Scotland champions Islamic finance

Now the country is becoming a pioneer in the rapidly developing area of Islamic and ethical finance.

Welcoming new faiths

In the past decade, the UK has become a western leader for the provision of faith-based financial products which comply with Islamic or Sharia law. Scotland is now firmly at the centre of this new market which is growing at an estimated rate of 15-20% per annum.

The Islamic Finance Council UK, for example, is based in Glasgow. A not-for-profit body, it promotes the Islamic financial industry and helps create an environment where individuals can make financial choices based on their principles and beliefs.

Providing choice

In 2005, Edinburgh legal firm, Tods Murray LLP, produced the first Scottish Islamic mortgage, allowing Islamic Scots to purchase homes through United National Bank, under agreements in accordance with their faith.

Last year, the only standalone Islamic bank in the UK, the Islamic Bank of Britain introduced their Scottish Islamic mortgage or Home Purchase Plan (HPP) which prohibits the receipt of Riba (interest) by either lender or buyer, as interest is against Sharia law.

Dundee University has welcomed students to its MSc course in Islamic Accounting and Finance – the first of its kind in the UK to focus heavily on Islamic accounting.

Course leader Dr Rania Kamla believes Scotland, with its history in ethical finance such as the development of TSB, Scottish Equitable and Scottish Widows banks, is the perfect gateway for the expansion of Islamic banking in the west.

“Islamic finance is trying to market itself as an ethical alternative to conventional finance and there is a big scope for mutual learning here.

“Scotland is already very rich, historically, in the area of ethics in finance.

“One of the purposes of expanding Islamic finance is the inclusion of segments of society which have been excluded from the financial system because they feel it is against their beliefs.

“Now that alternatives are being provided for them, it is more likely that they will feel more comfortable.”

Natural progression

After Christianity, the largest faith in Scotland is Islamic. At the time of the 2001 Census, there were 42,557 people of Islamic faith living in this country.

The provision of the first Islamic mortgages to fit with both Sharia and Scots law has filled an obvious gap in the market.

Scots firms are now devising further products such as insurances that are Sharia compliant and obstacles which have discouraged Islamic people from entering the banking system are slowly being removed.

“There are obvious theoretical differences between the two systems,” says Dr Kamla, lecturer in the Accounting and Finance Department at Dundee University.

“For example, the charging of interest is prohibited in Sharia law because it is deemed to be against social justice. There are also some areas of investment that Muslims cannot enter into.

“Gambling, arms companies, pork and alcohol companies are some of the investments they would avoid, for example.

“However, Islamic finance is gaining a lot of credit, not only in the Middle East and Arab world but elsewhere in the world. To satisfy the expansion in Islamic finance, the skills shortage needs to be bridged.”

Progress through learning

Dundee University’s decision to offer Britain’s first course of its kind in Islamic Accounting and Finance has been viewed as a significant leap in addressing the lack of expertise hampering expansion. The first international students enrolled during the summer and are already at work under Dr Kamla at Dundee.

The MSc was launched at the Islamic and Ethical Finance Conference in April, organised by the Islamic Finance Council (IFC) and hosted by Tods Murray in Edinburgh – the second conference of its nature in Scotland.

Welcoming the development, Omar Shaikh of the IFC said: “Education is extremely important if we are to realise the ambition to make Scotland and the UK a global gateway for Islamic finance.”

Centuries of ethical practice

The creator of the first Scottish Islamic mortgage and IFC Board member, Graham Burnside of Tods Murray, believes it is not an exaggeration that Scotland could drive forward the expansion of Islamic banking in its key western stronghold.

He reckons Scotland has a sympathy with faith-based and ethical finance which stretches all the way back to Rev Henry Duncan and the formation of the first savings bank for the under-privileged in 1810 in Dumfriesshire.

“If the UK wishes to be seen as a hub for Islamic finance, I see no reason why Scotland cannot take a leading role,” he said. “If you go back 150 or 200 years, many of the banking products developed here had a church inspired origin, so there are more connections historically than meets the eye.”

Scots have a proud history of innovation. Combined with our reputation for fairness, the effects are being felt for good in today’s multi-cultural, multi-faith, society.