Perceptions on the accessibility of Islamic banking in the UK—Challenges, opportunities and divergence in opinion

Abstract

This study examines the views of UK-based Muslims, Islamic Scholars and Islamic banking employees on the current state of the latter industry, both in practical terms and as regards engagement with the nation’s large, but often marginalised Islamic community. The British Government has recently championed the Islamic banking sector and committed to supporting it as a means of addressing financial services needs and consolidating London’s position as the global centre for Islamic investment. The analysis adds to the substantive literature in two principal ways: (i) by contextualising the evidence via the notions of empowerment, engagement and social justice that underpin both the state’s attempts to foster growth and the central tenets of Islam; and (ii) by placing comparison of the opinions of key groups at the heart of the investigation. The findings reveal that while progress has been made, UK-based Muslims see several substantive impediments to access, including the complex terminology of Islamic banking products, the lack of internet banking facilities and branch networks as well as a generalised lack of interest in marketing on the part of the institutions. Whilst some coincidence of perception is evident, the views of bankers are shown to be out of line with those of the other parties in a number of key areas. For example, bankers appear to see less potential in the role of the internet as a medium for spreading awareness than do either potential customers or religious scholars. The paper therefore concludes with a call for multi-party Ijtihad and Qiyas (deductive analogy) that will encourage industrial outreach and, in so doing, support long-term growth.

Keywords:

• Islamic Banking
• Empowerment
• Islamic Scholars
• Accessibility

Notes

1 Hereafter we employ the term “everyday Muslims” to distinguish followers of Islam who are neither scholars nor bank employees from those drawn from the two latter categories.

2 The industry is set to expand significantly in the years ahead (UKIFS, 2013). The total value of market assets reached $2 trillion for the first time in 2014, reflecting a trebling in size since the global financial crisis, with a figure of $3 trillion predicted by the end of 2018 (London Stock Exchange, 2015). Around 95% of this value is located in Asia, North Africa and the Middle East (IFSB, 2016). However, the UK remains one of the most advanced Islamic financial markets in the Western world and has quickly become a key destination for foreign Shariah-compliant institutions (Filippo et al., 2013). The UK was the first Western country to allow the establishment of a fully-fledged Islamic bank, Al-Rayan, and currently hosts six operational Islamic banks, more than any other Western country (Fry, 2014).

3 To these authors, the industry represents a system that promotes socially responsible investment, thereby targeting socio-economic objectives; it attempts to do this by balancing individual incentives and the need for investment that benefits all (Al-Omar and Abdel-Haq, 1996; Haron, 1995).

4 Where Allah is the ‘owner’ of the entire universe and humans are only beneficiaries, or temporary guardians, of any assets that they own (Kamla et al., 2006).

5 See, e.g., Wilson (1997); Zaher and Hassan (2001); Beekun and Badawi (2005); Kuran (2004); Kamla (2009); Beck et al. (2012) and Akbar et al. (2012).

6 Tett concludes that the main impact of the growing interest in Islamic banking has been the boosting of profits in many large traditional banks and financial institutions as they take the opportunity to market their own products under the Islamic banner.

7 A note of caution is provided by Housby (2011), who points out that following the global financial crisis of 2007–2008, concerns were raised regarding the scale of the Islamic sector’s exposure to falling property values. In Islamic contracts, all finance is secured on the values of real underlying assets and Housby argues that much of the surge of activity in Islamic finance in the UK was based on the assumption that growth in property prices would carry on either indefinitely, or at least to the extent that any form of finance secured on a house was effectively risk-free. Housby therefore suggests that Islamic banks face certain systemic risks that need to be carefully considered; failure to do so could compromise the industry’s future, and eliminate the potential to address social injustice.

8 These include Kaynak et al. (1991) in Turkey; Boyd et al. (1994) in the US; Kennington et al. (1996), Poland; Almossawi (2001), Bahrain; Ford and Jones (2001) and Devlin (2002a,b) in the UK; Abdul-Rehman and Masood (2012), Pakistan and the UK; Lymperopoulos et al. (2006) and Mylonakis (2007), Greece; Amin and Isa (2008), Haron (2005) and Amin et al. (2010), Malaysia; and Hamid and Masood (2011), Pakistan.

9 These investigations suggest that a range of factors are important, but these tend to reflect the practical orientation of the analyses and emphasise issues such as customer service, opening hours and car parking facilities.

10 Maali et al. (2003) find that Islamic banks provide far less social responsibility information than might be expected.

11 Kamla and Rammal (2013) confirm the tendency for only cursory engagement with spiritual values to be evidenced in Islamic banks’ financial reports.

12 Gallhofer and Haslam (2004) suggest that financial communication can help create an inter-faith/intercultural dialogue in this space; such a conversation might engender pervasive understanding by pointing “to the global interconnectedness of forms of repression and thus help to arrive at common and counter-hegemonic reading of accounting” (p. 395). Again the lack of explicit consideration of Islam’s social orientation(s) in the prior literature on banking represents a missed opportunity for non-surface contextualisation.

13 Whilst this choice was partly driven by the practical need to access significant numbers of individuals in each of the three categories, Creswell et al. (2003) argue that mixed-methods research has inherent advantages in that it conveys a sense of rigour in the research whilst facilitating tailoring for different stakeholders. Bryman (2008) also supports mixed-methods research, suggesting that with any study of a subjective nature, the approach facilitates surprises and novel insights that could easily be missed if only a single tool was employed.

