islamic retail banking in the uk - tief 2014tief2014.org/pdf/report/materiali/choudhury.pdf ·...
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Islamic Retail BankingIn The UK
Sultan ChoudhuryCEO
Islamic Bank of Britain (IBB)
18 November 2014Turin Islamic Economic Forum
Banking you can believe in
Overview of IBB
Banking you can believe in
Islamic Bank of Britain
1st
wholly Sharia
compliant retail bank
Est. 2004
58k > €643m > €521m 30 products
Banking you can believe in
Good value
Ethical alternative to conventional
Founded in 2004Background
Islamic Finance
Staff of 120
Over 50,000 customers
UK’s First wholly Sharia compliant retail bank
Authorised & regulated by FCA & PRA
Member of FSCS
Head office in Birmingham
‘Banking you can Believe in’Never invest in prohibited areas
Operates without interest
Based on trade, entrepreneurship & risk-sharing
Asset based & backedOversight via SSC & SCO
Our values
Sharia compliant
Community orientated
Secure
Pioneering
Over 30 products
Part of MAR
Muslim & non-Muslim
High brand awareness levels
Different
Banking you can believe in
An Introduction to IBB
Financing up 72%HNW – wealth mgmt & premier banking
Wide product range
Outstanding customer service
Sustained growth
Deposits up 50%
Total assets €521m
Rapidly growing (3% to 5% in 10 years)
UK Muslim market
1.53M adult UK Muslims
Strong customer loyalty
Young, have children, employed, less affluent than average
Retail – banking, savings & home finance
1.16M (76%) IBB target
36% of Muslims use Islamic finance
70% of Muslim non-users would consider
Business – banking and property finance
GCC – property finance
Integrated, multi channel
6 branches & agencies
Telephone & online banking
Online acquisition (14%+)
UK based, multi-lingual call centre
Banking you can believe in
An Introduction to IBB
Branch/Agency
IntermediaryContact Centre
IBB distributionchannels
Distribution Channels
Self Service
Banking you can believe in
Est. 2004
>50k > £330m > £250m 30 products
Banking you can believe in
IBB Key milestones
2004 2005 2006 2007 2008
IBB is the first standalone Sharia compliant Bank to receive an FSA Licence
A further four branches are opened across the UK
Online banking is launched, expanding reach beyond the branch network
IBB launches an Internet savings account
IBB launches the Home Purchase Plan
The first branch is opened in London
IBB launches furtherproducts including a Current Account and unsecured finance for personal and business customers
IBB launches its Young Persons Savings
IBB launches additional savings products including the 60 Day Notice Account and WakalaTreasury Account
IBB launches its first savings account
Telephone and postal banking are launched
The Bank launches its first ever commercial property finance product
Following the credit crunch, the Islamic model of banking proves more resilient than the conventional banking model
Since being granted a Banking licence, IBB has been busy building it’s proposition
Est. 2004
>50k > £330m > £250m 30 products
Banking you can believe in
IBB Key Milestones
2009 2010 2011 2012 2013 2014
IBB launches itsPremier Banking Service
IBB adds Wealth Management Services to its proposition
The Buy to Let Purchase Plan is launched
Masraf Al Rayan(MAR) announces its intention to purchase majority shareholding
The UKs first Sharia compliant ISA is launched by IBB
IBB announces that Masraf Al Rayan has become the new parent company
HPP is launched in Scotland
Home Purchase Plan Premieraimed at GCC clients is added to the Premier proposition
IBB launches the120 Day Notice Account
IBB works with the UK Government to provide a HPP backed by the Help to Buy Guarantee
IBB launches its Fixed Term Deposit Savings Accounts
IBB’s table topping FTD proves to be popular. The majority of new customers are non-Muslim
IBB continues to develop and an extensive range of products and services
In 2013, IBB began a programme to drive online sales. This programme included:
• A brand new, fully mobile responsive, website
• Significant conversion enhancements to online customer
acquisition process
• Targeted pay per click advertising (e.g Google Adwords)
• Social engagement with prospects (Facebook, Twitter)
• Video and animation on website and through YouTube
• Partnership with aggregators (e.g. MoneySupermarket.com)
• Advanced web call tracking
Programme of online marketing improvements
Banking you can believe in
Programme of online marketing improvements
Banking you can believe in
UK Retail GCC & Commercial
Current
NewUse starts December 2014
Banking you can believe in
‘Rebrand’ to Al Rayan Bank
What will change and what won’t?
