An Interview with Sultan Choudhury, Islamic Bank of Britain
19 May, 2012
IBB came into existence in August 2004 when the Financial Services Authority (FSA) granted the Bank its license. In September 2004 IBB became a UK publicly listed company on the Alternative Investment Market (AIM). The Bank’s vision was to offer Shari’ah compliant retail financial services and the journey began when the capital was raised by investors in the UK and the Middle East. The first step was to set up the infrastructure, processes and products as well as bring together the team.
This was followed by the setting up of a branch network. IBB now has a national branch and agency network in key locations including London, the Midlands and North West. To complement this, and to enable Shari’ah-compliant banking to be accessible to consumers across the UK, IBB also developed its Smart Banking facilities, i.e. telephone and internet banking.
Extensive product development work has also been carried out since the Bank started life. As a result IBB now claims to offer the largest range of Shari’ah-compliant retail financial products in the UK to more than 50, 000 customers.
Sultan Choudhury studied economics at the University of Nottingham in the early 1990’s. His interest in Islamic finance began at this time. He maintained his interest after qualifying as a chartered accountant and moving into financial services. His desire to enter the field of Islamic finance crystallized when he went on Hajj in 2002. In 2004 he joined the founding management team of the Islamic Bank of Britain (IBB), the first dedicated Islamic bank in the West. Since 2004 he has worked in all areas of IBB.
Thinking about the backing IBB has received from QIIB, apart from the obvious stability and improvement in your liquidity position, what would you say has been the main impact of this backing for IBB?
Being part of the QIIB network of Islamic banks is about more than just stability. It gives us access to product expertise and synergies in relation to our respective businesses.
Are there any general economic or banking world factors that are affecting your progress in either a positive or a negative sense, e.g. has the disillusion with banks in general helped or hindered your progress?
The banking sector crisis and its causes have helped generate awareness of Islamic banking and IBB in the UK. It helped improve the perception of Islamic finance as a resilient and viable alternative to conventional banking. We are not immune, however, to the real world economic situation and yields have fallen significantly for deposits in general. We have countered this by growing our asset base and we still provide market leading returns to our customers.
In late 2010 you hoped that the capital injection you received would help to grow your Home Purchase Plan mortgage business. Has this growth materialised or have you been affected by the general malaise in the UK housing market?
IBB’s Home Purchase Plan (HPP) business continues to go from strength to strength. We have been able to offer new deals and have launched a Buy to Let Purchase Plan and a Home Purchase Plan product for GCC customers wishing to buy a property in the UK.
Similarly, how have your fixed and variable rental rate products announced in late 2010 done and what would you say are the reasons for this?
In August 2011 the Bank re-launched the HPP with new rental rates and higher ‘finance to value’ (FTV) ratios. Customers can now access Shari’ah compliant home finance from IBB with a 20% deposit. This represents the lowest Finance to Value (FTV) ratio in the UK for a Shari’ah compliant mortgage at 80%. Both products are available for purchases, refinancing or releasing additional capital. IBB’s fixed-rate HPP product (fixed at 4.19% until December 2013) is the most popular product as it gives customers the ability to plan finances knowing there will not be rent changes.
How has IBB fared against well-established competitors such as HSBC Amanah and others and how is this affecting your market share?
I think there is plenty of market share for everyone. IBB has a differentiated position in the market as we are the only wholly Shari’ah compliant retail player. Our customers think of us as one of their own – as part of the community, not a large corporate.
Currently there are only a small number of players in the market and the competition that exists is at a healthy level. IBB offers the largest range of Shari’ah compliant retail financial products in the UK, so we are able to access the market in more ways than one. IBB’s products are also well respected for their competitive rates and the way in which the Bank has worked innovatively to develop such a wide range.
The issue here is not of taking market share from other Islamic finance players. As a collective, we need to raise awareness of Shari’ah compliant banking so that we can all increase our share of the retail financial services sector. Our main competitor is still conventional banking and the lack of education about Islamic finance amongst consumers is the hurdle we all need to overcome.
Is your strategy primarily to attract Muslim customers or is it to attract customers of all religions or none who are looking for ethical banking alternatives to mainstream UK banks?
As a Shari’ah compliant bank, developing Shari’ah compliant retail financial products, we are of course primarily catering for Muslim customers. However, IBB is keen to attract all consumers interested in IBB, both for its ethical offering and its competitive products. The competitiveness of our savings products, for example, has seen them featured at the top of the tables on price comparison websites. This has resulted in a surge of interest from both Muslim and non-Muslim consumers.
