University of Dundee DOCTOR OF PHILOSOPHY Perceptions and Experiences of British-Based Muslims on Islamic Banking and Finance in the UK Riaz, Umair Ahmad Award date: 2014 Link to publication General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Download date: 04. Oct. 2021 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.