Islamic retail Finance


The growth and Demand for Islamic Retail banking and Finance in UK

1. Introduction

The demand for the Islamic retail Finance around the world especially in Muslim countries and in some part of the non- Muslim countries, ethnic minority by Muslims, has been aroused by many of the factors. The Professionals, youngster, educated and elite generation has played a vital role to create and formulate the Islamic way of


Even within the banks, Private banks are growing faster especially in Middle East, when they saw that few of the international banks take their wealthiest clients away, so why not come up with their own and unique idea to develop their own services. According to David Gibson-Moore, executive manager of private banking and share trading at the Al-Rajhi Banking and Investment Company of Riyadh, Saudi Arabia "The opportunities for domestic private banks appear to be very great indeed,"

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The Islamic banking industry has now been spread to some of the important and major key player Financial sectors Like United Kingdom, United States of American, Australia, South Africa etc every part of the World. In contrast to the traditional banking that is the western financial practices bases on the “interest” factor, which is “nucleus” of the conventional banking. The principles of the Islamic banks are based on morality and Islamic Precept, although every religion along with Christianity “interest” charging interest has been forbidden.

No doubt Islamic banks are in its development stage and it is impossible, without interacting with the conventional banks to confine itself within Islamic Principles. The process of uniformity in accounting standards to develop will take some time.

In this research paper, there will be brief discussion on history of Islamic banking, available financial tools of financing and the scope of Islamic banking and Finance with regards to UK. In this paper, the research problem, objectives, hypothesis, and significance of the study will be presented. The method and limitations will be presented as well, as will a review of the literature, and other important information that is necessary for a complete and thorough understanding of the study that is being undertaken.

1.1 Statement of the Problem

There has been lots of studies and many articles written about Islamic Retail Banking, but much of them are generally and much of the areas they cover either Middle East or Asia. In United Kingdom, especially London, regarded as Financial City of the World, there is lack of the data and research work as how would it be like in the near future the growth and success emerging business technique “The Islamic Modes of Finance” in the retail banking side. Though some of the information is available but very limited in size to compare and rely on. The problem to be solved in this study is to analyze the current demand and success rate of Islamic Banking in the UK. The research will give the comparability study of the Islamic and non Islamic banks, the challenges they face, the organizational cuture within the two rivals and the Peoples in the UK will be involved. All of these will be examined, their differences will be analyzed to determine the success of this system in the UK.

The information here was quite difficult to collect, because there is lack of information in topic regards to UK, much of the information has been taken from various articles written in different journals, books, Telemedia, seminars, personal visits, walk in interviews and skeptical view has been taken out in regards to UK from Journals and books. Islamic retail banking covers quite broad are and mostly focused was on Middle East, Asia, North Africa and U.S.

This is why much of the literature review, information can be easily utilized when it comes to other countries are more in general the discussion with regards to UK specifically, that will be done through the use of questioners, that will be given by the researcher to those in the UK that will have knowledge of and opinions about the Islamic Banking industry and to see any scope weather any other mode of finance could be introduced and how well it will works.

1.2 Purpose of the Study

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My main purpose of this study is to determine weather the success of the Islamic Retail banking can become the major part UK retail banking in the near future. What are the chances that it will attract the customers other than Muslims, because it is very much niche and is very different from the Western way of banking.

Another purpose of this study is also to determine whether it has the potential to create demand and sell its services to compete with the conventional banking system.
My aim of the study is also to get familiarity with the concepts, definitions and principles of Islamic Retail Banking. Though it is not possible to cover all of them, but at least to make a comparison and what are the basic structure, why are they so parallel to each other. What are the people in Islamic world says, and what are the people on conventional way of lending sayings etc. Only by understanding the differences can the study actually be clear to those that are unfamiliar with the Islamic way of banking and doing things.

1.3 Significance of the Study

The study will be significant to the people in the Research field, students, professionals, treasurers, financiers, bankers (Islamic and Conventional), end investors, Corporate Financiers, Investment Bankers, Corporate and Commercial Bankers, Private Bankers, Analysts, Portfolio Managers, Consultants, Auditors, Project Financiers, Lawyers, Investment Advisors, Regulators, Government representatives, Insurance specialists, learners and the people living in the UK weather non-Muslims or specifically Muslims, to make them aware of what the future of the Islamic Retail Banking industry will look like and weather it has the potential to create demand, sell its services and compete on product to product, service to service.

1.4 Scope and Limitations of the Study

Like every other study, this research work also has some limitations and the scope is broad. The study focus is on the organizational culture, Islamic Retail Banks, and the Non-Islamic Retail Banks, modes of finance, increase or decrease in the number of account holders etc. These variables will be analyzed based on the data availability from the Financial Statements, responses through different set of questioners. The limits of this research is to quantitative, because the aim is to present it in a very specific manner. In quantitative research the relationship of one variable normally depends on the other variable.

These type of research (Quantitative design) or either descriptive or experimental. In this type of research, bias is also less likely if subjects are randomly assigned to treatments, and the sample size of the population is very large.

According to Balsley (1970), quantitative research provides achieving high levels of reliability of gathered data due to controlled observations, laboratory experiments, mass surveys, or other forms of research manipulations. In addition, this method allows for longitudinal measures of subsequent performance of research subjects (Matveev, 2002). Another limitation of the study is that it will only focus on the short-term changes of the organization due to the objective of providing immediate success rates.

1.5 Research Questions

There seems to be a strong need of conducting a study to determine all aspects, relating to the success of the Islamic Banking industry in the UK. There should be a lot about questioning, to analyze it from every angle, but the time constraints and peoples interest to reply with the relevant answers are more important. Some of the queries that should be answered are:

 How would the future of Islamic Retail Banking in the UK look like?

 Does the Islamic retail banking has the potential to create demand and sell its products to the UK customers?

 Would it be able to compet on the products and services of its own, with the conventional banks?

 Can the existing demand of its services, could Play a major part in the retail sector of banking?

 Does the product and services, which has been offered, are only for Muslim customers?