• Company name - Al Rayan Bank PLC (from December 2014)
• Registered address - Knightsbridge, London (from December 2014)
• Web site address – www.alrayanbank.co.uk
• Evolution of the brand values:
� Tag line – ‘Banking you can believe in’
� The change from ‘IBB’ to ‘Al Rayan Bank’ will involve an evolution of our five brand values. Our values are the core principles of the Bank and the key to what makes us different and good.
Banking you can believe in
Sharia compliant
Pioneering AspirationalDedicated Dependable
Changes combined in practice
Banking you can believe in
Islamic Banking Underpinnings
Banking you can believe in
Islamic Finance
Banking you can believe in
Video 1
• Requirement for ethical conduct
• Prohibition of Interest (riba)
• Based on Real Assets
• Sharing of Risk and Reward
• Avoidance of excessive uncertainty (gharar)
• Prohibition of gambling (qimar)
• No short selling
• Debts cannot be assigned at difference from face value
• Activities must be sharia compliant (no casinos, alcohol etc.)
Basic Principles
Banking you can believe in
These principles are derived from the Sharia
Banking you can believe in
In Practice
Video 2
G Consolidating
Assets
L Platinum
Pensions
F Accumulated Wealth
H Balancing
Budgets
I Stretched
Finances
K Seasoned
Economy
J
Established
Reserves
N Traditional Thrift
M Sunset Security
D Growing Rewards
E Family Interest
A Bright Futures
B Single Endeavours
C Young Essentials
Recognised Savings Market
Recognised Mortgage Market
Regular savings & children’s savings
First time home buyers
Lump sum investments & savings
Main mortgage market
Banking you can believe in
Experian’s segmentation model – 14 ‘Groups’ then split into 50 ‘Types’
IBB currently has 15,800
customers who fall into one of the 30 priority
‘Types’ = 34.1% of the
IBB base
There are 637,400 UK
adult Muslims who fall into one of the 30 priority
segments = 41.7% of the Muslim market
IBB’s Opportunity
Banking you can believe in
Income
Origin
Age, gender & children
Investments
Property
Market size1.53M UK adult Muslims = 3.12% of UK adult population
Pakistan = 42.1%
IBB customers = 3.32% of UK adult Muslims
763.7K UK Muslim households = 3.01% of UK households
More male vs. UK –58.1% vs. 48.3%
Young vs. UK –72.4% aged 18 to 45 vs. 51.5%
Bangladesh = 10.5%
Lebanon = 7.9%
Turkey = 8.3%
Morocco = 3.2%
Less affluent vs. UK – 30.1% earn under £10k vs. 27.7% 1.0% earn over £100k vs. 1.3%
More children vs. UK –52.6% have family under 18 vs. 28.1%
More employed vs. UK – 59.1% employed full time vs. 50.3%
Fewer shares vs.UK – 8.7% vs. 16.8%
Lower value of savings & investments vs. UK – £24.2K vs. £38.2K
More renting & Council housing vs. UK – 40.5% vs. 32.1%
More terraced housing & flats vs. UK – 64.3% vs. 44.8%
Banking you can believe in
Key Demographic Facts
5
4
3
2
1 Child’s savings account
Regular savings account
Property investment – Buy to Let
Cash ISA
Instant access savings account
Banking you can believe in
The Top 5 Savings Products for Muslims
62% of all UK adult Muslims are concentrated in 20 postal areas running from London,
through the Midlands, to the North
Banking you can believe in
Muslim Distribution across the UK
Rank
(Muslim 18 +
Population)
Postal
Area
Postal Area
Description
Muslims
Count
Adults
18 +
Penetration
into area
(%)
1 B Birmingham 137,139 1,414,030 9.70
2 E London E 127,774 651,547 19.61
3 BD Bradford 71,055 429,445 16.55
4 N London N 62,385 605,115 10.31
