LONDON, 22 August 2004 — At first glance, Michael Hanlon looks an unlikely revolutionary — eminently respectable, with closely cropped silver hair, dark business suit, and the sort of reassuring smile you might expect from your bank manager. And yet this is the man who is promising to turn British finance on its head, and bring the principles of Islam and the Arab world into Western banking.
Hanlon is managing director of the Islamic Bank of Britain, which in a few weeks’ time will become the first fully Islamic bank to open its doors in the Western world. It will offer current accounts, savings accounts, mortgages and pensions just as every other bank in London does — except that all its products will be fully compliant with Shariah law.
Does that amount to a revolution? “I certainly hope so,” he says. “It’s up to us now, but it could certainly happen. I am offering a realistic alternative to conventional banking.”
Offering that alternative has taken months of intensive discussions — “very constructive,” Hanlon notes tactfully — with UK banking regulators, who were initially uneasy about whether a bank that bans the giving or taking of interest could work within the British system. “Times have changed. There was no political will before to bring about change, but now the government here is strongly promoting greater inclusiveness within society. The tragic events of Sept. 11 changed the world in a lot of ways.”
The new bank will not only ban interest, but it will guarantee that its investments are made within an ethical framework approved and monitored by a panel of Muslim scholars. Shariah law has always required profits to be shared, and also banned investment in industries related to alcohol, gambling or weapons, as well as prohibiting interest. Such Islamic banking is common enough in the Middle East, and has already had a widespread welcome in advance among Britain’s 1.8 million Muslim community. Another half million or so Muslim long-term visitors or temporary residents in the UK every year will provide more potential customers — but Hanlon has still greater ambitions for the bank.
“The Muslim community is certainly our core target for marketing, and we will be offering different propositions for high-networth individuals, small businessmen, and eventually students within that community,” he says. “But this is an inclusive plan: We have a number of strong values that come from the Islamic faith such as an ethical and transparent policy in our banking. That will be attractive to non-Muslim customers as well.
“Our initial research showed that while Muslims themselves welcomed the idea of a bank that complied with Shariah law, they didn’t want it to be exclusive - and they did want it to be competitive with conventional banks.”
The hope is that eventually, non-Muslim customers from the conventional, interest-charging high street banks in the UK will be attracted by the banking practices of the Arab world.
“Ethical values are becoming increasingly important in the UK. Transparency in banking is a strong potential attraction,” says Hanlon. “It won’t happen overnight — “People will have to get to know us, and trust us, and understand us. We will be recognized by our values, most of which are taken from the Islamic faith.”
Hanlon has long experience of banking with Barclays in the UK, and in Poland and Central Eastern Europe with the Austrian group Raiffeissen but, like 30 percent of his staff, he is a non-Muslim. The bank’s Shariah guidance committee is responsible for seeing that the products offered all comply with Islamic rules. That means, for example, that the bank will buy an item on a customer’s behalf, and then lease it back to him over a fixed period, after which it becomes his own property. It is accepted that the total cost paid by the customer will include a sum to cover the use of the item during the leasing period, allowing the bank to make money without charging interest. Similar principles can be applied to mortgages for house purchase, which conventionally would involve a regular interest payment.
The Muslim scholars on the committee have been making detailed proposals on how several other products can similarly be brought within both Islamic law and UK banking regulations. The bank’s investments will also be strictly governed by Islamic law.
Senior officials say they will not invest in companies associated with tobacco, alcohol or pornography, and the guidance committee will oversee investment policy to guarantee that these guidelines are followed.
Hanlon doesn’t believe that not being a Muslim himself is any disadvantage in becoming an Islamic banker. “Quite the reverse. That fact demonstrates what I am trying to say to people - that we are offering a non-discriminatory, multi-cultural, and inclusive proposition.
“We are all first and foremost, professional retail bankers, “ he says. “I knew very little about Islamic banking, but it had enormous appeal for me when was approached by a group of people in London. The task of starting up a new bank is something I enjoy, and I very much liked the concept. There are aspects of conventional banking with which I don’t feel comfortable, and Islamic banking can offer a better alternative.”
Investors in the Gulf and among British Muslims have provided start-up capital of 14 million sterling pounds for the new venture, but there are plans to raise another 40 million pounds-50 million pounds through share sales in London and the Middle East, leasing to a listing on the London stock market. After that, the first fully Shariah-compliant bank in the Western world is likely to seek expansion into other European countries. Before it can make such a move, UK regulators have to be satisfied with its trading practices for at least two years — but after that, Hanlon has every hope for expansion.
“There has been enormous foreign interest in our opening — it was reported in French, in Italian, and in Swedish. Europe is definitely on our agenda, even though we cannot even think about expanding beyond the United Kingdom for the next two years,” he says.
Bringing Islamic banking to British customers outside the Muslim community, let alone to the rest of Europe, is likely to be a long haul, but Hanlon and his investors are confident it can be done. If they’re successful, it’s likely to prove revolutionary not just for the UK’s conventional banking and finance system, but for attitudes toward the Muslim faith across British society. Millions of people who currently form their opinions about Islam from newspapers and television reports will see how the faith works in practice. That could be a bigger revolution in Britain than even Hanlon supposes.