 What could be done to attract non-Muslim customers?

 Does Islamic banks, bridge the gap between two different communities?

 Do they play any role to boost the economy, could it be important part of it?

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Obviously every question raised and answered, raises another question, is difficult to allow the full understanding of everything that is part of the Islamic retail banking. But at least they give a lead corner, building blocks and milestone to go on, with the explanation of how this industry will works in the UK or is there any other parts where the same concept could be successfully test and implement.

 2. Literature review

To understand the areas of Research work, for the comfortability of the reader, there is a guideline path, that will aware the reader exactly what are the area for and what are involved in the study. The first chapter will deal with the basic information that will come up in the rest of the study, including the statement of the problem and the reasons behind why the study was conducted.

Chapter Two will explain the literature review on this subject. This area is particularly in general as there has not been written a lot on the Islamic retail banking with reference to UK. Much of the theoretical idea has been taken from different articles written all over the world, specially the U.S, because they have quite familiar financial system with the UK even the accounting standards, UK has adopted to work on International Accounting Standards now on.

Chapter Three is about the methodology for the study, and will explain exactly what will be studied and how it will be studied. Chapter Three will also include the survey instruments that were used, i.e. three sets of questionnaires for two different groups - Islamic and Non-Islamic. For the comfort of Surveyors the questioners are kept relatively short but descriptive.

The resulted data will be examined and analyzed thoroughly in Chapter Four which will provide the solid information that the rest of the study is based on and show whether what was suspected appears to be accurate in the end. The conclusion and recommendations will be in Chapter Five. The will be strong recommendations about the issues to overcome, build strong reputation, some concepts to develop new product lines and to make a strong image as a emerging market in the UK in Islamic banking

2.1 History and Growth of Islamic banking

Islamic banking and Finance has established itself as an emerging alternative to conventional interest based banking and it is expanding rapidly over the last two decades all around the world in Muslim and non Muslim countries. There is no accurate figure exist as to the actual extent of Islamic investment market, but according to Citibank, in Bahrain, funds under Islamic financial institutions management are growing at an annual rate of 15 to 20 percent per year (Zaher and Hassan 2003). According to new Horizon, the total value of Islamic funds management may well be over $200 billion.

Islamic banks has only been around for 25 years but the interest free banking has had tried before like in Malaysia in the mid-forties and in Pakistan in mid-fifties. None of them survived. In 1962, the Malaysian government set up the “Pilgrims Management Fund” to help prospective pilgrims save and profit. The savings bank established in 1963 at Mit-Ghamr in Egypt was very popular and prospered initially, later closed down for some reasons. Because of these experiences Nasser Social Bank in 1972 was create. The bank is still in operation but its objectives are more social than commercial.

In 1970 The Conference of the Finance Ministers of the Islamic Countries held in Karachi, the Egyptian study in 1972, First International Conference on Islamic Economics in Mecca in 1976, and the international Islamic conference in London in 1977 were the result of such involvement. In 1975, the Islamic Development Bank, an inter-governmental bank was established and the first private interest free bank, the Dubai Islamic Bank, was set up in 1975.

Currently Islamic Banks operate in over 60 countries around the world; most of them are in Middle East and Asia. In Pakistan, Iran and Sudan, the entire banking System has been converted to Islamic banking and a move in the Middle East and Asian areas full fledge converge to Islamic banking, and there is strong diversification trend toward the United States and United Kingdom etc.

In the Muslim countries, the credit market segment of Islamic banks is growing faster. In the late 1970s, the market share of these banks was 2 percent, about 15 percent in he mid 1990s, as measured by assets in the banking system (Babai 1995). Islamic banks are getting stronger, though they are small in numbers and pooled assets, according ot the strong leading banks predicts that's Islamic banks could be responsible for management of over 50 percent of savings in the Islamic countries in the next decade. To take the advantage of this trend and to capitalize on the niche market, many of the western banks have established dedicated Islamic banking subsidiaries, Citibank, Bank of America, Commerzbank, Deutche Bank, Merill Lynch, ABN AMRO, Picted & Cie, UBS, Barclays, HSBC, Goldman Sachs etc so many big names. Despite the offerings of Islamic investment Products by growing number of western banks, the mainstays of Islamic investments continue to be the Islamic bank themselves.

The exact size of the Islamic banking sector is difficult to calculate as some of the countries like Pakistan, defines all of its financial institutions as Islamic, even though westerner bankers and the people living in the country believe that any of the transactions are effectively conventional banking. Saudi Arabia doesn't make any distinction between the Islamic and Conventional banks. Some Islamic bankers suggest that the number of banks that offer Islamic products around the world total over 250. the asset size of Islamic banks has also experienced a high growth rate. Today many Islamic banks are among the largest banks in their respective contries (Kazarian 1993 and Ray 1995).

In terms of service, the most dramatic change in approach has come in the past five years. In the past, Islamic institutions were seen merely as a place for those with strong Islamic convictions to place their money, and today, the senior managers of Islamic banks believe that they must compete on commercial grounds by offering a more cost effective financial package to non Islamic as well as Islamic customers. The main factor fueling the dramatic growth is the spread of the Islamic religion globally. Islam is the fastest growing religion in the world, and Muslims are increasingly searching for financial instruments that adhere to their principles. Some non Muslims are also participating in Islamic banking because they consider it to be commercially sound (Brooks, 1999).

Traditionally specialized Islamic banks have been well positioned to attract deposits from Muslims and non-Muslims but they were technically not well trained to effectively channeled out and deploy the funds into most acceptable Islamic and profitable channels. That deficiency has been swiftly and efficiently tackled by the services of westerner banks as they were having more experience. This has often meant lower returns for Islamic investors due to the second layr of inter mediation. However this trend is changing and Islamic banks are becoming resourceful and are going global, in part due to their increased integration with international markets.
Advocates of Islamic banking argue that many Islamic banks operate according tot eh profit and loss sharing principle and that the profit sharing contracts (equity) are the superior financial security tot debt for many reasons including the risk-sharing properties of equity (Ebrahim and Safadi 1995). They also argue that by providing long term financing to growth orientd sectors of the economy, Islamic banks will promote growth in the Islamic countries (Cahpra 1992, and Siddiqi 1983).

