Introduction
We have seen that in the past few years, Islamic banking and finance has grown quickly across the world. According to Soren Billing (2009) the total assets hold by fully Shariah-compliant banks or other conventional banks which operate a part of Islamic finance rose by 28.6 percent to $822bn from $639bn in 2008, according to The Banker's "Top 500 Islamic Financial Institutions" survey. Considering the position of UK as one of the most strong and leading country in international financial market, we cannot avoid to conclude that part of this growth has taken place in London which is now rapidly growing and emerging global 'hub' for Islamic banking and finance. According to David Oakley (2009) the Islamic Bank of Britain the UK's only retail Islamic bank, is growing fast in spite of the severe credit squeeze that has affected billions off the balance sheets of the conventional banks.
Islamic banking and finance refers to a system of financial activities or banking which operates under the Islamic principle (SHARIA). Islamic finance refers the clause of the financial services industry that complies with the rules and regulations of Shariah (Islamic law). Though it has evident appeal to some Muslims, Islamic finance is available to all consumers and investors (HM TREASURY, 2008).
The UK is the first country in European Union which started retail banking in compliance of Sha'riah. Islamic Bank of Britain was established in 2004, which is authorized by FSA. Islamic banking has some challenges in the UK because the financial system is more gorgeous to conventional banking but Islamic banking has great opportunities in the UK because in last five years Islamic bank of Britain has made a well-known position in the UK financial market. Muslim population in Britain has grown from 500,000 to 2.4 million in just four years, according to official research collated for The Times. The population multiplied 10 times faster than the rest of society, the research by the Office for National Statistics reveals. In the same period the number of Christians in the country fell by more than 2 million (The Times 2009).
2.1 Background of Islamic Bank of Britain (IBB)
Islamic Bank of Britain as a UK's first Islamic bank was approved by Financial Services Authority in Sept 2004 and has eight branches throughout the UK. Being a first Islamic retail bank in the Western world was launched on the London Stock Exchange market on 12 October 2004. Islamic Bank of Britain registered in England and Wales under Registration No. 4483430. Islamic Bank of Britain is approved and regulated by the Financial Services Authority under registration number: 229148. Islamic Bank of Britain is a member of the Financial Ombudsman Service (IBB.com). Islamic Bank of Britain plc is a retail bank which offers a range of products and services to persons and businesses in the United Kingdom. Islamic bank of Britain's services include debit card, telephone, postal, and Internet banking facilities.
Islamic Bank of Britain has established Sharia'a compliant retail banking in the UK (IBB 2009) and has introduced a wide range of products and services. Islamic Bank of Britain providing a big range of products includes current and savings accounts. Islamic Bank of Britain is a first Islamic bank in UK which offers personal finance Sharia'a compliant Business banking to the UK including wide range of institutional and business banking products and services as well as commercial property finance.
2.2 Rationale
There are many researches are done related to Islamic finance but nothing has done related to Islamic bank of Britain. This research is for my own academic use as well as for the organization to help sort the problems for future growth. The Islamic bank of Britain is first and only bank in UK which is fully Shariah-compliant. The purpose of this research is to examine the opportunities for growth as well as the main challenges to Islamic bank of Britain in the UK. Another objective is to review and critically appraise the literature relating to the growth of Islamic banking and finance in UK.
Regarding the growth of Islamic finance retail and wholesale services have grown rapidly since the Islamic Bank of Britain became the first stand-alone domestic bank in the sector to cater to the country's 2 million Muslims just four years ago (Global Islamic Finance 2010).
The UK is the hub of banking and has importance in Islamic financial sector due to growing Muslim population. Islamic bank of Britain is facing some great challenges in the UK because due to strong financial system which is more favourable to conventional banking.
Research questions
The aim of this research proposal is to analysing the growth of Islamic bank of Britain in UK as well challenges and opportunities in retail market. By using the above research question, researcher has designed following questions with their related objectives that need to be answered at the end of research.
Does Islamic Bank of Britain have the capacity to grow relative to conventional banking?
What are the challanges for Islamic Bank of Britain in uk?
Does Islamic Bank of Britain have the opportunities to grow?
3.1 Aims and objectives
The objectives that are to be attained through the research are narrowed to:
Investigating and identifying the growth of Islamic bank of Britain regarding its operational activities.
Identifying the challenges which IBB is facing and effecting its growth.
Analysing the customers of IBB are they really interesting in its products?
Identifying the Muslim community in UK and their needs regarding Islamic banking.
Are Muslims in UK really interesting in Islamic products?
Analysing the opportunities for growth of IBB.
