Mushtak Parker discusses with Amjid Ali, senior manager, HSBC Amanah and UK Head, the prospects for HSBC Amanah in the UK and European Union; the experience thus far; the various successes and challenges facing the Islamic banking sector; and the bank’s commitment to Islamic finance in the UK.
It is the self-styled “world’s local bank”. Since the establishment of its dedicated Islamic finance division, HSBC Amanah, in the Middle East in 1998 under the leadership of Iqbal Khan, its inaugural chief executive officer, has also acquired the sobriquet of being the “world’s local Islamic bank”.
This may be true in markets such as the Middle East and Asia especially Malaysia, where the HSBC Amanah franchise is flourishing, but in other markets, especially in the West including the UK and the US, the Amanah proposition has been more challenging and perhaps muted.
Although the headquarters of HSBC Amanah was subsequently moved to London briefly, only to be relocated to Dubai, HSBC Amanah business in the UK was officially launched in July 2003. HSBC has a rich tradition of community banking, and HSBC Amanah was established to serve the particular financial needs of Muslim communities, in this case the UK Muslim community.
In some respects the Amanah proposition is a banking sector take on financial inclusion. Indeed, HSBC is the first high street bank in the UK to launch a Shariah-compliant home financing product; a current account; Takaful (Islamic insurance) services; investment products (equity, income, Takaful, Sukuk and real estate funds) and a pension product.
It would appear that Islamic banking in the UK is limited to home financing and current accounts; is this it for Islamic finance?
We recognize that success in this market depends on our ability to deliver in a way that continually demonstrates a respect and understanding of cultural differences, and of the importance of Islam in the daily life of a Muslim. We will do this by providing the highest quality Islamic Banking Solutions, maintaining high ethical standards in our business relationships and investing in the future of our communities. We are committed to improving the lives of all our Muslim customers worldwide.
Following on from that — where do you think Islamic finance can go from here?
The emergence of Islamic banking in recent decades has been one of the most important developments in the financial world. This sector of the banking industry is young and indigenous, and its steady growth has marked a new chapter in the rich tradition of community banking at HSBC.
With the development of viable Islamic alternatives to conventional finance, which are based on a deep heritage of Islamic law, Muslims are now increasingly able to participate in the financial world without bearing an economic penalty.
We are a customer-driven organization and I would like to think that in UK we will at some future date be in a position to offer a range of core personal banking products to compliment our existing Amanah Bank Account, Amanah Home Finance, Amanah Pension Fund and Amanah Investment Funds.
What are the main challenges of Islamic banking?
The Islamic finance industry is only four decades old compared to the well-established conventional banking system. Therefore, the industry is still evolving at all levels. We believe that there is a pressing need for a proactive regulatory framework to pave the way for enhanced and innovative offerings by Islamic finance practitioners. The regulatory framework in many countries needs to appreciate the peculiarities and requirements of the Islamic finance industry.
Although there is a growing awareness of this issue, there needs to be active engagement by the regulators to provide an enabling environment for the growth of the industry. In this respect, proactive dialogue between regulators and scholars is of the utmost importance, with a view to codifying Shariah principles that are applicable to Islamic transactions. Standardization remains a key challenge that needs to be addressed and is a collective responsibility of key industry stakeholders.
Key enablers to drive the industry forward also include the development of human assets; a lack of expertise remains one of the main challenges that Islamic banking has to face up to. The future of Islamic banking depends on the training and development of talented professionals. Greater academic input to formulate a visionary framework for the industry is also necessary for continued innovation.
We need to work on effecting a change in mindset from Shariah-compliant to Shariah-driven products and services. Another important factor that needs to be addressed is the level of product knowledge by customers of Islamic financial solutions. There is a genuine need to fill this gap for the increased penetration of Islamic banking products.
Uptake of Islamic finance products in the UK has not been what everyone hoped it would be. What is Amanah doing to increase the appeal of products and to address the concerns of the UK market?
I believe the structure and quality of our Amanah Home Finance product is one of the best in the marketplace. It is based on the principle of Diminishing Musharakah (co-ownership) with a separate trust document in which the interests of the Bank and customer are noted.
This method is regarded as the most compliant by our learned scholars as the customers share increases on a month by month basis and not at the end of the term as with an Ijarah contract. To address the concerns of our Muslim customers, it is important to note that my team and I are not Shariah scholars and therefore our ability to address questions related to the interpretation of the Holy Qur’an and Hadith are beyond our capabilities.
In fact there is a fine line between presenting factual information and discussing the religious benefits of Islamic financial solutions. As a financial services organization regulated by the FSA we must abide by strict guidelines governing ‘Treating Customers Fairly’ this includes the way in which we present information.
What are Amanah’s plans for the future in the UK?
At HSBC Amanah we recognize that customers demand more choice and greater flexibility in their day-to-day banking.
That is why HSBC Amanah brings a range of Islamic personal banking services to selected markets that suit both our customer’s ethical preferences and personal circumstances. Our Amanah proposition in the UK is offered through a team of dedicated Amanah managers based in key-site locations across the UK.
We are committed to improving the lives of our customers worldwide by providing them with the choice of the highest quality Islamic financial solutions. HSBC Amanah like any other financial services entity has reviewed its growth plans following the global financial crisis. The growth aspirations are still there but there’s a greater sense of caution and prudence in managing future growth strategies.
We would like to think that Islamic finance is here to stay in the UK, but it will not be a quick win. HSBC Amanah UK is very much a part of our ‘community banking’ strategy and we are committed to supporting our Muslim and non-Muslim customers through the provision of Shariah-compliant financial solutions. We do however have to take into consideration the cost of product development and the likely return on investment.
It is sometimes said within the industry that there are not enough young people of sufficient caliber going into the industry. What is Amanah doing to address that?
Following a successful first year of partnership, CIMA (Chartered Institute of Management Accountants) and HSBC Amanah have also agreed to continue their global partnership to promote CIMA’s Certificate in Islamic Finance.
The expanded collaboration represents an exclusive partnership programme to advance the promotion and development of the Islamic finance sector through high quality, relevant and practical training with a focus on practitioners attaining a professional qualification.
The partnership will see more HSBC Amanah staff from around the world undertaking the Certificate as HSBC Amanah’s qualification of choice.
Do you have any plans to expand your operations into Europe?
This is not an immediate goal because the emphasis currently remains on consolidating Amanah in the UK.
The bank has received several enquiries especially from France about offering Islamic consumer finance products such as home financing and current accounts, but the objective for the time being is to concentrate on our core market in Europe which is the UK.