Conversely, a few recent studies, argues against these two views. Agarwal and Yousef (2000) suggest that most of the financing provided by he Islamic banks they examined in their study do not confirm to the principle of profit and loss sharing. Instead, much of these financing activities are offered through debt like instruments. Aggarwal and Yousef also found that Islamic banks rarely offer long term financing to entrepreneurs seeking capital. This finding is also supported by Metwally (1992), and Pourian (1995). The two studies provide evidence that the maturities of Islamic financing contracts offered by Islamic banks in Egypt and Iran during the 1980s are mostly short (one year) or middle term (2-5 years). Few of the contracts have longer than 5 years maturities.

There are strong retail operations in Iran (although they have played comparatively small role in international markets) and Saudi Arabia. In the more secular societies of northern Africa, Islamic bank compete on the quality f their products, not their religious acceptability. In Kuwait, well established Islamic financial institutions have been involved in substantial financing for the petroleum sector and real estate investment and in the UAE the emphasis is on trade finance. In Iran, Islamic banks invest in entrepreneurial projects in economic sectors that are typically viewed as growth oriented such as agriculture (Kazarian (1993) ad Saffari (1995)). In Bahrain there is great emphasis on investment banking and the regulatory system in Bahrain is very strong in the region.

2.2 Current Shariah Approved Modes of Finance
2.2.1 Murabaha

Murabaha is a particular kind of sale where the seller expressly mention the cost of sold commodity he has incurred, and sell it to another person by adding some profit thereon. Murabaha is not a loan given on interest but it is the sale of commodity for cash or deferred price.

2.2.2 Mudarabah

Mudarabah is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise. The investment comes from the first partner who is called the “Rabb-ul-Mal”, while the management and work is an exclusive responsibility of the other, who is called “Mudarib”. The ratio of profits to be shared are agreed upon in advance and if the result is loss the Mudarib will lose only his labor (or effort), but the Rabb-ul-Mal might lose part or all of its capital. However in a case where the loss arose due to negligence on the Mudarib's behalf then the loss would be suffered by his hands. If a particular business is specified by the Rabb-ul-Mal then it is called al mudarabah al muqayyadah, and if the Mudarib has a free choice to choose a business then it is called al mudarabah al mutlaqah.

2.2.3 Musharakah

Under Islamic Jurisprudence Musharakah means a joint enterprise formed for conducting some business in which all the partners share the profit according to specific ratio of the contribution.

Shirkah means Sharing and in the terminology of Islamic Fiqh, it has been divided into two kinds:

Shirkat-ul-milk which means joint ownership of two or more persons in a particular property and Shirkat-ul-aqd (partnership by contract).

2.2.4 Ijara

This term is analogous to the English term ‘leasing'. The leasing contract specifies the period of lease, the rental and its timing, the responsibilities of both the parties during the life span of the lease. It may be simple rentals or more elaborate contractual arrangements committing the parties to the future actions. The lesser is called the Mu'jir and the lessee is called Musta'jir.

2.2.5 Ijara wa Iktina

A building is let out on Ijara and the customer is obliged to purchase such a building, equipment or a project, which is made available to him against an agreed rental, together with an undertaking to make payments into an Islamic investment account, which will eventually permit purchase by him of the item financed. The final result is that at the end of the leasing period or project is purchased by the customer which is known as Ijara wa Iktana.

2.2.6 Qard al Hasan (Benevolent loans)

The word "qard" is derived from Arabic "qirad" which means 'to cut'. It is called qard, as it cuts certain part of the lender's property by giving loan to the borrower. Hasan is also an Arabic word, which originates from 'ihsan'. Ihsan means kindness to others. So, Hasan is an act which benefits persons other than those from whom the act precedes without any obligation. The term al-qard al-hasan means beneficial loan or benevolent loan, gratuitous loan, interest free loan, or a beautiful loan.

2.2.7 Salaam

This mode of financing is used by the modern banks and financial institutions to finance the agricultural sector. In Salam the seller undertakes to supply specific goods to the buyer at a future date in exchange of an advanced price fully paid at spot. The price is in cash but the supply of purchased goods is deferred. The permissibility of Salam is an exception to the general rule that prohibits forward sale & therefore it is subject to strict conditions, which are as follows.

It is necessary for the validity of Salam that the buyer pays the price in full to the seller at the time affecting the sale. In the absence of full payment, it will be tantamount to sale of a debt against a debt, which is expressly prohibited by the Prophet (pbuh). Moreover the basic Hikamt for allowing Salam is to fulfill the “instant need” of the seller. If it is not paid in full the basic purpose will not be achieved.

Only those goods can be sold through a Salam contract in which the quantity & quality can be exactly specified eg. Precious stones cannot be sold on the basis of Salam because each stone differs in quality, size, weight & their exact specification is not possible.

All details in respect to quality of goods sold must be expressly specified leaving no ambiguity, which may lead to a dispute.

Delivery of the goods must be postponed for a fixed time. If the contract was used to acquire goods immediately, it would in fact, be a trick to get the goods at a reduced price.

2.2.8 Bai Inah

The first and a very popular mechanism used by Islamic banks in South East Asian countries are based on repurchase or bai-al-inah. A murabahah can change into bai-al-inah if the identity of the vendor is not different from its client; when the bank purchases a commodity from its client on a spot basis and sells it back to the client at a cost-plus price and on a deferred basis. The rate of profit in this case is indistinguishable from prohibited riba on a conventional loan. (Obaidullah, 2005)

2.2.9 Tawarruq

Tawarruq is another financing product that is cited as a classic case of Hiyall, or legal Stratagem, but has been permitted by mainstream scholars under certain conditions. Tawarruq becomes a source of funds by combining two separate sale and purchase transactions. An individual in need of funds purchases a commodity on a deferred payment basis from a seller and then sells the same in the market in order to realize cash. This is considered a Hiyal, since the individual concerned has no real intention of buying or selling the commodity. He engages in these purchase and sale transactions for realization of cash. (Obaidullah, 2005)

2.3 Current Practices of Islamic Banking

Current practices of Islamic banks are not the ideal version to the Islamic Financial Principles. They diverges in many ways e.g. Deposits even the investment are always explicitly of implicitly guaranteed. In some cases, the capital value guarantee is formally written in laws and regulations.