Providing sufficient analysis for further growth and recommendations upon the subject challenges and opportunities.
The study will be based on primary and secondary data, while the main sources of knowledge will be gained through:
Academic literature and review of journals, articles and related books.
Critical literature review related to topic.
Web based research of financial bodies and statistics.
Muslim Population in the UK According to Community Background and their growth.
Relevant study of conventional banking.
Research conducted through in depth interviews of financial service organisations especially IBB.
Literature review
Islamic banking has experienced growth rate of 10-15 percent per annum globally over the last decade and has been getting popularity in conventional banking system at such a rapid pace that Islamic financial institutions are represent today in over 51 countries. Despite this consistent growth, many supervisory authorities and finance practitioners remain unfamiliar with the process by which Islamic banks are introduced into a conventional system (Sole, 2007). Although the growth rate of Islamic banking is very high but the main issue of its understanding because many of Muslims still have not enough information about the fundamentals of this institutions. Growth of Islamic banking has been noticed all over the world especially in Muslim countries as well as in Europe focusing in UK. According to Schoon (2010) Islamic finance has gone through an exceptional growth period, over the last decade the industry has grown at a rate of 15-20%per annum and this level of growth is expected to continue for these coming years and by far exceeds the anticipated rate of growth in conventional finance. If Islamic banking and finance growing all over the world then no doubt have an effect in UK due to strong financial market in the world.
Ahmad (2010) stated about the UK financial market that UK treasury with mission to enable the Islamic finance market to develop and grow to help the industry go from strength to strength and to make London as one of the global centres for Islamic finance trade. London hopes to become a hub for Islamic finance by taking advantages of its status as perhaps the most global financial centre in the world. As we know in UK London is main part according to financial activities in Islamic and conventional banking sector. London has historical significance (Iqbal, Mirakhor, Askari, 2009) as a financial centre, its reputation, sound regulatory framework; reputable financial houses, financial depth, and attractive time zone with respect to the Middle East have made it a popular choice for Islamic financial transactions with a Muslim population of a almost two million, there was sufficient demand in the United Kingdom to establish the Islamic bank of Britain in September 2004 which by the end of 2006 had attracted deposits worth £83 million from 30,000 customers and whose assets stood £120 million. I agree with the growth in Islamic banking in a result of demand in UK due to increasing Muslim population and awareness about Sharia demand. This growth shows the capacity of Islamic Bank of Britain due to growth in demand.
As we have seen a growth as a result due to demand in Islamic banking and Islamic bank of Britain is one Fully Sharia compliant bank in Uk to meet this demand. In the space of a few decades Islam has established a significant presence in Britain. Increase in Muslim population is a main factor in demand and growth of Islamic Banking in Britain. Muslim population reached 2.5 million by 2009 and is currently growing at six percent a year (Philips, Park and Thomson, 2010).
According to Skinner (2007) Islamic banking offer new products lines for business to grow market share through attractive to a community that represents 5% of Britain's citizens. To meet the requirements there is only one fully Shariah complint bank in Uk. According to Skinner and Philip growth in Muslim population in UK is a opportunity for Islamic banking but also challeng to aware people about Sharia Banking.
The Islamic Bank of Britain (IBB) opened its first branch on the Edgware road in London in September 2004 after getting approval from regulatory authority. The size of the Muslim population in the immediate locality is one factor determining the choice of branch location, the socio economic status of the potential clients being another factor, as middle class Muslims in professional occupations with regular monthly salaries are obviously more profitable to service than poorer groups. Operational headquarters are in Birmingham because low cost and other branches are in Birmingham, Leicester, Manchester, Southall, Whitechapel and East Ham. The bank has a well designed website to attract business, offers 24hrs online and telephone services, and has produced informative leaflets and other publicity material outlining its services (Khan and Porzio, 2010).
There are many other banks offering a Shariah banking window like Lloyds TSB and HSBC Amanah but they are not fully Shariah compliant like Islamic Bank of Britain. Having identified that a gap in market for financial services aimed at large Muslim population in Britain, Lloyds TSB launched a range of Shariah approved financial services, including an Islamic current account and a Shariah approved home finance service (Armstrong et al. 2009). Islamic finance market is one of the most growing markets in the world as Steven (2010) said about the global Islamic Finance market as one of the most dynamic in the world and the UK is considered the Islamic finance capital of Europe. Also IBB is pioneering British Islamic Banking and is a great place for enthusiastic, energetic individuals to thrive and succeed and continued growth through product development remains a key priority for IBB in 2010. The Islamic Bank of Britain Sharia compliant current account (Kettell 2010) takes care of the essentials, offering banking services the customer without compromising the customer's principles. The IBB current account pays the customer no interest and the customers pay no interest to the IBB.
