Stakeholders Discuss Awareness and Understanding of Islamic Finance in UK

The APPGIF hosted its second stakeholder meeting at Millbank on Tuesday 22nd May 2018.

The meeting, attended by officer holders Lord Sheikh, Lord Alderdice and Stephen Timms MP, brought together representatives from Islamic financial institutions, universities and the community to discuss the challenges Islamic finance is facing at the retail level and to consider actions required to address this.

Education and awareness emerged as a potential priority area at the inaugural APPGIF meeting last year with specific concerns raised about consumers needing to be informed of the possibilities of retail Islamic finance, and in some cases of its existence. At the recent UKIFC / ISRA thematic workshop it was clear that there is a sharp difference in views between the Islamic banks, that believe that all is needed is to better promote and explain their products, and those who believe that the community understands the products perfectly well but do not believe that they are Shari’ah compliant, even if there is a fatwa.

The meeting provided a platform to discuss this issue and explore how the APPGIF might be able to support industry.

APPGIF ACTIONS

1. Establish an APPGIF sub-committee which could take a joined up approach to raising awareness of Islamic finance in the UK consumer banking market.

2. Engage with the APPG on Financial Education for Young People to ascertain what they are doing in terms of Islamic finance to ensure that it is included within their scope of works.

3. Consider a working party group focused on ethical values that transcends faiths.

4. Issues to be pursued with the Chancellor in relation to creating a level playing field:

• Technical changes are still required in relation to Shariah compliant refinancing where it triggers a taxable gain
• Labelling of APR on personal lending products as an issue for Islamic finance. The limits flexibility and optionality
• Limitations of the Consumer Credit Act which inhibits Islamic banks
• Lack of suitable products from British Business Bank.

5. Request an update on Sukuk and Alternative Student Finance.

POINTS FOR STAKEHOLDERS TO CONSIDER

• Opportunity for Islamic finance to identify and promote the points of differentiation from conventional alternatives and this may justify slightly higher rates- Challenges around the understanding of expected profit rates
• One view is that there is a level of understanding and acceptance of Islamic banking products but it is also accepted that this does not translate into the levels of usage one would expect to see
• Savings champions and aggregators continue to exclude Islamic finance
• Product innovation and authenticity – current products are not sufficiently differentiated from conventional products and questions over Shariah compliance
• Pricing – lack of competition has kept pricing high but gradually changing
• Positioning – simple, easy to understand with a strong and compelling ethical value proposition
• Islamic finance has a number of commonalities with building societies, credit unions etc and opportunity for collaboration within the context of ethical finance
• Significant barriers have already been overcome to create a level playing field
• UK a leader in Fintech – have the talent and regulation but not the capital
• Technical training of Imams and scholars to help raise awareness within communities
• Focus should be on grassroots based finance and promoting this to communities.