According to (Zaher and Hassan 2006) The PLS principle is never strictly applied. There are various degrees of noncompliance with respect to the PLS principle in current banking practices. In some cases, the bank guarantees the expected rate of return on investment deposits. Moreover, this rate of return is de-linked from banks' profit. As a result, the expected rate of return for each type of deposit is the same for all banks, irrespective of banks'differents levels of profitability. In other case, the PLS principal is partially implemented through complex formulas aimed at maintaining the link between returns to financial assets and profits originating from banks' investment of deposited return that bank are allowed to offer to customers in order to avoid destabilizing shifts in deposits. This is a accomplished thought the imposition of ranges (differentiated by sectors of the economy and nature of borrowers) within which banks and customers are allowed to bargain and agree on the term of specific transactions. (Errico and Farahbaksh, 1998).

They further argues that “financing is mostly carried out though non-PLS modes. On averages, Islamic banks operate though the less risky, shorter-term non-PLS modes, notably: mark-up, leasing and lease purchase transactions typically related to trade financing”.

According to the conclusion carried out by (Zaher & Hassan), for all practical purposes, Islamic banking is currently carried out in hybrid way that is somewhere in between the paradigm version and conventional banking. The degree of divergence from the paradigm version is specific to each country where Islamic banking principles are followed and need to be assessed on a case-by case basis.

2.4 Business Ethics in Islam

Normally in businesses moral spirituality are neglected, though every business has its own ethics, but that doesn't mean to consider the social concept or even the growth e.g. when it comes to the Pornography, gambling they generates business and some countries consider it as an industry.

We have seen that industrial and technological revolutions brought impressive gains, including: ‘unprecedented prosperity in certain regions of the world, technological progress, improvements in productivity and efficiency, (and) thousands of new products' (Ahmad, A. 2000, p.86). But these developments have also led to increased pollution, environmental damage and moral degeneration. Even within the organizations and the investors outside the organization suffer, if the owners or senior managers start dubious business practices to achieve growth (Mansoor duranni p149).

A number of high profile corporate court cases have recently featured in the global media, for example Hollinger International,Enron and WorldCom. Some organizations have change their practices (Nike, Mark&Spencer etc) when they were found alleged in low payment wages in the developing world. At present in UK many brand names like NEXT, Tesco start selling products on high price with FairTrade label on, paying Premium price on these products to the wholesalers or Farmers in developing countries, but interestingly it is the customers who pay the Premium prices.

Dunning (2003, p.1) has posed three questions
1.'What must be done to upgrade moral standards?'
2. What role should incentive structures, formal and informal rules, and enforcement instruments play?
3. What is the influence of religious thought and practice?'

2.4.1 An alternative view

Ethical standards or value is on highest requirements in Islam because Islam is DEEN and not a religion. According to (Lewis, 1999), ‘The Islamic model [of corporate governance] … transcends national barriers, but the common bond comes from religious precepts which lay down how trade and commerce should be conducted by an adherent to the faith'. According to Prophet Muhammad (P.B.U.H): ‘I have been sent for the purpose of perfecting good morals' (Bukhari). Allah Says in Quran ‘O believers! Do not consume each other's wealth unjustly, but only [in lawful] business by mutual consent' (Qur'an, 4:29). Islam thus recognizes the desirability of engagement in business activity, and it also encourages fair trade, commerce and an entrepreneurial culture.

Some of the generic principles which lay the foundation of morality in Islam are:


‘O believers! Fear Allah and speak [always] the truth' (Qur'an, 33:70). In Islam the principle of truthfulness is not merely a matter of business but it is the obligation of a Muslim in all dealings, including politics, diplomacy, judiciary, governance, administration and economic activities.


Wealth is regarded as a Trust and human just a guardian to any resources, and is expected to make the most efficient and socially desirable use and not make any harm to it.


everyone should be treated fair, equal and without any discrimination. Qur'an states: ‘O believers! Stand out firmly for Allah as witness to fair dealing and let not the hatred of other [non-Muslim] prevent you from justice. Be just; that is next to piety; and fear Allah for Allah is well-acquainted with all that you do' (5:8).


Competence but ‘Islamically weak leader may be preferred to an incompetent leader who is Islamically more knowledgeable' (Beekun and Badawi, 2000; p.39). and the most preferred one is the one with trait of competency and knowledge as Qura'n (28: 26) describes Prophet Moses as al-Qawi (the most competent or qualified) and declares that Allah granted him ‘wisdom and knowledge' (28: 14).

Sincerity and humility:

In Islam the performance of duties to perfection requires individuals to work with sincerity and devotion, and discourages manipulation or exploitation for personal gains (Ahmad, M., 1999). Qu'ran describes Muslims in general as ‘those who walk on the earth with humility' (25: 63). Even affluent Muslims are not permitted to spend their wealth extravagantly; they are urged to spend cautiously so that economic resources are allocated only to productive assets ( Qu'ran, 17:26-29). (Mansoor Durrani, Business ethics)

Islam stresses on Ethical investments and muslims are warned to invest in e.g alcohol, gambling, pornography, tobacco because they are socially harmful. The Qu'ran warns: ‘O believers! Intoxicants and gambling, and Al-Ansab[animals thatare sacrificed in the name of idols] and Al-Azlam[arrows thrown in a search for luck or as an aid to decision-making] are an abomination of Satan's handiwork. So avoid that [abomination] in order that you may be successful' (5: 90).
Similarly the contacts, promises “that must be fulfilled on time” has been stressed a lots of time.

