particulars Omer (1992) Findings(2008) Remarks
Distribution by
Sex
Male : 80%
Female : 20%
Male: 65%
Female: 35%
In 15 years time
gap more females
(15%) have joined
Islamic bank
Education Level 68% respondents had
higher educational
qualification and 31%
had higher degree
48% have GCSE or
equivalent
qualification,24%
HND/Bachelor
level, 9%
respondents are
postgraduates
Islamic banking
has well spread
among the high
school passed.
Their proportion is
much higher now
than highly
educated people
(48%: 24%: 9%)
Occupation
28% students,
researchers or lecturers
5% were physicians
16% self employed
4.1% unemployed
69% employed
24% Unemployed
7% Retired
Many respondents
are living on
Government’s
dole (24%).
Bank accounts
29% hold accounts
with conventional
banks along with
accounts with Islamic
banks
99% of respondents
have accounts with
other banks
Many kept
accounts with IBB
as a second option
and to give a try
with Islamic
financing
Satisfaction
12% were satisfied
with the products and
services in UK (Sharia
banking department at
Conventional Bank)
20% Very content
61% Content
19% Not content
More people are
satisfied now due
to various product
ranges
Knowledge on
Sharia Finance
Principles
High ignorance among
the immigrant
Muslims
48% claimed they
understand the full
concept of Sharia
finance
Improved on basic
knowledge on
Sharia finance, but
still most don’t
understand the
concept fully

Following the above agree/disagreement or difference against Omer (1992) findings,
the researcher now tries to link between the main research questions with the primary
data analysis:
5.2 Linkage between main research questions with the primary data analysis
A) Understanding Sharia and B) Riba concept:
UK Muslims are ignorant in the understanding of Sharia Banking (Omer, 1992).
Table 4.1.9: 52% claimed they understand the full concept behind Islamic banking.
Riba refers to the ‘premium’ that must be paid by the borrower to the lender along
with the principle amount as a condition for the loan or for an extension on its
maturity (Chapra, 1992).
Table 4.1.7: 97% claimed they know Interest free (Riba) is the reason behind Islamic
banking (Basic Sharia concept behind Islamic Banking)
Table: 4.1.8: 62% knows the meaning and concept of Al-Mudarabah product.
Shariah governs all activities of the Muslims toward the betterment of the whole
community, including financial transactions (Haron & Shanmugam, 2001).
Table 4.1.10: 89% responded Islamic banks can contribute more to the societal
balance, human prosperity and welfare.
Views of IBB Management (Product & Sharia'a Compliance Department)

Ms. Fatima El Banna (IBB) agrees with the previous studies in UK (1992 & 2004)
and believes more education is needed for the UK Muslims regarding Sharia
finance.
Events, online information, public speeches are arranged by IBB to educate the
general UK Muslims. However, Ms. Banna informored ‘We try to; however,
educating everyone would not be within most marketing budgets’.
C) Understanding the difference between conventional and Islamic banking:
The prevailing practice of interest in the conventional banking system involves
injustice to the borrowers since the interest on their loans have to be paid irrespective
of their business positive or negative outcomes (Lewis and Algaud, 2001; Iqbal and
Molyneux, 2005).
Table 4.1.12: 28% strongly agreed that interest based system at conventional banks
are sometimes unjust to customers, 60% only agreed, while 12% just ‘disagreed’.
Islamic banking stands for equity sharing, risk sharing and stake taking (Gafoor,
2001).
Table 4.1.11: 65% of the respondents claimed to large extent they understand the
difference, while 35% responded to understand the differences to some extent. None
of the 75 respondent marked they don’t understand the difference.
Islamic banking is a moral filter based on the definitions of halal (permissible) and
haram (prohibited) carving the conscience of entrepreneur and firm, promoting a
positive social climate for society, and providing an expedient legal framework
(Chapra, 1992)

Table 4.1.13: 45% of the respondents strongly agreed that interest systems and excess
greediness of conventional bankers are responsible for the global recessions, 36%
agreed to it while 19% disagreed.
Views of IBB Management:
Ms. Fatima El Banna (IBB) believes ‘Islamic banking is still in the early growth
phase within the UK, and education is still needed’. For better and deeper
understanding of the differences between Islamic and conventional banking and the
adverse affects of interest system IBB organises events and public speeches according
to their budget and opportunity.
D) Consumers’ attitudes towards Islamic Banking at IBB
For UK Muslims religion is the primary factor in the choice of an Islamic banking
institute (Omer, 1992).
Table 4.1.14: 100% of the respondents use IBB banking service due to religious
reasons.
High level of customer satisfaction impacted positively on the continued loyalty of a
customer towards a particular bank (Pont and McQuilken, 2005)
Table 4.1.18: 75% of the respondents agreed IBB customer services are good like
their conventional counterparts on the High Street. None of the respondents strongly
agreed while 25% disagreed to this fact.
Table 4.1.20: 20% of the respondents are very content with IBB customer service,
61% are just content/satisfied while 19% at not satisfied.

