The Perception on Islamic Banking in the UK and the Selection Criteria of the Muslims

Module: Research project BUSI32630
Title: A study on the perception on Islamic banking in the UK and the selection criteria of
the Muslims.
Word count: 7789
Name: Liban
Student ID:N0700086
Supervisor: Ogundana, Oyedele
I certify that this submission is the result of my-own work and does not
contravene the University Regulation on Academic Misconduct.

Table of Contents
Abstract Pg. 4
Acknowledgements. Pg. 4
Chapter One -Introduction Pg. 5
Chapter Two –Literature Review Pg. 6
2.1. Growth of Islamic banking
2.2. History of Islamic banking
2.3 Islamic banking in the UK
2.4 Difference of Islamic banking and Conventional banking
2.5 selection criteria of Islamic banking
2.6 Perception of Islamic banking
Chapter 3—Methodology Pg. 14
Chapter 4 Analysis Pg.16
Chapter 5 Limitations and significant findings and areas for future research Pg. 22
Chapter 6 Conclusion Pg. 23
Chapter 7 References and Abstract Pg. 25

Acknowledgments
Firstly, I thank Almighty Allah who has guided me until this point and empowered me to
complete this research project. I am thankful for my supervisor for having the patience for
helping me throughout this year and directed me to achieve my best possible work. And I
also thank my family who have pushed me to pursue further education and supported me
through this long process.
Abstract:
As Islamic banking grows at an exponential rate studies are a necessary step to find out the
criteria’s that the banks should market towards in the future to not only attract customers
but to retain the valuable customers they currently have. This study offers a thorough
discussion and analysis of the Islamic banking in the UK and then focuses on the selection
criteria of the Muslims in the UK whilst considering the effect of their perception. The study
samples 93 respondents in the UK using a non-probability sampling. It looks to measure
which selection criteria is most important to the Muslim populous in the UK whilst
considering their outlook on religion and the principles of Islamic banking. A triangulation
approach will increase the validity of the results that are found in this study.

Introduction:
Over the last decade, from the very humble beginnings there has been a drastic increase in
the growth in Islamic banking which is regarded as a more ethical version of the
conventional banking that has dominated the market. “But seek, with that (wealth) which
Allah has gave on you, the home of the Hereafter, and forget not your portion of lawful
enjoyment in this world; and do good as Allah has been good to you and seek not mischief
in the land (Al Quran 28:77). This verse states that Islam prohibits monasticism and deems
economic activity to be necessary for the benefit of society if it abides the principles of
Islam. (Q8:62, 63) state ‘that all the wealth in the sphere cannot buy love between hearts’’.
This prioritisation of society feeling over material treasure differentiates Islamic systems
from the competitive self-interest based individualistic systems at the heart of modern
economic theory. The purpose of Islamic banking is not solely based on financial growth but
to promote social and economic equality, it allows the individual pursuits of financial gains
whilst not neglecting the poor and needy.
Islamic banking was created to solve the expropriation of the Muslim people. Islamic
banking has had exponential growth in the last few decades and it has been regarded as an
alternative to conventional banking. This research project aims to provide insight on the
reasons behind the consumer perception of Islamic banking and why consumers are not
valuing a financial system which incorporates their religious beliefs. The aims of this
research are to answer key questions and identifying what are selection criteria for Muslims
in relation to banking, and what are their preferences based on?
Research Aims and objective:
● Growth of Islamic banking in Islamic nations and the UK
● Explore Key variables that impact the customers choices when selecting a bank
● Identify the key differences between Islamic banking selection criteria and
conventional banking
● Research customer perception and attitude towards Islamic banking in the UK

Literature review
This chapter provides comprehensive empirical evidence based on the previous theoretical
guides spearheading the Islamic Banking development in the United Kingdom and how
Islamic banking is being perceived by the Muslims inhabiting the UK. The literature
highlights the composition of different reviews hedging the Islamic banking in the UK, the
factors which influence the selection criteria for the customers and what are the
implications that can be drawn. Also providing clear evidence of why the selection criteria of
conventional banking differentiates from Islamic banking and the perception of Muslim
towards Islamic Banking.
Islamic banking provides solutions to some financial issues when it successfully follows the
guidelines of the Islamic sharia law. The core of Islamic Banking is freedom from Riba, which
is usually equated with interest (Farooq, 2005). The reason for the prohibitions is based on
the negative outcomes and the effects it has had on society. It has created a reduction in the
public’s earning capacity and the distribution of wealth among others. Islamic banking is
remarkably profitable since, though it’s fundamental funding mechanism is similar to
conventional banking, its default involvement is enhanced, and it is less transparent and
charges higher (Cook, 2006, p.1).
1. Growth of Islamic banking
The Islamic banking literature provides divined evolvement overtime as described through
the optimism and scepticism alternating periods that accredits the prime benefits of the
finance growth. Patrick (2015) stated the basic vital contribution of the banks in financing
affecting the inventive practices that ascertain productivity growth. The strategic innovation
over the Islamic banking enticed through the logical Islamic beliefs accredit the strategic
development practices that ensure the Islamic development through banking support
through fair lending. (Hassan, 2010) recognises the major challenges that financial
development is accredited through the economic growth while the norms of the Islamic
banking supersede the strategic motivation of the Islamic nation to entice in logical financial
sup potage in compliance with the Shariah.
The marginal view of the Joost and Aerdt, (2017) substantiates the Schumpeter’s view on
strategic relevance of the important Islamic banking and finance for inventive growth and
developments. The review stresses the significant role of financial innovation through the
Islamic Sharia’s regulation in enhancing logical funding or saving from a compliant business
that motivates the Islamic nation towards economic development. Patrick (2015) also
initiates the strategic simplification of the better risk management strategies which is
observed through the compliance through Sharia’s compliance in order to substantiate the
reduction of the business intermediation costs.

