BASED MUSLIMS ON ISLAMIC BANKING AND FINANCE IN THE UK Umair Ahmad Riaz

415 Pages·2015·3.22 MB·English

by  Umair Riaz

PERCEPTIONS AND EXPERIENCES OF BRITISH-
BASED MUSLIMS ON ISLAMIC BANKING AND
FINANCE IN THE UK

Umair Ahmad Riaz

School of Business
University of Dundee
Dundee, 2014

A THESIS SUBMITTED TO THE UNIVERSITY OF DUNDEE IN FULFILMENT
OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY.
To my beloved ‘Ami’ (Mother) who believed in me and dedicated her life in
helping me achieve this degree. Her prayers are springboard for my success. To
my sister, and wife who supported me, and to my daughter whose smiles
motivated me.
TABLE OF CONTENTS

TABLE OF CONTENTS I

LIST OF FIGURES VI

LIST OF TABLES VII

ACKNOWLEDGEMENTS VIII

DECLARATION X

CERTIFICATE X

ABSTRACT XI

CHAPTER 1 INTRODUCTION 1

1.1 Introduction 2

1.2 Research Motivations and Contributions 8

1.3 Research Questions 10

1.4 Structure of the Thesis 14

1.5 Conclusion 18

CHAPTER 2 ISLAM AND ISLAMIC BANKING IN THE UK 19

2.1 Introduction 20

2.2 The UK Financial System 21
2.2.1 The UK Regulatory System 21
2.2.2 UK Islamic Markets and the Growth of Shariah-Compliant Banking 23
2.2.3 Barriers to Development and Future Challenges for Regulating Islamic
Banking in the UK 29

2.3 Operations of Islamic Banks 31
2.3.1 Islamic Financing Modes 31
2.3.2 Mudarabah Contract 32
2.3.3 Musharakah Contract (Joint-venture profit) 34
2.3.4 Murabahah Contract (Cost plus Mark-up) 37
2.3.5 Ijara (leasing) 38
2.3.6 Salam and Istisna Contracts 39
2.3.7 Takaful and Sukuk 40
I
2.4 Islamic Banking in the UK 43
2.4.1 Stand-alone Islamic Banks 43
2.4.1.1 The Case of Al-Baraka 43
2.4.1.2 The United Banks of Kuwait 45
2.4.1.3 Al-Buraq 46
2.4.1.4 The Islamic Bank of Britain 47
2.4.2 Islamic-Windows 50
2.4.2.1 HSBC Amanah Finance 50
2.4.2.2 Lloyds TSB Islamic Finance 51
2.4.3 Global Banking providers of Islamic Financial Services 52

2.5 Muslims in the UK 54
2.5.1 Profiling British Muslims 54
2.5.2 Geographical Location and Housing 55
2.5.3 Education and Occupation 56
2.5.4 Religious Leadership 57

2.6 Conclusion 62

CHAPTER 3 THE LITERATURE REVIEW 63

3.1 Introduction 64

3.2 Insights from Islamic Economics 65
3.2.1 The Islamic Economic System- Context 65
3.2.2 The Notion of Social Justice 68
3.2.3 Principles of an Islamic Economic System 74

3.3 The Development of Islamic Banking and Finance 80
3.3.1 Objectives of Islamic Banks 80
3.3.2 Islamic Banking and its Theoretical Foundations 84
3.3.3 The Historical Evolution of Islamic Finance 86
3.3.4 Islamic Banking in the Modern Environment 89

3.4 Critiques and Challenges of Islamic Banking 95
3.4.1 Critiques of Islamic Banking 95
3.4.1.1 Profit and Loss Sharing – The Theory/Practice Gap 95
3.4.1.2 Socio-economic Dimensions 99
3.4.1.3 Criticism of the SSB and the AAOIFI 100
3.4.1.4 Shariah-Compliant Banking in the UK 103

3.4.2 Challenges Faced by Islamic Banking and Finance 105
3.4.2.1 Regulatory Framework 105
3.4.2.2 Liquidity and Risk Management 105
3.4.2.3 Religious Inconsistency 107
3.4.2.4 Accounting Procedures and Practices 109
3.4.2.5 Growth, Size and Misconceptions 110