5 M Manchester 52,645 890,465 5.91
6 IG Ilford 44,675 232,704 19.20
7 NW London NW 43,206 437,309 9.88
8 OL Oldham 39,406 343,855 11.46
9 BB Blackburn 38,982 370,783 10.51
10 SW London SW 36,785 717,410 5.13
11 HA Harrow 34,737 337,262 10.30
12 SE London SE 33,822 743,209 4.55
13 LE Leicester 33,815 760,210 4.45
14 W London W 33,301 443,497 7.51
15 UB Southall 31,427 255,983 12.28
16 S Sheffield 27,593 1,071,499 2.58
17 LU Luton 25,320 251,169 10.08
18 WF Wakefield 24,771 390,966 6.34
19 SL Slough 24,749 272,467 9.08
20 TW Twickenham 24,622 360,656 6.83
12 of the top 20 postal areas are in the South, representing
522,800 adult Muslims (55% of the population of the top 20 areas)
South
South
South
South
South
South
South
South
South
South
South
South
Midlands
Midlands
North
North
North
North
North
North
2 of the top 20 postal areas are in the Midlands, representing
170,900 adult Muslims (18% of the population of the top 20 areas)
6 of the top 20 postal areas are in the North, representing 254,400
adult Muslims (27% of the population of the top 20 areas)
Banking you can believe in
Top 20 postal areas by volume of Muslim Population
IBB Survey of consumers’ attitudes & understanding of Islamic Finance conducted by 2Europe in
Aug 2013. 300 consumers of which 100 where non-Muslim
66% of those surveyed felt that Sharia compliant finance is appropriate in a modern western
society, such as the UK
60% overall agreed that Sharia compliant finance is relevant to all faiths
with 57% agreement for non-Muslims surveyed
81% of IBB’s customers are likely to use Sharia compliant finance again; the results being the same
for Muslim and non-Muslim customers
36% of Muslims currently use Sharia compliant finance, of which 9% use it exclusively.
A further 45% of Muslims, who don’t currently use Sharia compliant finance, are likely to consider
doing so in the future.
Banking you can believe in
IBB Survey of Customer Attitudes
49M adults in the UKAverage non-Muslim is 7 times less likely to
purchase Islamic finance than average Muslim (Research for IBB by 2Europe, 2013)
1.53M adult Muslims9% exclusively use Islamic
finance; 27% use some Islamic finance; 45% will consider Islamic finance
Limited levels of non-Muslim interest62% of non-Muslim prospects say they are
“unlikely to use Islamic finance in the future”
But when they do buy, they are loyal
N.B. Some very anti-Islamic (finance) sentiment
• Some from Muslims not believing or
misunderstanding• Some from non-Muslims,
generally anti-Islamic
Target Group 2 –Interested non-Muslims
Use PR and Pay Per Clickadvertising to allow those interested to self select
Target Group 1 -Muslims
Use face to face sales and direct marketing to target best prospects
Too large an audience for IBB to market to all
Banking you can believe in
Overview of the UK market & summary of IBB’s targeting strategy – 2 key audience groups
£4M
£22M
Banking you can believe in
Strategy has generated a ten-fold increase in direct sales in two years, with further growth in 2014
Strong Growth in last 2 years
Banking you can believe in
£-
£50,000,000
£100,000,000
£150,000,000
£200,000,000
£250,000,000
£300,000,000
£350,000,000
£400,000,000
£450,000,000
£500,000,000
Real Estate Assets
£-
£50,000,000
£100,000,000
£150,000,000
£200,000,000
£250,000,000
£300,000,000
£350,000,000
£400,000,000
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£500,000,000
Deposits
Drivers of contemporary Islamic Banking?
