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A Kingdom Lost - Islamic Banks struggle in the United Kingdom |
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The financial health of a majority of banks of the world has been questionable over the last couple of months. Frantic news reports and speculations concerning the growth prospects of various banks in specific regions have kept the investors on their toes.
The scene is no different for the Islamic banks. Last month has been a little harsh on the Shariah-compliant banks located in the U.K. According to a report by Moody’s Investors Service, the main reason for the sluggish growth of these banks is due to lack of support from the government.
The disappointment due to the attitude of the government towards them is evident from the latest reports pouring in from the top notch Islamic banks and financial institutions.
Many senior management executives working in these banks feel strongly that the Islamic banks and financial institutions work more efficiently in the regions where the system of Shariah-compliant financing and banking is already proliferating or the idea of Islamic banking is considered with a greater interest by the investors.
The exemplary regions in the former category of markets are Malaysia and GCC countries whereas the latter category includes countries from the south Asian region.
Apart from the issue of lack of support from the government, the Islamic banks are also facing a dearth of strong regulatory guidelines or a firm structure that can enhance the growth of the Islamic banks.
The Birmingham-based bank, Islamic Bank of Britain Plc (IBB) has announced their plans to raise $31 million to cope up with the huge losses that amounted to 9.5 million pounds in the last year’s financials. The bank faced faced these losses after dealing with the hard hitting recession of the real estate and housing market in 2008.
The funding will be carried out by ordinary shares at a discounted price of 1 pence and the subscription of these shares would be taken by Qatar International Islamic Bank.
Other banks and financial institutions that operate keeping the Islamic laws in mind, have found out other ways to overcome the effects of the losses due to factors like a low number of investors as compared to those engaging in conventional and non-Islamic financing instruments and banking accounts.
Some of them have done away with various financial products due to lack of sales, a decent demand and withdrawal of underwriter services.
U.K.’s leader in mortgage lending, Lloyds Banking Group Plc, has put a halt on their home financing services because of issues with their underwriter.
While the Shariah-compliant banks and financial institutions in the leading markets like Malaysia are showing all the signs of a good performance, their counterparts in Europe and Africa are facing a huge competition from the conventional banks and financial services.
The Shariah-compliant loans in the latter regions have also seen a fall this year. The loans under this category have come down to the lowest in the last five years after seeing a fall by 35% to $2.3 billion.
The latest Sukuk reports published by Bloomberg state that the Sukuk sales all over the world have also dropped by 29 percent to $6.5 billion as compared to last year figures. A major factor of this drop is the fact that the during the concerned period, the maximum return generated on a Sukuk was 7% while an investor earned 8% return on a regular term deposit account in a conventional bank. Therefore, the Shariah-compliant bonds failed to attract the conventional investors.
A majority of Islamic banks feel that the UK markets are not worth the time and money that would be spent in pushing their products through advertising and promotions. Any aggressive sales tactics undertaken by the banks such as HSBC Amanah to lure potential investors and revive the Shariah-compliant financial products have failed in the last few months.
This scenario has forced the Islamic banks to tap the greener markets, like the Middle Eastern and Asian regions, where the demand for Shariah-compliant products is thriving.
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