Islamic Finance - Islamic Banking System

Table of Contents:

Contents

Introduction:        2

Research Questions:        3

Aim of the Study:        3

Objective # 1:        4

Objective # 2:        4

Objective # 3:        4

Objective # 4:        4

Literature Reviews:        5

Methodology        8

Research Design:        8

Data Collection:        8

Data Collection Instrument:        8

Data Source:        8

Data Analysis        9

Expected Result:        9

Conclusion:        9

Limitation:        10

Bibliography        11

ISLAMIC FINANCE IN THE United Kingdom: Product development & regulatory adoption

Background:

Islamic banking system has grown rapidly in last decades. No single nation has ignored its importance nor hasn’t it tried to implement the Islamic banking system in the country and consequently attracted the customers who have firm religious belief. Like every single nation, United Kingdom is now trying to get them involved in Islamic banking in order to invite more inward investments (Franken & Aisen, 2010). United Kingdom financial market is one of the leading markets in the world considering its nominal GDP and Purchasing Power. It has been clarified that London could be the Hub of Islamic banking (Clark, 2013). Islamic Finance Task Force has been made in UK to promote the Islamic banking in United Kingdom and to take the necessary measures to create awareness among the citizens of United Kingdom as well as the other countries to promote the inward investments. It is very clear that the Muslim countries such as United Arab Emirates and other are not fully aware of the United Kingdom’s financial market. However, implementing the Islamic Banking system would not be an easy task as the major population of United Kingdom is Non-Muslim people (Brown, 2010). Since there is a huge difference between the mode of operation of both Islamic and conventional banks as the Islamic banks work on riba free basis while there is no such concept in operating the conventional banks and the UK major population is Non-Muslim who had all time experience of dealing with the conventional banks it is therefore, would not be easy for the Islamic banks In UK to attract the customer an let them switch from the conventional banks to Islamic banks. In this regards products and service offered by the Islamic banks must have the potential to capture the market and let the customers to use the Islamic banks product (Khan & Bhatti, 2008).

Although only 2.5 million of the total population is Muslims and despite of that the first Islamic bank operating in United Kingdom, Islamic Bank of Britain,  reported to have more than 47,000 customers by 2008. (Volk, 2010) It shows that the Islamic banking system has the potential and attraction from the customers even in the non Muslim country. The regulatory authorities in UK has given the equal opportunity to register the both Islamic and conventional banks which is opposed to the barrier imposed in Germany for the Shari’ah complaint financial institutions. This is great strongest part from the regulations of UK. In addition to this the tax policies favor to the Islamic banks is another strongest point from the regulations in UK that promotes and encourage the Islamic banks in United Kingdom (Smolo & Mirakhor, 2010). Despite of all these strong points one of biggest hurdle from the part of regulation is the no way to implement a tax policy which may be differentiated on the basis of religious belief. It is important to analyze in what position the Islamic banks are now and how this system can be promoted even in the Non-Muslim country.

Questions Raised:

1. Do Islamic Finance products have the required instruments to cope with major shifts (i.e. interest rate, competition and supply and demand) in the U.K. economy?
2. What are the weaknesses and lacking at the regulatory authorities and finance organization end, in terms of policy framework, which is not allowing Islamic financial sector to emerge?
3. How effective the Islamic finance products and services are to penetrate in UK markets?
4. What initiatives and actions can be taken to ensure success and long term sustainability of Islamic Finance in UK?

Study Intend:

Aim of this study is to analysis the Islamic banks’ development in United Kingdom. Since the numbers of Muslims are less in UK, it is to be analyzed what are the strengths and weakness of Islamic banks in UK which are playing their parts in the growth of Islamic banks. And what is the lacking of the regulatory authorities that are not allowing the emergence of Islamic banks in UK and what initiatives they can take to promote and sustain the growth of Islamic banking system.

Research Objectives:

1. This paper will analyze the strengths of products and services offered by the Islamic banks in United Kingdom. In this regards it is necessary to know whether Islamic banking system offered what actually people of UK require them to be offered. As it is not easy to get them switch from conventional to Islamic banking. This paper will look in depth whether the Islamic banking system has the required strength or not.
2. Secondly it will be analyzed what role the regulatory authorities of UK are playing in the growth of Islamic banking system. In this regard it is to be known whether regulatory authorities’ role is enough to get the desired results or they have same flaws in policy making which consequently reducing the emergence of Islamic banking system in UK.  
3. Thirdly, it is be analyzed if the Islamic banks’ products  are effective enough to penetrate in a market where the major population is of Non-Muslims or they are still not in the position to attract the people  either to use the banking system for the first time or switch from conventional to Islamic banks.
4. Fourth objective of the study is to suggest the measures necessary to be taken to ensure that the Islamic banking system will have prosperous future in UK as well as the long term sustainability in UK financial market.

Literature Reviews:

(Asutay & Tameme, 2012) Analyze in the flaws in marketing the Islamic banking products in United Kingdom. The study focuses the Islamic Mortgage to analyze the factors that are actually a hurdle in creating awareness among the Muslim community in UK. For the study data were collected using the questionnaire filled by 250 Muslim citizen of UK. It was concluded that the English language is the basic hurdle that restrict the majority of Muslim people to get awareness about the Islamic banking Products as they are not much familiar with this language so they feel uncomfortable with it. And there is a huge opportunity to create awareness among the Non-Muslim people in UK as well about the Islamic banking Products (Badr, 2006). It was suggested the awareness may be more effectively created by the informal means such as by relatives, friends and others.