II
3.4.3 Legal and Regulatory Changes to Promote the Development of Islamic
Banking 111

3.5 Review of the Survey Literature on Islamic Banking 114
3.5.1 An Overview 114
3.5.2 Growth of Islamic Banks 117
3.5.3 Accessibility of Islamic Banks 117
3.5.4 Bank Selection Criteria 119
3.5.5 Attitudes towards Islamic Banking 120
3.5.6 Islamic Banking Practices 122

3.6 Conclusion 124

CHAPTER 4 THE THEORETICAL FRAMEWORK: CRITICAL
POSTMODERN APPROACH 126

4.1 Introduction 127

4.2 Critical Theory 129

4.3 Extending Critical Theory 134
4.3.1 Delineating Postmodernism 134
4.3.2 Approaches towards Postmodernism 140
4.3.3 Postmodernism and Accounting 142

4.4 A Critical Perspective: Implications for Accounting thought in Religion 143
4.4.1 Islam and Modernity 143
4.4.2 Islam and Postmodernity: Interreligious Dialogue 146
4.4.3 The Role of Critical Muslims and Contribution to Emancipation 150

4.5 Motives behind Critical Framework 156

4.6 Conclusion 161

CHAPTER 5 RESEARCH METHODOLOGY AND METHODS 162

5.1 Introduction 163

5.2 The Research Approach 164

5.3 Assumptions about the Nature of Reality 167

5.4 Research Paradigms 173

5.5 Critiques of Burrell and Morgan Framework 178

5.6 Research Assumptions Underpinning this Study 188

III
5.7 The Interview Surveys 193
5.7.1 Semi-Structured Interviews 193
5.7.2 Categories of Interviews 194
5.8 The Questionnaire Survey 198

5.8.1 Self-administered Questionnaires 198
5.8.2 Categories of Questionnaires 199

5.9 Conclusion 202

CHAPTER 6 INTERVIEW FINDINGS 203

6.1 Introduction 204

6.2 Data Sampling Selection 204
6.2.1 Data Sample 204
6.2.2 Pre-interview Preparation and Pilot Interviews 211
6.2.3 Conducting the Interviews 211

6.3 Analysing Responses 213
6.3.1 Data Transcription and Transcribing 213
6.3.2 Analysing Data into Category 214

6.4 Findings of the Interviews 214
6.4.1 Perceptions of Islamic Banking Practices 215
6.4.1.1 Understanding and Awareness of Islamic Banking 215
6.4.1.2 Islamic Banking Objectives and Practices 217
6.4.1.3 Socio-economic Role in Society 223
6.4.1.4 Islamic Banking Presence in Community 226

6.4.2 Accessibility of Islamic Banks 231
6.4.2.1 Bank Selection Criteria 233
6.4.2.2 Barriers to Growth of Islamic Banking 237

6.4.3 Role of Islamic Scholars in Islamic Finance 240

6.4.4 Growth of Islamic Finance 245
6.4.4.1 Revising Islamic Banking Practices 245
6.4.4.2 Islamic Banking with a Postmodern Approach 249

6.5 Conclusion 253

CHAPTER 7 QUESTIONNAIRE ANALYSIS 256

7.1 Introduction 257

7.2 Designing, Distributing and Analysing the Questionnaires 257

IV
7.3 Results 262
7.3.1 Respondents’ Background 262
7.3.2 Objectives of Islamic Banks 265
7.3.3 Responsibilities of Islamic Banks 270
7.3.4 Bank Selection Criteria 274
7.3.5 Spreading Knowledge about Islamic Banking and Finance 280
7.3.6 Role of Islamic Scholars 285
7.3.7 Growth of Islamic Banking 289
7.3.8 Scholars’ views of Factors Hindering the Growth of Islamic Banking in the
UK 295
7.3.9 Bankers’ views on Islamic Products in the UK 298
7.3.10 Bankers’ Views on Difficulty in Shariah-compliance 302
7.3.11 Scholars’ views on Improving Islamic Finance in the UK 305
7.3.12 Empowering Disadvantaged Muslims Communities 309
7.3.13 Evaluation of Shariah-compliance in Islamic Banking in the UK 315