Banking you can believe in
Banking you can believe in
High Growth Rate Industry
• Global sharia compliant assets $1.46bn and estimated to be $2tr by end of 2014
• Islamic Funds $74bn
• Takaful premiums > $30bn
• UK est. for sharia assets is $19bn
• UK has c. 20 banks offering IF
• LSE has issued over 50 sukuks >$34bn
• 25 law firms
• Major infrastructure such as Shard & Olympic Village
⇒⇒⇒⇒ Whilst a nascent industry, still represents only 1% of global assets. Plenty of potential as Muslims are 23% of global population
• Commitment from Retail customers
• More Islamic financial services products being developed
• Resurgence of Muslim Cultural values
• Strong growth of OIC (Organisation of Islamic Conference) countries (fuelled by Oil prices)
• Capital is being provided by institutions as well
• The industry is becoming more standardised and convergent (e.g. common accounting and auditing standards AAOFI)
Banking you can believe in
Factors Driving Islamic Banking
• Economic Reasons
– Potential for large capital inflows into City of London due to the size of the Global market and strengthen the UK as a financial centre
– English commercial law is used commonly used for large contracts – so UK professional firms are doing well out of it
• Combating Financial Exclusion
– Enabling more access to financial services to UK’s 2-3 million Muslims
• Regulations
– Create a regulatory framework that recognises Islamic nature of products and affording users of those products the same consumer protection
• Taxation Regime
– Changes to engender a level playing field for Islamic Finance products
Banking you can believe in
UK Factors
• The biggest obstacle in Western economic systems is the taxation environment
• In Islamic finance the buying and selling of ‘real’ assets usually creates a taxation impact
• There is a requirement to create a “level playing field” so that the Islamic finance transaction is treated as a finance transaction
• In UK nearly every Finance Act since 2003 has had taxation legislation to adjust for sharia compliant products
Banking you can believe in
Taxation Regime
2003
Finance Act 2003: Relief from double Stamp Duty Land Tax “SDLT” on Home Finance Murabaha and Ijara Products
2005 2006
•VAT treatment of Islamic Financial Products (Murabaha, Mudaraba, Musharakah, Wakala and Ijara)
•Finance Act 2006: Extend “SDLT” relief on property finance to all entities, including companies,clubs and LLPs.
•Taxation of Wakala based deposits
Finance Act 2005: Alternative FinanceArrangements:• Profit Share Return “Mudaraba”• Alternative Finance Return “Murabaha”
• Extending “SDLT” exemption to include Musharakah home finance products
Banking you can believe in
Timeline for Islamic finance taxation changes in the UK
2007
•Finance Act 2007 introduced legislation which provided for Sukuk to be taxed similar to conventional bonds.
•Introduced further amendments to the SDLT relief
2008
•The Finance Act 2008, added amendments for Stamp duty and stamp duty reserve tax for Sukuk
•Gave power to Treasury to raise funds using Sukuk
•Introduced anti-avoidance measures on alternative property finance transaction
2009
•The Finance Act 2009 introduced provisions to exempt land which is used for Sukuk purposes from “SDLT”.
•The Statutory Instrument No 2568 2009, extending the definition of financial institution under the alternative finance arrangement to include Insurance Company
Banking you can believe in
Timeline for Islamic finance taxation changes in the UK
• The Statutory Instrument No 814 2010 amended the rules on anti avoidance to ensure that the SDLT relief available for Sukuk “alternative finance investment bonds” (AFIBs) operates as intended.