Another trait of business ethics in Islam is to avoid the misrepresentation and not to mislead the customers. ‘Give full measure and weigh justly and do not deprive people of their due, and do not abuse on the earth, spreading corruption' (Quran, 11: 85). Business ethics that must be adhere is so much that it is not possible for the researcher (limitation of words) to describe all, but just to give a brief note is Hoarding (Temporarily shortage in supply, to increase the prices) has been criticized and wrong does has subject of punishment, stress has been made on quality, fairness, Presentation and to weight in full, avoid the interest, wealth distribution to made efficiently and equally etc

2.5 Comparing Islamic & Conventional bank, which one is Delusion?

Islamic banking could be define in one word than that would be “TRADING” i.e. “The business of buying and selling commodities or bartering”, and if I was to describe the conventional banks in my own words that would be “PREDATORY LOAN'ING” i.e. “lending money on interest”. The difference between the two expressions money and commodity we shall discuss in detail in the succeeding pages. Now let us embark with what the bonafide book Quran has to say about interest,
That is because they say: “trade is like usury,” but Allah had permitted trade and forbidden usury. (2:275)

In Islam it is the indulgence in interest or usury that has been said as “Declaration of War against Allah & his Prophet” (2:279).

2.5.1 Sayings of World Famous Personalities.

The conventional banking system has not only criticized by the traditional Muslims but also by the few Great personalities from the Western world and lets see there sayings in their own words.

“It is well enough that people of the nation do not understand our banking and monetary system for if they did, I believe there would be a revolution before tomorrow morning”. (Henry Ford, Famous American Industrialist)

“The modern banking system manufactures money out of nothing. This process perhaps is the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin…….But if you want to continue to be slaves of the bankers and pay the cost of your own slavery then let the bankers continue to crate money and control credit”. (Josiah Charles Stamp (1880-1941) English Economist, President of the Bank of England in 1920's)

“I sincerely believe that banking establishment are more dangerous than standing armies and that the principles of standing money to be paid by the posterity (future generation) under the name of funding is but swindling (cheating) futurity on a large scale”(Thomas Jefferson (1743-1826), America's 3rd President, Author of the declaration of independence)

“Heathens were able by the light of reason, to conclude that a usurer is a double dyed thief & murder. We Christians, however hold them in such honor, that we fairly worship them for the sake of their money……whoever eats up robs and steal the nourishment of another, that man commits a great murder as he who starves a man…..such does a usurer….meanwhile we hang the small thieves……little thieves are put in the stocks, great thieves go flaunting in gold and silk….”
(Martin Luther, Quoted in Marx's Capital)

“They no longer use bullets and ropes; they use the World Bank and IMF”.
(Jesse Jackson, US Civil Rights Leader)

“Banks have ‘usurped supreme power over the state and are now the effective rulers of the world. This hold-up of the flow of wealth is the prime cause of war because it renders nations and exposed to external monetary domination, universal, unsuspected and supreme.” (Boyle 2002, Sir Frederick Soddy1877- 1956, the Noble Prize Winning Chemist)

“Let me issue and control a nation's money and I care not who writes the laws.” ( Mayer Amschel Rothschild (1744-1812), founder of the House of Rothschild).
When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.
(Napoleon Bonaparte, Emperor of France).

“Banks lend by creating credit. They create the means of payment out of nothing." (Ralph M. Hawtrey, former Secretary of Treasury, England).
Woodrow Wilson signed the 1913 Federal Reserve Act. A few years later he wrote:” I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men” (Woodrow Wilson)

2.5.2 World of debt, created by Conventional banking system.


Average household debt in the UK is ~ £8,833 (excluding mortgages) and ~ £54,452 including mortgages. Average consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to £4,550 per average UK adult at the end of March 2007.



The average debt owed by every US adult is a staggering $52,000. In 2005 total US household debt, including mortgages was $11,497 billion. (FEDERAL RESERVE, 9 March 2006)


Credit card spending rose from $53 billion in 1998 to $519 billion in 2002…In the five years since the 1997 corporate debt crisis, household debt has nearly doubled reaching $326 billion in 2002. (NEW YORK, 3 December 2002)


After the G8 summit in Okinawa in 2000, President Obasanjo of Nigeria made this comment on Nigeria's debt: "All that we had borrowed up to 1985 or 1986 was around $5 billion and we have paid about $16 billion yet we are still being told that we owe about $28 billion (& $ 31 billion by 2005) . That $28 billion came about because of the injustice in the foreign creditors' interest rates. If you ask me what the worst thing in the world is, I will say it is compound interest."

These were only few examples that countries had suffered so far, and if we look at the individual personnel level we cannot even think about it as not only underdeveloped but developed nations are suffering too. We daily see the headlines of the News stuffed with people suicides and mental sufferings. Hardly at the last week of April, 08 one Person from Karachi, Pakistan committed suicide as his family was abused by bank debt collectors. And like a develp nation Japan In summer 2003, three Osaka residents - a 61-year-old cleaning company worker, his 69-year-old wife, and her 81- year-old brother - leapt in front of an oncoming train on the Japan Railways Kansai Line to their deaths. The suicide note sent by the wife to a friend explained why. According to the four-page letter, the husband had borrowed 20,000 yen from various sources; the amount to be repaid now totaled 150,000 yen. Debt collectors called the house every night, and when the couple said that they could not pay, the less savory ones threatened to” get it from their neighbors.” “We have decided,” she concluded, “to apologize with outlives.”(Yoshitomo Takahashi, Chukonen Jisatsu [Middle-Aged Suicide] 7 (2003).)

Even in United Kingdom “A father of two killed himself after the Halifax (bank) won a court order to evict his family and repossess their home….Mr. Beech left a note saying that the Halifax's decision to repossess his home because of mortgage arrears of just £4,714.66 was ‘the last straw'. (DAILY MAIL, 15th Feb, 2006)
Now let's see to look at the Nature of the money as many of the wrong presumptions have been based upon.