14 A copy of the questions guiding the interviews is provided in Appendix A.

15 For the selection of interviewees, a snowball-sampling technique was used. Saunders et al. (2012) note that appropriate use of this method increases the likelihood of a sample being representative in terms of desired characteristics.

16 These are available as Appendices B and C for the Scholars’ and Bankers’ versions respectively.

17 In Islam, a scholar with expertise in legal affairs is known as a ‘Mufti’ and has the power to issue ‘fatwas’ that have binding authority. Scholars who direct and carry out the functions of Mosques, including oversight of youth education, are called ‘Mullahs’ or ‘Molanas’. Such individuals typically have degree qualifications in Islamic studies (Gilliat-Ray, 2010). Finally, ‘Imams’ lead prayers and officiate at weddings. Imams are seen as providing an intermediary role between God and humanity (Gilliat-Ray, 2010).

18 The surveys were first distributed via the ‘surveymonkey’ website, but to improve the scholarly response rate several were also hand-delivered at mosques.

19 Guardian (2014).

20 The complex nature of the linguistics surrounding Islamic finance also appears to be relevant at the institutional level. For example, the Islamic bank of Britain recently changed its name to Al-Rayan Bank. Whilst the stated reasoning behind this change was a desire to simplify the name and to mirror the bank’s successful parent, Masraf Al-Rayan, the broader issues of language noted in the discussion above relating to products are clearly relevant in such cases.

21 Housby contends that: “It is at this most fundamental level [i.e. the promotion of mankind’s well-being] that there is the greatest possibility of convergence and co-operation with other forms of ethical striving, whether by those of other religious traditions or that which arises from a secular aspiration to make a better world” (p. 6).

22 In fact, there was a perception that in so far as Islamic banks attempt to “sell” their products, this is often done by stretching underlying religious notions, effectively “manipulating” Islamic principles to offer services that are spiritual in perfunctory terms only.

23 See, e.g., Erol and El-Bdour (1989); Haron et al. (1994); Gerrard and Cunningham (1997); Metawa and Almossawi (1998); Kaynak and Whiteley (1999); Devlin and Gerrard (2005); Hamid and Masood (2011); Abdul-Rehman and Masood, (2012).

24 The same ten factors were put to the survey respondents; the full list is provided in Table 4 below.

25 In Northern Ireland, ‘Amine Advisors Limited’ is currently the sole provider of investment opportunities for Muslims looking for faith-based products.

26 For example, Resp. 13 argued that those Islamic banks who do advertise their products and services do so only on “Asian-targeted and Muslim TV channels/newspapers and never in English.”

27 A smaller number also pointed to a lack of flexibility, interest rate concerns and capital protection.

28 This empirical picture is consistent with the earlier contention in Pollard and Samers (2007) that the practice of Islamic banking is not recognisable as one that emphasises the principles of social justice and the eradication of poverty at the faith’s heart (Kuran, 2004).

29 “Qard Hassan” loans are made by banks to enhance social welfare and require capital repayment only. This type of loan is usually made on a short-term basis, with the funds used for humanitarian and welfare purposes (Salleh, Jaafar, & Ebrahim, 2013).

30 The survey included an open question that provided the opportunity to add comments on any issue relating to Islamic banking.

31 However, one of the participants in the scholars’ survey stated that Islamic banks should “join the government schemes in which they help to lower the deposit from 20 to 5 per cent, like conventional banks are doing, and offering high lending amounts” (Imam 40).

32 Although on the supply-side, HSBC’s switch to Musharakah offerings has been noted as having a significant impact on market structure (Belouafi and Chachi, 2011).

33 Including the Islamic Bank of Britain, the Ahli United Bank, Al-Buraq and the United National Bank.

34 In late 2010, International Innovative Technologies (IIT) raised $10 million from the first commercial Sukuk issue in Britain (Housby, 2011). At that point it was made clear that the motivation for issuing Sukuk was to attract investment from overseas and to make religiously-acceptable financial products available to British Muslims. Once again, the observed inter-group difference in perceptions might reflect advisor proximity to the process of selling products to the public. However, with the introduction to the London market of an Islamic index in 2014 views may change in the future (Housby, 2011).

35 The call for deeper levels of thought on the supply-side in Islamic banking also fits with the contention in Moosa (2003) that Muslim leaders can act as pioneers for the faith’s Islamic axiom without compromising tradition.

36 The interviewees’ remarks suggested that the higher fees associated with Islamic mortgages do not reflect any substantive religious or moral value intrinsic to the product.

37 In Islam Qiyas represents a deductive analogy comprising the original case as set out in the Quran and Sunnah, the new case, the effective cause found in both the new and old cases, plus the rule in the original applied to the new (Al-Salami, 2015).

38 As regards the notion of applying Ijtihad and Qiyas to the practice of Islamic banking, it is worth recalling Heck (2006)’s contention that Muslim scholars used to devise transactions that reconciled modern market principles with the teachings of Islam. Europeans thus benefited from Islamic ideas and principles and, over time, these came to form the basis of a venture capital system that contributed to the collapse of the European feudal model (El-Ghattis, 2016). However, Islam’s contribution to modern financial paradigms has rarely been made explicit in modern literature (El-Ghattis, 2016) and, as a result, attempts to research Islamic economics has lacked rigour.

39 For instance, stories of and insights into the lives of those living as “others” (Gallhofer and Haslam, 2003) can make visible the impact of constraints on accessibility caused by firms’ perceived role as product providers in (free) markets (Kuran, 2004), rather than vehicles with the potential to enrich lives via education and community embeddedness.