Islamic Bank of Britain making its services easy for their customers to expand its circle as much as possible and since from its day first growing rapidly as compare other banks in UK. Islamic Bank of Britain stresses that it tries to make all transactions with the bank simple for the customers in terms of delivery and understanding. Transparency is desirable so that Islamic bank clients can be well informed, but this implies providing relevant information in a helpful manner, and not simply providing a bewildering mass of detail. The publicity provided by the Islamic bank of Britain is an example of good practice, as it is clear and concise. Islamic bank should first and foremost stress their ethical values. A positive message such as that Islamic bank of Britain is better than simply stressing prohibitions (Jaffer 2005). Although Islmaic bank of Britain has advantage being a fully Shariah compliant bank in uk but many other strong banks also in the market are a challenge for growth. To provide an easy access to customer (Montia 2008) for home finance Islamic Bank of Britain launched its new website which aimed at mortgage intermediaries and independent financial advisers. This service provides a dedicate resource to home purchase plan which are available for both Muslim and non-Muslim customers. According to Malissa (2009) Islamic Bank of Britain (IBB) is the only fully Shariah compliant bank which offers retail banking services. Since from its establishment in 2004, it became the first sharia-compliant bank in the Western world and has since gained a sizeable presence, with more than 40,000 customers and $250m in customer savings. Islamic bank of Britain is targeting British Muslims and the British public who are not familiar with the Gulf banks. The logo of Islamic Bank of Britain represents the Union flag with the combination of red, white and blue to colours.
Conventional banks with Islamic banking window are big challenge for full shariah compliant banks like IBB. According to Bokhari (2007) Islamic financial institutions are facing various challenges and difficulties including lack of skilled and trained professional staff and management to fulfil the requirements of this fast growing industry in strong conventional banking market. Also a big challenge for Islamic Bank of Britain is lack of awareness about Islamic banking by its customers and as well as some other issues related to UK Regulatory Authority, structure of Islamic Sha'riah Board and its implementation. As Bokhari has stated about the challenges I think instead of challenges these are more weakness in Islamic banking sector which every organization has to undertaken seriously. Similar kind challenges are stated in next theory. It is acknowledged that there is a shortage of experienced persons (Ainley etl. 2007) at world level in Islamic Banking sector. Regarding the requirement of Islamic finance growth in UK there are some positive steps are now being taken including university degrees and professional training courses. In Islamic finance sector there is also shortage of Sharia peoples (scholars) which have experience in relevant banking. To full fill vacancies some banks have placed less qualified scholars alongside experienced. If we consider both theories about challenges it's not possible to escape from weakness or challenges which are faced by all Islamic Finance sectors and Islamic Bank of Britain as we know a fully Sharia compliant bank in UK.
4.1 Conceptual Framework
Research Question
Relevant Theories from Literature Review
Does Islamic Bank
of Britain have the capacity to grow relative to conventional banking?
What are the
challanges for Islamic Bank of Britain in uk?
Does Islamic Bank
of Britain have the opportunities to grow?
According to Steven (2010) IBB is pioneering British Islamic Banking and is a great place for enthusiastic, energetic individuals to thrive and succeed and continued growth through product development remains a key priority for IBB in 2010. The bank has a well designed website to attract business, offers 24hrs online and telephone services (Khan and Porzio, 2010). The Islamic Bank of Britain Sharia compliant current account (Kettell 2010) takes care of the essentials, offering banking services the customer without compromising the customer's principles. A positive message such as that Islamic bank of Britain is better than simply stressing prohibitions (Jaffer 2005).
Lloyds TSB launched a range of Shariah approved financial services, including an Islamic current account and a Shariah approved home finance service (Armstrong et al. 2009). According to Bokhari (2007) Islamic financial institutions are facing various challenges and difficulties including lack of skilled and trained professional staff and management.
Increase in Muslim population, demand and growth of Islamic Banking in Britain (Philips, Park and Thomson, 2010).
Easy access to customer (Montia 2008) for home finance Islamic Bank of Britain launched its new website which aimed at mortgage intermediaries and independent financial advisers. According to Skinner (2007) and Philip growth in Muslim population in UK is an opportunity for Islamic banking but also challeng to aware people about Sharia Banking.
Research Methodology
5.1 Research Philosophy
To properly evaluate any data collected during this research, I would employ both the positivism and interpretivism approaches as I believe they would enhance my understanding of the various matters arising from the data gathered.