2.5.3 Nature of the money and Commodity
Commodity Money

A commodity has intrinsic utility and can be utilized directly without exchanging it for other thing. . Money has no intrinsic utility. It cannot be utilized in direct fulfillment of human needs. It can only be used for acquiring goods and services.

Commodities can be of different qualities Money has no quality except that it is a measure of value or medium of exchange. Therefore all the units of money of the same denomination are 100% equal to each other e.g. an old dirty note of £20 has the same value as a brand new note of £20

In commodities, the transaction of sale and purchase are effected on an identified particular commodity e.g. If ‘A' has purchased a particular car by pinpointing it and seller agrees to it, he deserves to receive the same care. Money on the contrary cannot be pin pointed in a transaction of exchange, If ‘A' has purchased a commodity from ‘B' by showing him a particular note of £20, he can still pay him another note of the same denomination.(Mansoor 2008)

Suppose that a borrower goes to a bank intending for a loan of £10,000. After convincing the banker through his credit history, what happens next? More often than not the banker does not go to his safe to draw out £10,000 in bank notes and hand it over to the borrower. It is merely a credit to the account of the borrower. The fact that borrower account has been credited with £10,000 does not mean that the banker has also increased the amount of money on deposit in his bank. Banks normally keep a small portion of the total bank needs in the form of (physical) money (10-15%) for payment on demand of the community. Otherwise they will be insolvent at all times if everyone demands their money back. If someone was to ask the banker how much money he had in the bank, he would immediately add the £10,000 he loaned in the total of the bank deposits, hence “every loan creates deposit” not a reserve.

Similarly Interest or usury is unearned income gained without the expense of labor or risk on the part of the lender. Of course you may argue that when a debtor defaults the lender looses out but actually the assets which the lenders have taken as security compensate for such defaults. It must be noted here that the assets or resources are transferred from those without to those with assets hence interest is clearly lopsided. Those that have the capital are interested in risk free return and consequently money is provided to him who is able to repay by assets or money.

Conventional Banking

Interest (Riba) Islamic Banking (Profit)

1. When money is “charged” on money without any commodity being involved, that is known as Riba or interest. 1. When money is used in trading (for e.g. buying or selling cars, land, machinery, gems etc) its uncertain result is profit.
2. By definition, Riba is the premium paid by the borrower to the lender along with principal amount as a condition for the loan. 2. By definition, profit is the difference between the value of production and the cost of production.
3. Riba is prefixed either in percentage or in sum and hence there is no uncertainty on the part of either the givers or the takers of loans. 3. Profit is post-determined i.e. no one knows how much a trade will make a profit or will it even make a profit and hence its amount is not known until the activity is done (though profit can be predicted to an extent).
4. Riba cannot be negative, it can at best be very low or zero. 4. Profit can be positive, zero or even negative.
5. Since banks run on Riba hence the banks need not be asset backed but are only monetary backed. 5. Profit can only be made in trading assets hence, Islamic banks are asset backed.

2.5.4 Difference between Riba and Profit

(Mansoor 2008)
Even Jesus condemned the moneychangers in his own way, who in this age are known as the bankers, “And Jesus went into the temple of God, and cast out all of them that sold and bought in the temple and overthrew the tables of the moneychangers and the seats of them that sold doves, And said unto them, it is written, My house shall be called the house of prayers, but ye have made into a den of thieves. (MATTHEW 21:12-13, KING JAMES VERSION)

2.5.5 Differentiations in Features of Conventional and Islamic bank.
Conventional banking (Features) Islamic banking (Features)

The functions and operating modes of conventional banks are based on fully man made principles. The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah.

The investor (depositor) is assured of a predetermined rate of interest. It promotes risk sharing between provider of capital (investor/depositor) and the user of funds (entrepreneur/Bank).

It aims at maximizing profit without any ethical concern or restriction e.g investing in Ammunition, pornography, alcohol, gambling etc. It aims at maximizing profit but subject to Shariah restrictions. Probing into Shariah reveals that not a single unethical investment is allowed which goes against the welfare of mankind.
It does not deal with Zakat Islamic banks are a Zakat Collection Centre and they also pay out their Zakat.

Lending money and getting it back with compounding interest is the fundamental function of the conventional banks. Participation in partnership business is the fundamental function of the Islamic banks hence the bank has to have well equipped personnel for business investments.

For interest-based commercial banks, borrowing from the money market is relatively easier. For the Islamic banks, it must be based on a Shariah approved underlying transaction i.e. Qard al Hasana or on partnership even if it is for a short term.

Since income from the advances is fixed, it gives little importance to developing expertise in project appraisal and evaluations. Since it shares profit and loss, the Islamic banks pay greater attention to developing project appraisal and evaluations and directly contributing to the employment rate.

The conventional banks give greater emphasis on credit-worthiness of the clients The Islamic banks, on the other hand, give greater emphasis on the viability of the projects.

The status of a conventional bank, in relation to its clients, is that of creditor and debtors. The status of Islamic bank in relation to its clients is that of partners, investors and trader, buyer & seller.

A conventional bank has to guarantee all its deposits .Islamic bank can only guarantee deposits for deposit account, which is based on the principle of Amana, however if the account is based on the Mudarabah concept, client have to share in case of a loss position.

 3. Research Design and Data Collection

Research data is the composition of Primary and Secondry data. Primary data comes from the researcher application of data gathering techniques. Secondry data are the scources that they are helpful in finding out the facts and figures from different data-sets, case materials, computer or manual databases or published by various private e.g. Annual Reports of companies and public organisations or government departments official statistics by the Statistical Office.

This research is mostly based on the Primary and Secondary data, collected from academic materials, articles, research publications, walk in interviews , rush in and rush out timings at different branches, surveys and questioners about Islamic banking and non Islamic banking, the researcher own judgmental and views. In Islam extention of knowledge has been given great importance. For the knowledge to know, questioning is very much important, that's why in Islam is to ask, Ask those who are knowledgeable in the field and to seek their consensus i.e Ijma. Asking people who know is a Qur'anic imperative (Al-Qur'an, 16:43).