Table 4.1.21: 24% rated ‘very good’ on the development of IBB in the past four
years, 48% rated ‘satisfactory’ and 28% rated as ‘poor’ development.
Table 4.1.19: 79% of the respondents believe that IBB provides simply banking
without Riba, 20% respondent believes IBB provides socially acceptable JUST
banking system while 1% believe it’s just doing conventional banking with a different
name.
5.2.1 Contradictory primary data findings (Table 4.1.14 vs. Table 4.1.19)
Table 4.1.14 analyses that 100% of the respondents use IBB banking service due to
religious reasons while table 4.1.19 shows 1% of the respondents IBB just doing
conventional banking with a Islamic name.
The author believes this 1% originally started with IBB due to religious reason and
later on started believing its just conventional banking that IBB is practicing. Ms. El
Banna (IBB) confirmed that IBB have non-Muslim customers as well. Since the
researcher didn’t ask religious status in his questionnaire so from this finding it’s not
sure whether the respondent is non-Muslim or Muslim who simply believes IBB is
acting as conventional banker in the name of Sharia finance.
5.2.2 Lack of risk-sharing attitudes among the respondents
According to Maiya & Banerjee (2008) ‘New markets are moving towards the Islamic
banking practice not merely because of the religious imperatives, but due to the
positive risk-reward expected pay offs’. This scenario is observed in the global
Islamic finance market, mainly in the wholesale market. The researcher has observed
this is not the case in the retail market because of following findings:
99% of the respondents (Table 4.1.15) confirmed they have accounts with other banks
and 93% of the respondents (Table 4.1.16) agreed IBB charges are higher than using

conventional banker’s service. Only 7% informed its same, and none of the
respondents claimed ‘low’. Only 32% of the respondents (Table 4.1.17) commented
they would continue with Islamic banking even if risk gets higher investing or more
expensive with IBB.
5.2.3 Risk of IBB customers switching off to other Banks
The above responses clearly shows, that there is a strong possibility of the remaining
68% respondents (25% commented ‘No’; 43% marked ‘no comment’) might switch
to conventional bank accounts, anytime, if there is higher risk/service charge
associated with IBB banking. Religious convictions won’t help here in the long run.
People might start being IBB customers with zeal and high spirit but may not last
longer. With my close observations and informal conversations I encountered with
people who terminated their bank accounts with IBB. Many of them are foreign
students studying in United Kingdom.
The above shows religious faith is the primary factor of using Islamic banking service
and they realise the significance of Islamic banking to create a Just society. The
author agrees with Gafoor (2001) the depositors with IBB have to be mentally
prepared for risk of money diminishing as a result of losses incurred by the bank in its
efforts to generate income. Otherwise, the teachings and Sharia finance principles are
missing here. The author also found most of the respondents believe the present
global recessions is due to the fixed interest system by the greedy conventional
bankers (table 4.1.13), and understand the importance of interest-free banking for
current and future prospects of the society (table 4.1.10).
E) Growth, development, and future of Islamic bank in United Kingdom
Islamic banks must be competitive not only within itself but also with the
conventional financial system to survive (Haron & Shanmugam, 2001).

None of the 75 respondents ‘strongly agreed’ to the fact that IBB is good with their
customer services like their conventional counterparts. However, 75% of the
respondents agreed to good customer services while 25% respondents disagreed good
customer services (table 4.1.18). 93% of the respondents rated normal banking service
charges to be ‘higher’ than conventional banks (table 4.1.16). 48% rated IBB’s
development ‘satisfactory’ in the last four years (table 4.1.21). The researcher
observed the reason on this finding is due to IBB having only eight branches
nationwide (UK). We can see IBB has to improve has to improve its services and
increase branches for broader customer base.
IBB management agrees with Michael et al. (2007) ‘United Kingdom which is now
seen as an emerging global hub for Islamic finance’. IBB management states ‘Some
of our products have been in the Top 5 of the Moneyfacts bestbuys of UK finance
providers over the last year or two’.
5.3 Analysis of secondary data
IBB Final Accounts (Extracted):
(For the year ended 31 December)
Particulars 2005 (£) 2006 (£) 2007 (£)
Net income from Islamic financial
transactions 2,170,165 2,849,189 4,595,419
Net fee and commission income 37,796 161,790 101,433
Total operating expenses (8,657,468) (11,844,232) (11,613,866)
Loss before Income Tax (6,449,507) (8,833,253) (6,917,004)
Loss for the Year (6,449,507) (8,833,253) (6,917,004)
Table 5.2 Source: www.islamic-bank.com

We can see from the financial figures IBB have been losses every years and this is
due to high operating expenses than its net operating incomes. The author found the
high operating expenses are mainly comprised of the fixed cost like rental expenses of
the premises, staff expenses and maintaining Sharia Board. IBB reasons for the
ongoing losses as ‘Banking is a high fixed cost industry. It takes time for the
marginal profits to cancel out the high fixed costs so early in a business such as
Retail Banking’. IBB management also commented ‘Islamic banking is still in the
early growth phase within the UK, and education is still needed but the
institutions are showing that they can be innovative and competitive and the
future bodes well for the industry’.
IBB management is taking ‘Sharia’a education, market growth and customer
expansion’ as it’s present and future challenges to ensure IBB prospects in UK
financial market.
5.4 Analysis of above findings through SWOT Analysis
SWOT (Strengths, Weakness, and Opportunities & Threats) was developed by
Ken Andrews in the early 1970s. Organisational strategies are the means through
which companies accomplish their missions and goals. Successful strategies address
the above four elements of the setting within the business operates.
Strengths are the IBB’s capabilities and resources that allow it to engage in activities
to generate economic value and competitive advantage.
Weaknesses are the lack of resources or capabilities that can prevent IBB from
generating economic value or gaining a competitive advantage if used to enact the
company's strategy.
Opportunities provide IBB with a chance to improve its performance and its
competitive advantage. Some opportunities may be anticipated, others arise
unexpectedly.

Understanding Islamic Banking And Its Prospect In United Kingdom

Understanding Islamic Banking And Its Prospect In United Kingdom

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