2010
Banking you can believe in
Timeline for Islamic finance taxation changes in the UK
20132011
• Sch.21 FA 2011 replaced the definition of a ‘Financial Institution’ for SDLT purposes with the definition used in the Income Tax Act 2007
• FA 2013 section 157 and schedule 40 set out the relaxation, for alternate finance structures, from the strict position for imposing the Annual Tax on Enveloped Dwellings and the 15% SDLT rate
• UK is one of the easiest jurisdictions in the World for Islamic Finance
• A strong judicial system based on common law – a precedent based system
• Financial regulations attempt to accommodate Islamic Finance with NO OBSTACLES AND NO SPECIAL FAVOURS
• Legislation does not mention Islamic Finance but Alternative Finance
• Specific regulatory guidance for sharia products ‘ Home Purchase Plan’
• Prudential rules for liquidity PS 4/14 – threatened by lack of understanding in Europe!
Banking you can believe in
Legal & Regulatory Framework
• Student Finance that is sharia compliant
• Help to Buy scheme for home finance
• Start up finance
• Sovereign Sukuk oversubscribed over 11 times
• New announcements WIEF 2014– BofE liquidity facility, Export Guarantees
• Every government department is meant to consider Islamic Finance impact
Banking you can believe in
Political Commitment
“Our commitment to help London lead the way in Islamic finance across the world”
David Cameron, WIEF 2013
UK institution ‘passporting’ to the EU
Banking you can believe in
• Subject to PRA approval, no major obstacle in passporting for branch operations in line with the existing authorisations;
• PRA will remain the main regulator and monitor the Italian operations including liquidity management;
• AML reporting for operations in Italy will be direct to the Italian regulators;
• The product documentation has to conform to the legal requirements set out by the Italian banking regulations;
• Final product documentation needs approvals from Italian regulators;
• Market research validating the demand for Islamic products and 3 year business plan will be required by the local regulators (as part of the PRA passporting file);
• Issue of capital guarantee needs to be understood and resolved in local regulations;
• The concept of “beneficial ownership” would have to be investigated in Italian law for home finance contracts (Is there an equivalent of an English Trust?)
Banking you can believe in
EU Passporting
Islamic Banking’s relevance to non-Muslims in the UK
Banking you can believe in
In a time where there is great disaffection with Bankers it is conduct and values that count
• Embodies social justice
– Returns reinvested in society through risk/reward sharing & prohibiting unethical activities
• In line with today’s societal trends
– Ethical Investing & Corporate Social Responsibility
• Inclusive proposition – open to all faiths
• Responsible finances
– Systematic checks on providers of finance due to the requirement for ethical conduct
• Stability through reinforcing links between financial services & real economy
Banking you can believe in
Islamic Banking is Embedded in ‘Values
“Serving Communities not Markets”
Many Challenges Remain
Banking you can believe in
• Consumer Education and Awareness
– Difficult with Muslim consumers but 7 times harder to reach Non-Muslims
• Islamic Banking ‘in practice’ needs to evolve further to the ‘ideals’
– Proportion of debt based financing (murabaha) compared with equity style financing (murabaha)
• The financial system has inbuilt bias towards debt
– Tax, accounting, regulatory systems making equity financing disadvantageous
• Liquidity management
– Shortage of liquidity instruments reduces returns for Islamic Banks
• Development of frameworks and standardisation
– Standardisation of interbank documentation, frameworks such for benchmarks
Banking you can believe in
Challenges to Islamic Banking
Islamic Islamic Banking is ‘Values’ based. Product innovation must focus on building on these distinctive values
Banking you can believe in
Success Factors
Treating Islamic Finance as an opportunity, not a threat
Creating awareness across the board
Capacity building particularly developing human capital
Developing innovative products that are regulatory and Sharia compliant, market
competitive and commercially viable
Marketing the products with a clear differentiation
Targeting the wider market instead of limiting to Muslims
Positioning the products as an ethical alternative with clear definition of ethical
Investing in Research, Development, Training and ongoing Assurance
Banking you can believe in
www.islamic-bank.com
Banking you can believe in