Without the Quantitative methods, this research will not be complete, so due care has been taken on the application of different financial techniques when analyzing the Financial Reports as they were the main indicators of statistics. No other scource, the researcher tried a lot, are available.

Another question arises so how should have to be the questioner's, according to Sharp & Howard (1996, p 145), “questioner's over the past century, become a common method of gathering information.” It can be defined as “a pre-formulated written set of questions to which participants record their answers, usually within largely closely defined alternatives.” (Sekaran, 1992, p 200). In the USA, the term “Survey” is used for this data collection method (Nachmias & Nachmias, 1996, p224). Creswell (1994) informs us that a survey design - through the data collection process of asking questions, provides a quantitative or numeric description of some fraction of the population i.e. a sample which can be in turn generalised to the population from which the sample was drawn.

These questioners could be Postal or Personal Administrative questioners. the Postal questionnaires are mailed to the sample participants, usually with a pre-paid self-addressed envelope to encourage response. In the later one, the researcher personally administers the questionnaire to the participants, usually at the participants' workplace or residence wherever it is comfortable. This has the advantage of a faster response, as the researcher and his team can get the questionnaires completed quickly as compared to the postal method, where the participant might postpone filling up or returning the questionnaire.

Another form about a survey is “Interviews”. Nachmias & Nachmias (1996,) defines an interview as a “face-to-face, interpersonal role situation in which an interviewer asks participants questions designed to elicit answers pertinent to the research hypotheses” (p 232). However, Sekaran (1992) reminds us that interviews need not be face-to-face as it can be conducted through the telephone or can even be computer assisted. Apart from these there are a lot of other methods are available, but it all depends on the need, time, structure and quality of the data required to generate appropriate result. Hence every method has its own advantages and disadvantages, the need to be is, focus on your own aim.

There are many text books on the methods of constructing questionnaires and scales (e.g. Sekaran, 1992;Nachmias & Nachmias, 1996). These authors suggest that the wording of the questions, the order in which they are presented and the language used must be carefully constructed. So now the structure of the questionnaire that should answer the main area of research, the organisational structure, values of Islamic business organisations, Suitability of Conventional Banking and characteristics, objective of Islamic banking. The aim, scope to generate the desired result from each question is very clear. Like the perception you want to built the know-how as (Abdelgader, 1994) states about the Islamic banking that “Islamic accounting is fairness and just accounting based on the principles of Islam”. This fairness and just depends and are requirements of each business entity in modern world. So utmost care has to be taken and the knowledge about he desired field is very much important. Like e.g. The interest, why it has been Haram, its basic structure, its impact on the economy, positive or negative should be very much clear kind. That is why in this survey different set of questionnaires at a different levels aiming to determine the organisational culture, knowledge and awareness of Islamic Finance within the organization and among common people, the objective of the Islamic banking they were created, the current rate of success with future projection to be viable all has been considered.

In this project the success rate and growth of Islamic Retail Banking will be based on the success of the company i.e. The Islamic Bank of Britian. The questionnaires are based on Likert Scale technique that presents a set of attitude statements like Strongly agree, agree, Disagree etc on a five-point scale. Each degree of statement is given a numerical value from one to five, and the total numerical value are calculated from all the responses.

3.1 Population and Sample size

The database of the study including the books and articles are quite large. For the purpose of the research approach has been made towards the Conventional banks and Islamic banks. As for the questionnaires, themselves, however, there were 5 banks in the Non-Islamic group and 1 bank in the Islamic bank (but different branches has been tried to contact), The Islamic Bank of Britian.

There is some limitations with the questionnaires, as there are always mistakes that could be made or issues that could be problematic like the fact that at a particular time the researcher could forget to ask a particular question that might be important, or the presentation of the questioner, typing errors, but this does not mean that these questionnaires are not valuable when it comes to collecting specific information about Islamic Banking and culture in the UK. They were all written and compiled with great care.

3.2 Collection and Tabulation of Data

In this study the data that has been gathered are consist of the Analysis of the literature review regarding the issue of Islamic banking in the UK. All of the Articles that were used for the literature review, weather useful or not to Islamic banking are carefully examined so that any pertinent information is not only included in the literature review but also compiled for use in the chapter on data analysis. The literature review and the data aroused from the questioner's has been coupled in such away that the Islamic banking importance in the UK can be seen very clear.

3.3 Data Analysis Procedure

The data analysis will use information that has already been collected by others that have written articles about the subject at hand, or about parts of the subject that work to make up the whole of Islamic Banking where the Western world is concerned as well as information that has been collected by the researcher. The information from the literature will generally consist of a great deal of information from articles, but information from other sources will also be used to provide some of the background that is so important to the study. This is done for several reasons, but the two most significant ones are time and cost. Attempting to collect new data about Islamic Banking overall would be costly, and it would also take up a great deal of time that could be better spent.

This does not mean, however, that the literature that was reviewed will be the main focus of the data analysis conducted in Chapter Four. The main focus will always be on the UK angle and the information that was collected by the researcher. However, some information from the literature and studies of others can be mentioned and incorporated in the analysis of the data to back up claims made by the researcher or to tie information together more clearly.

One advantage to doing this is that the database for the study is quite large. This is due to the fact that there are so many articles published about this issue in general. Not all of them are studies, but they still contain a great deal of information, and that information can then be used by the researcher, coupled with the questionnaires that the researcher has utilized, to create a study that examines the issue of Islamic Banking with specific insight into the UK and whether the Islamic Banking ideas are compatible with that country.

Studies must have something new to present, and if the data that they use is not original, they must present something new and important in some other way, such as the way that the information is examined. The new data that was collected on the UK plus the information that was taken from the literature review dealing with Islamic Banking give both new information and stability to the study.

In the following chapter, the data will be analyzed and studied so that a determination can be made as to whether the research questions are valid ones, whether they must be adjusted to be valid, or whether further study into the issue is needed. This is the most important thing that will be done in this study, and a thorough understanding of how this will be carried out is very important to ensure that the reader is aware of what is being done and whether there has been success at the completion of the study.

