Overall, the bank posted a loss of £5.9
million, a 15 percent improvement on the £6.9 million loss recorded
in 2007. Impairment charges in the unsecured consumer finance
portfolio fell by 50 percent to £0.3 million, and the bank says
there are currently no arrears within the secured finance
portfolios.
Steven Amos, head of marketing at the bank,
says IBB has been better protected from the financial crisis
because it was not impacted by the crisis’ root cause, “toxic
assets”.
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“IBB does not lend money for home purchasing
and instead enters into a partnership with the customer to share
ownership of the property,” Amos said. “As a result, it is more
prudent in its approach and manages the risks for the assets it
takes on very carefully. However, Islamic banking is rooted in the
real economy [and] the weak economy is impacting most retail
business’ margins.”
The dynamics shaping demand for Islamic retail
banking services in the UK remain “interesting”, Amos adds. In
terms of consumer banking products, two of IBB’s more popular ones
have been a mortgage plan and a notice savings account, he says,
findings which correlate with a report published last year by the
research group Mintel which concluded that the key areas of
interest from British Muslims are Sharia-compliant home financing
and savings accounts.
“IBB’s Home Purchase Plan [HPP] is based on
rates which compare favourably with conventional mortgage rates,”
Amos said. “In fact the HPP is often in the top three home finance
deals available, when compared with similar products. Coupled with
a low arrangement fee of only £299, the product is proving popular
with Muslims and non-Muslims alike.”
The Notice Account is also popular,
he adds. The bank “decided to offer it with a modern twist on an
old popular product” – previously Notice accounts used to be widely
available but banks removed them as the majority were branch
passbook accounts and paid lower rates.
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By GlobalDataIBB took the Notice account concept,
made it an online account and based it on Sharia principles (the
Wakala agency principle). It offered the account with an extremely
competitive ‘profit’ rate (interest is not paid, and customers are
given a profit cut instead).
This started at 3 percent when the account was
launched in December 2008, at a time when, says Amos, conventional
banks were “barely inching past rates of 1 percent”.
2 million Muslims in the
UK
Citing the report from Mintel, Amos
says that the UK has 2 million Muslims, of which 1.3 million are of
working age.
“The potential for a wider range of products
to be taken up is significant, based on the figures produced by the
Mintel report,” he said. “For example, about 19 percent of Muslims
are self-employed, compared to 13 percent of adults as a whole,
which brings opportunities for the sale of commercial finance and
mortgages alternatives.”
However, the Mintel report highlighted a
salient concern when it comes to marketing Islamic finance products
in the UK – the Muslim community is very complex, consisting of
many languages, ethnic backgrounds, cultural beliefs and practices,
varying degrees of religious awareness, and varying degrees of
financial understanding.
Amos stressed: “Market growth, therefore,
takes place at a steady pace and requires very sophisticated
marketing strategies based on a thorough understanding that though
this is a niche market, it is not a straightforward one.”
Interestingly, IBB’s most recent branch
opening was a Premier Banking branded outlet in London following
the launch of its Premier Banking brand in May. And Amos states
that a drive to attract a wealthier segment will be highly
important for IBB going forward.
“Driven by low property prices and the current
favourable dollar/sterling exchange rate, the UK is attracting a
large number of customers coming from the Middle East and GCC
countries looking to purchase a property. Premier Banking has been
set up to respond to the demand.”
Support from the UK
government
Amos says the UK government has been
supportive of the growth of the Islamic finance sector, and has
taken a number of steps to encourage new entrants to establish
operations in the country. The UK was the first member of the EU to
authorise Islamic banks, he says.
“The issue [of growth], however, lies at a
consumer and marketing level. From a demand perspective, IBB is the
UK’s only stand-alone, Sharia-compliant retail bank… and has a
unique advantage,” Amos said.
“Consumers can only access other
Sharia-compliant products through the ‘Islamic windows’ that have
been set up by other UK high street retail banks… With Islamic
windows, there are often questions about how Sharia compliant the
funds are and how they are managed. It also leads to limitations on
the range of products that can be developed while still ensuring
compliance with Sharia rules.”
Asked about the prospects for Islamic banking
not just in the UK but across the world, Amos said that Islamic
finance has been drawing considerable interest due to the global
financial crisis. “Many consider Islamic banking to be a more
stable alternative and there have been numerous debates and
discussions urging conventional bankers to emulate the asset-based
structure that Islamic banking follows.
“We are optimistic that the Islamic banking
sector will continue to thrive and rise in popularity, both at a
retail and wholesale level.”
