Spreading the word of Islamic finance

People from all backgrounds can invest and get good returns through the ethical, risk-sharing structure of Islamic banking


Agha Khan, senior project manager and Islamic banking co-ordinator

The UK is the leading Western centre for Islamic finance and has good growth prospects. Over twenty UK banks offer Islamic finance services, which is more than double the number in the United States and far ahead of other Western countries. Five of these twenty are fully fledged Islamic banks, operating in compliance with the Islamic law, known as Sharia.

A 2017 report by TheCityUK estimates that assets in UK Islamic finance were more than $5 billion (£3.5 billion) in 2016. That is a tiny percentage of the trillions invested in conventional UK banks and the potential is huge given that more than three million, or around 4.4 per cent, of the UK population are Muslims, according to the latest census.

This UK Muslim market is still relatively underserved, with room for more competition in Sharia-compliant savings, home financing and other financial products.

But Islamic finance is a rapidly growing sector globally and, as an international financial centre, the UK is set to benefit. The country has become a leading centre of Islamic finance education and training. It is also a centre of innovation and second only to Malaysia in the number of Islamic financial technology startup firms.

Many large UK infrastructure projects have already used Islamic finance in their funding and this is set to
keep growing.

TheCityUK report also highlights how the UK’s Islamic finance sector has benefited from supportive government policies. The challenge is to maintain its leading position in Islamic finance and to become a leader in setting international Sharia-compliant standards, it says.

Agha Khan, senior product manager and Sharia co-ordinator for UBL UK Ameen Islamic Banking, the Islamic window of United Bank UK, says the potential market extends beyond UK Muslims as a large percentage of Islamic banks’ customers are non-Muslims.

‘The UK market is growing and new products and services are being launched regularly,” says Mr Khan. “Islamic financial products have a set of universal and ethical values that relate to everyone. Hence, if the service, price and benefits are competitive and meet with their values, people will opt for them whether Muslim or not.

“It is important to reiterate Islamic finance is not only for Muslims. As a bank we aim to support the needs of Muslims and non-Muslims alike through our Ameen Islamic Banking offering. But we have a strong track record with Muslims where adhering to the principles of their faith is a key driver for the choice of banking provider. They want a fully Sharia-compliant product, approved by a Sharia scholar.

“Sharia scholars apply their knowledge about Islamic law and scrutinise every aspect of our products and services, and ask us to evidence how we comply with Sharia law and avoid investing in non-compliant activities.

“For example, Islamic law forbids the payment and receipt of interest. Instead we work on a profit-share basis. To ensure that we comply, we have a Sharia compliance team that reviews our portfolio against our Sharia guidelines, this is then approved by our Sharia scholar and any inadvertent Sharia non-compliant income is diverted to charity. That means any income arising from a Sharia non-compliant transaction must not go to the Islamic income account of the bank or the customer.”

Another factor driving growth is the ethical stance of Islamic banks, for example in excluding investments and financing in sectors that may have a negative impact on the environment and society, such as the adult entertainment industry, alcohol and firearms.

The latest Ethical Markets Consumer Report shows that assets in the wider UK ethical banking market grew from £9 billion in 2010 to £21 billion in 2016.

We do not invest in or use speculative instruments such as derivatives, futures or swaps and other types of instruments or products that have been linked to the financial crisis

Adam Ginty, head of customer experience at United Bank UK, says Islamic banking products are set to continue benefiting from this rapid growth in ethical banking as awareness of the alternatives keep growing. “This is driving business from inside and outside the Muslim community,” he says.

Mr Khan adds that Islamic banks’ focus on prudence and sustainability has also been an attraction, especially since the 2008 financial crisis. “The nature of Islamic banking principles mean that the profit and loss linked to an Islamic banking facility shall be shared between the bank and the customer, and underlying investments must only be in Sharia-compliant assets. So there is shared risk, joint ownership and partnership in many of those Islamic products and services.

“This leads to Islamic banks having to take a longer-term view of any relationship in comparison to short-term gain, as has been witnessed in some conventional banking institutions in the past, potentially leading to a more positive outcome for our customers.

“Also we do not invest in or use speculative instruments such as derivatives, futures or swaps and other types of instruments or products that have been linked to the financial crisis.”

Another strength of United Bank UK is its personal approach, with a network of community relationship managers who will meet customers either in-branch, at home or at their place of work, says Mr Ginty.

“They take the time to explain the products and services so customers can make informed decisions,” he says. “For each home purchase or buy-to-let purchase plan, a person reviews every case, unlike other banks where a ‘computer says no’ approach is used. Many customers still want to speak to someone in a branch who can explain things properly. Not many banks do that now, but we build our bank around it.”

United Bank UK has six branches in Glasgow, London, Ilford, Birmingham, Bradford and Manchester.

“We have a number of Sharia-compliant products suitable for most everyday banking needs,” says Mr Ginty. “Many customers in the communities where we have a branch presence invest in our home purchase products for self-occupancy and buy-to-let purposes, and use our Islamic current accounts, fixed-term deposits and notice accounts to manage their day-to-day finances.

“United Bank UK has traditionally served the south Asian diaspora through strong links with our parent bank. However, as a UK incorporated and regulated bank, we continue to serve a diverse customer base and are continually evolving our products, services and online capabilities to ensure that we can continue to meet the needs of our customers.”

As part of the bank’s corporate sustainability and responsibility agenda, United Bank UK engages in a number of community outreach initiatives. For example, staff members provide money management talks and workshops in local schools to help the younger generations better understand how to manage their finances in later life. The bank also partners with two charities to help give back to its communities through volunteering and raising funds for community projects.

Perhaps the biggest obstacle to growth is awareness. Mr Ginty says many UK Islamic banks are small and lack the resources to raise awareness compared with conventional banks.

“There is an onus on UK Islamic banks to educate the market and we are doing that,” he says. “For example, United Bank UK is launching an educational newsletter, which will drive awareness in Muslim and non-Muslim communities about the capabilities of Islamic banking.”

Technology will help as it improves awareness of choice and access to products. “This will be an enabler for the Islamic market as people realise they have more choice than just the big high street banks now. They have more alternatives to find the bank that meets with their needs and aligns with their values,” says Mr Ginty.

Mr Khan adds: “As awareness of Islamic banking grows and it becomes less niche, the product range could expand. For example, we could see more Sharia-compliant financing vehicles for businesses come into the market. Also international banks from Muslim-majority countries are investing more in the UK as they see opportunities for growth. They want Sharia-compliant investments. So this will develop the larger-scale end of the market.”

But most importantly, awareness needs to grow that Islamic banking can offer people the opportunity to invest and get good profits through the ethical, risk-sharing structure of Islamic banking, with the security of the Financial Services Compensation Scheme, he concludes.

For more information please visit www.ubluk.com