Studies often end by being uncertain as to whether the problem statement is valid or whether the questions asked have truly been answered. This study is likely no exception to this rule, but every effort has been made to see that the study is as clear as possible and that it answers the research questions as much as it is able to with the information collected.

3.4 Survey Instruments

The success of the Islamic bank has been sought by the Analysis of Annual Account of IBB and set of questionnaires. The first set of questionnaires will specifically determine the organizational culture of the two sets of respondents. Then, the second set of questionnaires will determine the background of Islamic Banking in the UK, The third set of questionnaires will specifically determine the advantages and disadvantages of Islamic Banking in the UK. Below are the three sets of questionnaires that has been given to the Islamic and Conventional banks.

3.4.1 Questionnaire One - About Organization

1. Member of my organization are team player.
2. My organization is Gender specific.
3. Dress Code is not Culture or Religious Specific.
4. We are equal opportunity employers.
5. Organization culture is Friendly and Social.

3.4.2 Questionnaire Two - Knowledge Islamic Banking

1. I understand the principles of Islamic banking.
2. Socio-economic principles of Islamic banks are as same as conventional banks.
3. Islamic banks have a history of decade in UK.
4. Conventional accounting principles are appropriate for Islamic banks.
5. I will work for Islamic bank/will not work.

3.4.3 Questionnaire Three - Advantages and Disadvantages

1. Islamic banks don't charge interest.
2. Islamic banks are for everyone.
3. Islamic bank will not be profitable, they don't charge interest.
4. The perception about Islamic banks in West is not encouraging.
5. Islamic banks have a positive/negative impact on the society.

 4. Data Analysis

Analysis of the Data is very much crucial in nature and utmost care has to be taken in every step, coming up to the conclusion. All of the banks asked to fill the questioners have responded positively.

4.1 Questionnaire One - Organizational Culture

Members of my organization are team player.

The respond to this question has been very much positive. All the 6 banks, Islamic and Conventional banks being asked responded strongly agreed. The answer to be strongly agreed by the Conventional banks could be, they have a very strong base. Their product and service line has been produced and promoted over the centuries and now many of them are in neck to neck competition to retain its customers. They are always in need to introduce better services and without a team work that is impossible, that is why they have early morning briefings, group tasks etc.

Islamic banks are new concept and they are yet in experimental phase. The culture within the organization is getting strong as everyone is realizing how important each one of them are to make it “successful” the result they want to see. They are new and full of spirit to accomplish the new idea, that is why each one of them feel more important. Their base is on morality principles and they work on the quotation of Union is Strength.

My Organization is Gender Specific.

4 out of 5 Conventional banks Disagreed on that and Islamic banks Disagreed on that. The reason that could be depending upon the cultural differentiations and country laws, like e.g in UK though womans enjoy full liberty and they are equal to mens, but the issue when comes on their maternity leaves, it has been analysed from different studies at papers, that some of them been fired of their job, because they go on long leave. That could be slightly different case for person working in Islamic banks, especially for a woman a muslim woman who gives first priority to his home. Again depending upon the area of country where they lives in have a strong influence.

Dress Code is not Culture or Religious Specific.

All of the non Islamic banks strongly agreed on that, and some of the Islamic banks disagreed or no response. It has been personally observed at different banks especially in Conventional banks, though they have their dress code but that is bank on code and the people working at Islamic banks, though policy wise they are not bound to wear, but to make an image as an Islamic, men and women observes full Islamic wearing.

We are equal Oppurnity employers.

All of the banks in two groups strongly agreed on that. Again it depends upon the geographic locality of the country where they work in; otherwise it has been common observation in muslim countries, that they are male dominated.

My organizational culture is Friendly and Social.

Again the all conventional banks strongly agreed on that, and the Islamic banks simply agreed. Answer to this cold be again depending upon the country where they work in and the brand image they want to make it. Usually it is very much common in muslims that man and woman hesitate to integrate other than there family.

4.2 Questionnaire Two - Background of Islamic Banking

I understand the principal of Islamic banking.

4 of the Conventional bank disagreed on that, 1 agreed. And Islamic bank strongly agreed on that. The relationship could be because in Islamic banks normally the staff comes from either experienced at banking industry and knowledge about Islamic finance either through research or training that is compulsory when u join the bank. Conventional banks, some of them has started Islamic window to facilitate its muslim customers and grab the oppurunity hands on the funds. It has been personally observed in many of the seminars that many of the Conventional banks now, send their own staff and on workshops to get use to Islamic mode of lending.
Socio-economic principles of Islamic banks are as same as conventional banks.
Only Conventional banks agreed upon that while Islamic banks staff strongly disagreed on that. This could be the reason of the background, the structure that they start its operations. Islamic bankers are properly trained for it.
Islamic banks have a history of decade in UK.
Again out of 5, 2 agreed and remaining 3 strongly disagreed on that. When asked from Islamic bankers they strongly disagreed on that. They have now at least the basic knowledge to satisfy any lay man.
Conventional accounting principles are appropriate for Islamic banks.
4 of the Conventional banks agreed, and the Islamic banks some agreed, some remain neutral. The reason the Islamic bankers agree and remained silent could be, the personals at operational level they have work through knowledge. They could understand the concept, but the structure they might not familiar with it. It could be because of their educational qualification as at operational level, many of them are simple GCSE.
I would work for/do work for an Islamic Bank.
All of those that worked for Islamic Banks indicated strong agreement with this statement. As for those that worked in Non-Islamic banks, only 2 of the 5 stated that they would like to work. The reason some of them are concerns with their job security as many of them thinks that this market will soon be closed down. They don't want to put their self at stake.

4.3 Questionnaire Three - Advantages and Disadvantages
Islamic banks don't charge interest.

Though Islamic Banks agreed with this, some of the conventional banks strongly disagree while some remain neutral. This is the mos