A research philosophy is a belief about the way in which data about a phenomenon
Should be gathered, analysed and used. The research that appears to be framed on the assumption that it is in principle possible to find absolute knowledge, is seen as positivist and research that is based on the view that all knowledge is based on interpretation is seen as interpretivist. To properly evaluate any data collected during this research, I would employ both the positivism and interpretivism approaches as I believe they would enhance my understanding of the various matters arising from the data gathered.
According to Bryman and Bell (2007) positivism is an epistemological position that advocates the application of the methods of the natural sciences to the study of social reality and beyond. Interpretivism is actually an alternative to the positivist accepted view that has held for decades. It is based upon the observation that a strategy is essential which complements the differentiation between person and the object of the natural sciences therefore requires the social scients to take hold of the subjective meaning of social action.
Raines (2008) supports positivism as oldest and most established philosophy of sciences, positivist are scientists who believe in one objective reality and try to be objective by putting aside their own values, test philosophy through deductive logic and experimental research. Critical interpretivism is grounded three principles (Howcroft and Trauth, 2005) (1) the construction of detailed, local and situated empirical interpretation (2) a reflective approach that reveals and disrupts the assumptions and certainties that reinforce the status in organization (3) the connection of interpretation to broader consideration of power and control.
Both philosophies are important for me as Positivism will promote more objective interpretation of reality, using hard data from interviews, while inerpretivism will help me to understand and develop ideas through induction from data.
5.2 Research Approach
It is important to have an awareness of the research traditions and approaches. It is important not to be too constrained by them when undertaking our research. We should not consider any approach as necessarily better than any other and choose the approach that best suits the objectives of the research. For example (Gratton and Jones, 2004) if we are interested in describing what is happening in an area where there is a considerable amount of existing theory, then a deductive approach may be appropriate. If we are interested in explaining why something is happening, and the area is relatively new or under researched then an inductive approach may be better. In reality the key question to ask is what approach will bets suit my research? Secondly time and resources can be a major issue. Inductive research tends to take longer and takes more resources than deductive approach as theories have to gradually emerge from the data rather than be tested by data collected in one go. A third consideration is that deductive approach is often lower risk than inductive research, where it can be possible for many hours of data collection to prove fruitless.
Deductive theory follows hypothesis to collect data and then precede research (Bryman and Bell, 2007) deductive theory represents the relation between theory and social research. The researcher on the basis of what is known about in a particular domain and of theoretical consideration in relation to the domain deduce a hypothesis that must then be subjected to empirical scrutiny. Embedded within the hypothesis will be concepts that will need to be translated into researchable entities. This mean researcher needs to specify how data can be collected in relation to the concepts that make up the hypothesis.
Under the light of two theories (Grantoo and Jones, Bryman and Bell) I will use deductive approach for my research because I would like to follow my hypothesis instead make statement after inductive approach.
5.3 Research Strategy
Reseracher will use qualitative method because in qualitative research methods it is easy to get detailed, theoretical and ideas because these methods provide the results about peoples thinking and feelings that how they feel and what they think because they feel relax to comments on any specific topic.
Miles (1979) has described qualitative data as an attractive frustration because of the attractiveness of its prosperity but the difficulty of finding analytic paths through that prosperity. My research is qualitative research because it is related to banks growth and banking customers. In interviews with banks officials it is easy to get information about growth and development of Islamic Bank of Britain. There are some advantages of qualitative research over quantitative research.
In qualitative research it is easy to explore topic in detail and more depth than quantitative research methods also qualitative research has the advantages over quantitative research because it is less expensive. The main positive for me to choose qualitative research because it is more flexible in term of locations and timing there is no need to interviews a large number of people to take result.
5.4 The Research Method
For this research qualitative research method will be used as it mentioned in research strategy in qualitative research it's easy to analyse the data and also qualitative research has some advantages over quantitative research. Researcher will use different techniques in qualitative research like structured interviews.
The most common qualitative research techniques will include:
In-depth interview
Focus group
Case study
Direct observation
Diary methods
Role-play and simulation
5.5 Data Sources
5.5.1 The Primary Data
Primary data is an important part of this research which is based upon structured interviews. Primary data will be taken through interviews of officials of organization (Islamic bank of Britain) and customers that what are their feelings and thinking about given organization.
There are many techniques for primary data but most suitable for qualitative research is in depth interviews. This research is based on Islamic Finance in UK focussed on Islamic Bank of Britain. Growing Muslim population is an important sector of demand in Islamic Banking.