7.4 Conclusion 318

CHAPTER 8 MAIN FINDINGS, IMPLICATIONS, LIMITATIONS, AND
FUTURE RESEARCH 322

8.1 Introduction 323

8.2 Main Findings 324

8.3 Research Implications 330

8.4 Limitations of the Study 333

8.5 Future Research 335

REFERENCES 338

APPENDIX 6.1: Interviews Authorising Letter 373

APPENDIX 6.2: Semi-structured Interview Survey for Muslims 374

APPENDIX 7.1: Questionnaire Survey for Islamic Scholars 380

APPENDIX 7.2: Questionnaire Survey for Islamic Bank Employees 391

V
LIST OF FIGURES

Figure 2.1: Growth in Islamic Finance by Asset Value 25
Figure 2.2: The Determinants of Islamic Retail Banking 29
Figure 4.1: A Typology of Notion of Critique 139
Figure 5.1: The Subjective - Objective Dimension of the Nature of Social
Sciences 166

Figure 5.2: The Regulation-Radical Change Dimension 173
Figure 5.3: Burell and Morgan's Framework 1979 174
Figure 5.5: Chua’s Classification of Philosophical Assumptions 183
Figure 5.6: Theory Choice: Levels of Prior Theorisation 187
Figure 5.7: Types of Questionnaires 200

VI
LIST OF TABLES

Table 2.2: Islamic Contracts and their Structure 42
Table 2.3: Islamic Banks and Islamic-windows in the UK 53
Table 2.4: Mosques in the UK 59
Table 3.1: Differences between Islamic and Conventional Banking 83
Table 3.2: Prior Survey-based Studies on Islamic Banking and Finance 115
Table 6.1: Demographic Characteristics of the Interviewees 208
Table 6.2: Summary of Main Findings 255
Table 7.1: Questionnaire Response Rates 261
Table 7.2: Demographic Characteristic of the Participants 264
Table 7.3: Objectives of Islamic Banks in the UK 267
Table 7.4: Responsibilities of Islamic Banks 272
Table 7.5: Choice between Islamic Banks 277
Table 7.6: Spreading Knowledge about Islamic Banking and Finance 283
Table 7.7: Role of Islamic Scholars 287
Table 7.8: Growth of Islamic Banks 291
Table 7.9: Scholars’ views of Factors Hindering the Growth of
Islamic Banking in the UK 297

Table 7.10: Bankers’ views on Islamic Products in the UK 301
Table 7.11: Bankers’ views on Difficulty in Shariah-compliance 304
Table 7.12: Scholars’ views on Improving Islamic Finance in the UK 306
Table 7.13: Empowering Disadvantaged Muslim Communities 312
Table 7.14: Evaluation of Shariah-compliance in Islamic Banking in the UK 317
Table 7.15: Summary of Questionnaires Findings 321

VII
ACKNOWLEDGEMENTS

Praises be upon the Almighty ALLAH who bestowed me the bounty to get my higher
education. In the peer-reviewed world of research there is no such thing as individual
achievement. All the work enclosed in this thesis is as a result of dedication and
support from my supervisors, Dr Elizabeth Monk, Professor Bruce Burton and Dr
Anne Fearfull. I am indebted for their commitment, devotion, patience, continuous
guidance and encouragement throughout the preparation of this thesis; without their
support, it would not have been possible for me to complete the dissertation. Under
their guidance, I gained a lot of knowledge not only in this particular area, but also
how to become a good researcher and an overall good person in life who can also
convey the acquired skills to others.

My greatest thanks are owed to my beloved family whose prayers and love acted as a
springboard for my success in this world and will do so in the hereafter. I give thanks
for the prayers and support of my mother, grandmother, wife, sister, uncle (Amir),
brother-in-law (Tariq), Aunt (Kauser), cousins and relatives throughout my academic
career. I am also appreciative for the moral support from Professor David Power for
his encouragement and gentle push to overcome my fears. His advices helped me to
continue my exertions towards success. My sincere appreciations also go to Dr Rania
Kamla, who supervised me for some part of this thesis and my deepest gratitude to her
for inspiring me for this study. I would also like to take a moment to express my
appreciation to the administrative staff at the School, in particular, Alison, Arlene,
Elaine, Jenny, Rachel and Ruth.

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