Islamic banking is also increasingly being perceived as an ethical alternative to conventional banking. This has been recognised by the recent ‘Move Your Money Campaign’ and IBB is pleased Islamic banking is being promoted in this way. Shari’ah-compliant finance is based on sound principles and we would like to see more consumers taking advantage of what it has to offer.
What are your short and medium term aims in the UK market?
IBB’s strategy is to build a profitable bank that is the Islamic retail bank of choice. This means we are focused on growth for the short and medium term. We are working towards achieving growth and profitability by significantly increasing our balance sheet – both assets and deposits. In the short-term this means increasing our reach and distribution and being competitive with the mainstream. As a first step towards extending its reach, IBB recently launched an agency network, in addition to the IBB branch network. Agencies extend the Bank’s footprint and enable the Bank to be more involved in local communities. By co-locating IBB staff with a local, complementary business partner, IBB aims to provide a more personal banking service. To compete with the mainstream IBB has launched new Home Purchase Plans and savings products which offer rates that are competitive. Currently IBB is offering an initial expected profit rate of 4% for customers opening our new 120 Day Notice Account beating many of the rates offered by conventional savings product providers. IBB also aims to supplement revenue from assets with fee income generated through sales of third party, Shari’ah compliant products.
Given that QIIB’s stated aim is to build an international banking presence, how do you or they see IBB playing a part in this strategy?
IBB is very much QIIB’s arm in the UK. In the long term we hope to be in Europe too, but our current ambitions are focused on the UK for now.
On a broader front, how do you see the future of Islamic banking in the UK progressing; do you believe other Islamic banks based in the GCC, Middle East or Malaysia will eventually set up retail operations in the UK and would this be a good thing for the future of Islamic banking in the UK.
London will always be attractive for overseas banks, whether mainstream or Islamic. The question is whether the high fixed costs of doing retail business in the UK and the consequent long payback period will prove an attractive investment for overseas banks when cheaper emerging markets such as North Africa are opening up.
Do you think the UK will continue to be a leader in Islamic finance in the West? If so why and if not, why not? Yes, I do think the UK has the strength to continue with its position as western leader in the global Islamic finance market place. Whilst the UK industry is nascent, it is expanding rapidly. We have 22 banks of which five are wholly Shari’ah compliant banks. We have government recognition of the sector along with regulation and tax legislation in place. The UK also has an industry body, the UK Islamic Finance Secretariat (UKIFS), which seeks to promote the UK Islamic finance industry both internationally and domestically. This has been set up as a trade body under the umbrella of TheCityUK. Recently TheCityUK signed a Memorandum of Understanding (MOU) with the Dubai International Financial Centre Authority (DIFC) to share financial, legal and regulatory expertise. This will help UK firms exploit the opportunities that exist for Islamic finance in the Middle East. I think, therefore, that the UK has a very valuable lead in the ‘race’ and is not sitting on its laurels to maintain its position. The industry collaborates very successfully to ensure success continues.
If you could have one wish granted in terms of the economic, legal or regulatory environment in the UK, what would it be?
The Islamic banks in the UK need the Bank of England to provide a sovereign rated Shari’ah compliant instrument, which is considered an eligible asset for liquidity. We cannot use the current government bonds that pay interest. If we are forced to take up government bonds, the interest has to be foregone or given to charity with a detrimental effect on our profits. Either a UK Sovereign Sukuk or simply a Murabaha/Wakala based treasury instrument offered by the Bank of England would serve to eliminate this problem.
It is often said that there is shortage of skilled personnel for the Islamic finance industry? What has been your experience so far?
Whilst there is a lack of qualified Islamic banking and finance professionals with experience there are a large number of graduates and post-graduates with Islamic finance qualifications. The problem in the UK is that, as a small industry, there are not enough jobs available. Typically Islamic banks are too small to operate graduate schemes and are limited in the amount of work experience they can provide. At IBB we do provide work experience in conjunction with the Elshaarani Centre for Islamic Business & Finance (EIBF) Centre, which is part of the Aston Business School, offering an MSC in Islamic Finance.
Another issue is that since the UK industry is still relatively young, it can sometimes be difficult to find personnel with technical experience, i.e. individuals with a thorough understanding of Shari’ah and its application for financial products. IBB has been fortunate. Our Shari’ah Supervisory Committee consists of experienced and knowledgeable scholars. IBB’s Shari’ah Compliance Officer is also a member of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOFI) and is a Certified Shari’ah Advisor and Auditor. This high level of expertise is demonstrated by the fact that IBB is able to offer the largest range of Shari’ah compliant retail financial products in the UK.