Salman et al, (2018), provides the credible benefits that develop the marginal development
strategic through Sharia’s financial mobilization of the Islamic saving as well as facilitation of
the prime allocation of capital for the Sharia’s compliant business. The credibility of the
financial investment motivation, as well as accreditation of the significant monitoring of the
activities, initiate the divine returns which are expected to address the regulatory
monitoring requirements Gambacorta (2014). The Islamic Banking innovation through the
capital marketing investment allows the diversification of risk undertaking which is only
described through the compliance measures thus accredits the innovativeness and
enhancement of even-handed business opportunities that stimulates the financial growth.
The strategic growing consensus accredited through the Islamic economists provides the
banking as the major financial system that promotes the business funding and monitoring
that will also affect the national economic significance as experiences through the regulated
bank-based financial system (Hassan, 2010). On the strategic institutional measures that
stimulate the Islamic banking arrangements in providing financial services that aid in the
establishing the economic importance while triggering the overall financial development
levels.
The rapid diffusion of the Islamic banking within the Islamic nations accredits the growth
opportunity for the Islamic countries through the provision of financial consideration as well
as strategic oversee of the investment activities to substantiates Shariah compliances. The
empirical evidence accredits the significance of a strong link which exists among the
financial sector development as well as Islamic states economic growth as provided through
significance banking review. (Abdul-Majid et al, 2010) provides the empirical literature on
the economic policies which are tied through the Islamic banking that initiates the
rectification of the lacuna on the Contribution of the Islamic banking to the potent economic
growth especially in Islamic states. Gheeraert (2014), review establish the positive marginal
relationship which substantiates the Islamic banking relevance with the economic growth.
Through the significance of conventional banking does not describe through the position of
whether the banking importance goes beyond Islamic banking. The research augments the
uses of the sample of low-incomes as well as middle-income Islamic countries in navigating
the impact of Islamic banking as well as substantiating the provisional growth on the Islamic
banking policy implications.
History of Islamic banking
Islamic banking was first introduced in Egypt in 1963 called Mit Ghamr Savings Association
in order to measure the capability and the possibility of creating a distinct market from the
conventional banking which dominated, and it was the earliest known development of
Islamic banking using the profit loss concept. This study extended, and multiple countries in
Asia and the Middle East began to implement Islamic banks of their own. Actual
development began in 1970 with new investment strategies, techniques and development
of a product Steward, (2008). In the beginning, most of the Islamic Banks were being
operated in countries with a large Muslim population, the first modern commercial bank
being established in 1975 through private initiatives (Wilson, (2005); Movassaghi and
Zaman, 2001). Since the 1970’s the industry has grown at an intense rate and is now
operational in more than 100 countries where most of the major markets being Malaysia,

Qatar, UAE and Indonesia. As of December 2016, the worldwide Islamic financial services
sector stood at USD2.293 Trillion. GIFR (2017) with an annual potential growth of 10% (7.0%
2016, 7.3% 2015). These figures prove that Islamic banking has had significant growth and
has been proven to be as efficient as conventional banking.
A scope of Islamic banking in the UK.
The Muslim community in the UK has seen a drastic growth in the last decade, According to
projections from the pew research centre the population of Muslims in the UK is predicted
to triple by 2050, even though France and Germany have a clear higher population of
Muslims the growth rate is higher in the United Kingdom. The growth of Islamic banking in
the UK will allow Muslims to make a larger contribute to the UK economic growth and
development. The cityUK (2017) shown that the UK has become one of the more prominent
and successful hubs of Islamic banking and finance in the last decade and has become
systematically important in the UK. There are over 20 Islamic banks in the United Kingdom
which are either domestic or have originated in another country.
The history of Islamic banking in the UK goes back to the early 1980’s, Al Baraka bank was
established as the first Islamic bank in the UK as a means to serve wealthy Arabs who visited
London (Kay, 2004).
When a comparison is made between the numbers of financial banking institutions in the
countries with the highest Muslim population, showing a large disparity between the UK,
France and Germany.
47%
23%%
9%%
9%%
7%%
5%%
Number of islamic banks
UK US Australia Switzerland France Germany Sou
rce: Gov.uk
According to Martin H (2018) Regulated and formulised characteristics did not take shape
until the early 21st century and this change was influenced by the government at the time