Modern Islamic finance emerged in the mid 1970’s with founding of Islamic Banks but the growth has been very rapid since 1990’s. The market is now worth over 750 billion dollars globally. Malaysia controls over 67 billion dollars and United Kingdom has Shariah compliant assets in excess of 18 billion dollars. The UK comes 8th in the banker’s league which is the highest amongst all western countries. The market is currently most developed in Iran, Malaysia and the gulf countries. Malaysia is however the largest issuers of Sukuks which are assets based bonds. The annual growth of Islamic finance exceeds 30% per year and it’s the world fastest growing financial sector. There are now Islamic financial institutions in 47 countries.
Islamic insurance arrangements are called Takaful plans. There are two categories of Takaful covers which are family Takaful relating to life covers and general Takaful referring to non life risks such as covers relating to motor cars, property and liability contingencies. The first Takaful Company in Malaysia was established in 1984 and which was called Takaful Malaysia. There has been considerable growth globally which is continuing and at present, the increase is estimated at 20% per annum. A recent survey undertaken by HSBC is estimating that the Takaful market would grow to 14.4 billion dollars by 2010. About two weeks ago I delivered the keynote speech at a major World Takaful Conference in Dubai and I can tell you that the market is very buoyant and continue to be so.
The Islamic banking and Takaful arrangements must be approved by a board of Islamic scholars and a financial institution would normally have 3 or 5 Islamic scholars. The Shariah compliant arrangements must adhere to the following principles.
1. The risks need to be shared amongst all the members. In other words it must be a mutual arrangement.
2. Prohibition of any form of interest which is called Riba
3. There needs to be backing by tangible assets to avoid speculation which is called Garrar
4. There should not be any investments in any activity which is not compatible with Shariah laws as these are haram. These activities include any investment connected with gambling, alcohol, conventional financial services and tobacco etc. All of the investments need to be ethical.
The Islamic and Takaful products will appeal to Muslims as well as non Muslims. A considerable number of people who arrange Islamic plans are non Muslims because of the ethical and mutual structures of these arrangements.
The whole world is suffering from the financial crunch which has come about as a result of bad practices and lack of appropriate housekeeping. The concept of prudence was thrown out of the window and there was greed and short-term practices. The crunch has adversely affected the economies of many countries and people are in dire straits. The scenario is totally undesirable. If more institutions had followed Islamic values then perhaps the situation could have been alleviated.
Islamic Finance believes in an ethical form of investment and we also invest in businesses which benefit the society generally and good for the environment. We therefore fulfil a social function.
In regard to United Kingdom and Europe I would like to state there are 2 million Muslims in the United Kingdom and 20 million in Europe. If we also reach out to non-Muslims the potential is considerable as the populations of the United Kingdom and Europe are 60 million and 450 million respectively. There is however low awareness of Islamic plans but with the right products and effective marketing we will succeed. There is therefore considerable potential for expansion.
The UK is the first country in Europe to promote and encourage retail Islamic banking. The UK is now the leading centre for Islamic finance outside of the Gulf countries and Malaysia. The Government’s intention is to establish and maintain Britain as the gateway to international Islamic finance. The British Government would like to ensure that principles of fairness, collaboration and commitment will apply to Islamic financial arrangements and is actively encouraging Shariah compliant transactions. The British Government has recently published a booklet in which it is stated that “Islamic Finance is available to everybody.” The British government has made concessions on stamp duty, on properties purchased on Islamic finance and also on taxation relating to Sukuks in the recent budget.
In regard to insurance there is only one company in the United Kingdom which is offering Takaful covers and their products are limited to motor and household plans. There are therefore opportunities for entry into United Kingdom which will enable penetration into Europe. As I am involved in insurance I would very much like to promote this idea to potential investors. I would suggest that any new organisation issues a range of products including life and general covers.
I may add that I was the first Muslim to be appointed a member of House of Lords by the Conservative Party. I am very active in the House of Lords and in fact over the period of the last year I have spoken on 29 different subjects which include Insurance and financial services. I consider myself a British Peer who is a Muslim. Amongst holding other positions I chair the Conservative Muslim Forum and Ethnic Diversity Council. I have therefore made strides in promoting Islamic values and principles in the United Kingdom and worldwide. I am a practising Muslim and I am keen to support and enhance Takaful insurances.
In my business career I have dealt with general insurances, life assurance and mortgages. I have actively supported mutual insurance companies and building societies and this is another reason I do like to promote Islamic Financial arrangements and Takaful covers. The principle of mutuality appeals to me.
I chair and act as advisor to organisations which are involved in the training of Islamic scholars and providing tuition to staff on Takaful worldwide and also the training of insurance brokers.
I am a Freeman of the City of London and was given the title of Baron Sheikh of Cornhill in the City of London when I became a Peer. I feel that the United Kingdom has a lot to offer to the development of Islamic insurances. The United Kingdom can also be used as a springboard for penetration into Europe. In these countries there is a history and culture of mutuality and there have been a number of mutual organisations.
The United Kingdom has led the world in the field of Insurance and it can do so in regard to Takaful in Europe. I would like to leave this thought with you.