Researcher will try to find out opportunities and challenges for the growth of Islamic bank of Britain for this purpose response will be taken directly from directly involved people in this organization.
5.5.1 The Secondary Data
According to the requirement of research existing literature will be used from all resources such as academic and scholarly journals, newspapers, official websites and magazines. Existing researches related to growth, challenges and opportunities of Islamic Finance in UK will also be used.
5.6 Data Collection Methods
For the collection of primary data researcher will use structured interview method. Interviews will be taken from different sectors of the society and organization. The researcher will hold three interviews from the authorities of different branches of Islamic Bank of Britain based in London. These interviews will give clear facts and figures about the growth, opportunities and challenges related to Islamic Bank of Britain. As customers are also a part of this research so three interviews will be from the customers of Islamic Bank of Britain which will facilitate the research through providing the information why they did take up Islamic bank of Britain.
These interviews will be through sending letters to banking authorities to fix appointments to see managers. Emails will be sent to customer services department of the perspective banks to arrange an appointment. To save time and money in travelling interview by telephone or email will be preferred. To take interviews from customers from the customers email will be used as corresponding for convenience of time and as well cost of money.
According to the requirement if researcher will need more information number of interviews can be increased. Researcher will collect data (Fowler, 2002) by telephone, by email, personal interview or in some other way and how if at all computers will be involved. The decision about which mode of data collection to use has important cost implication and affects the quality of the data that will be collected.
According to Kurtz, Mackenzie and Snow (2009) secondary data offer two important advantages (a) it is almost always less expensive to gather secondary rather than primary data and (b) researchers usually spend less time to locate and use secondary data. For the collection of secondary data different libraries will be consulted and researcher will go through a range of books, journals and case studies related to this research. International financial magazine and different organizations website will also be discussed throughout the secondary data.
5.7 Data Analysis
Blaxter, Hughes and Tight (2006) said that obviously, we are restricted in how, where and when we carry out your data analysis by the available resources. There are, however, practical issues concerned with the place, space and time in which we do our analysis which are worth further consideration. For example:
• Do we like to work with paper and pen or straight onto a computer screen?
• Does our analysis require extensive dedicated periods of time, or can it be done in smaller chunks or are there elements of both?
• Can we do our analysis in one place, or will it require visits to a number of separate facilities?
Clearly, our answers to these and related questions will help to determine how we go about analysing our data. We will need to reconcile our preferences with what is feasible, and with the nature of the data we have collected.
There are two strategies for data analysis analytical induction and grounded theory which is the most frequently cited theory though others do exist. Analytic induction theory considers a data analysis approach in which the researcher explains the facts by following the collection of data until he couldn't find relation between hypothesis and data (Bryman and Bell, 2007).
Grounded theory is a theory from data which gathered systematically and analysed through a process. In this method all theories are interlinked which used for data collection and analysis. Grounded theory is based on two main elements, that it is concerned with the development of theory out of data and the approach is iterative or recursive, as it is sometime called, meaning that data collection and analysis proceed in cycle, repeatedly refreshing back to each other (Strauss, 1998).
Grounded theory has become by far the most widely used framework for analysing qualitative data. This research is more qualitative so researcher will use grounded theory because according to Strauss and Corbin it is more suitable for qualitative data analysis as this theory matches data with hypothesis. As there is no perfect method or software for qualitative data analysis researcher will use manual data analysis with the help of spread sheet, and Microsoft word.
6.0 Ethical issues
Researcher will follow all rules and ethics during this research. Researcher will make sure that all data and pieces of information used in this study are correctly referenced are not plagiarised and to ensure that the will follow acceptable procedure with generally acceptable level of dependability and credibility.
7.0 Generalisability, Reliability and Validity
Researcher will focus on Islamic bank of Britain to find out its growth, challenges and opportunities using different sources and techniques. This research will not only be related to specific organization but also will encourage other Islamic financial sectors in UK by finding that how much Muslim and non-Muslim peoples are interesting in Islamic banking.
This research will improve the growth of Islamic bank of Britain which might be attractive for conventional banking sector to encourage them towards Islamic banking. Validity will be whether methods, approaches and techniques actually relate to, or measure the issues is explored in hypothesis.
8.0 Research schedule
All research activities are being planned according to flexible timetable. Final work will be submitted at 30th of July 2010. All the activities throughout the research will represent by Gant Chart.
Gant Chart is useful for very simple resource scheduling (Lock, 2007) because the amount of any particular kind of resource needed in a given time period can be calculated by adding the number of times that tasks needing that resource appear in each period column.
