Islamic Finance and Social Inclusion
With values rooted in ethical finance and fairer wealth distribution, Islamic finance could play an important role in closing the financial inclusion gap.
How does Islamic finance support social inclusion?
It was Chancellor Gordon Brown, along with his Economic Secretaries, Ed Balls and Kitty Ussher, and the late Sir Eddie George at the Bank of England, who helped to mainstream Islamic finance in the UK in the early 2000s.
The government’s aim at the time was to boost the UK’s international competitiveness by entrenching its position as the Western leader in Islamic finance.
Financial inclusion – ensuring every part of British society had free and fair access to financial services – was another key aim. People feel part of society when they have an economic stake in it.
“Going forward, the government and industry want to continue to do all we can to see the retail market flourish and ensure that everyone – regardless of faith – has equal access to competitive financial products,” Ussher said in 2007.
Closing the gap
Moves followed to level the playing field for Islamic finance by removing regulatory and taxation obstacles. Both Labour and Conservative governments have since been hugely proactive in raising awareness of, and boosting consumer confidence in, Islamic finance.
Financial inclusion globally remains an unrealised goal and around 40% of adults worldwide still lack a bank account, according to World Bank data. With its values rooted in ethical finance and fairer distribution of wealth, Islamic finance has an important role to play in closing this gap.
As Richard de Belder, Advisory Board Member of the Islamic Finance Council UK (UKIFC), said in November 2019: “We need a fairer system of financial management that delivers more than just profit and the inherent principles within Islamic finance are naturally aligned to the sustainability agenda.”
De Belder was launching a new international taskforce, backed by the UK Government, to engage the Islamic finance industry with the UN’s Sustainable Development Goals.
Launched by 193 member countries in 2015, these are 17 global goals to achieve a better and more sustainable future for all by 2030, including ending poverty, inequality, hunger and combatting climate change.
The new taskforce will be run by the UKIFC, which was set up in 2005 to promote and enhance the global Islamic and ethical finance industry. We were the first global specialist Islamic finance body to sign up to the UN Principles of Responsible Banking – which promote sustainable banking.
And in 2016, we launched the world’s first joint venture between Islamic finance and the Church of Scotland. Our partnership agreement commits us to co-develop an ethical finance solution open to all society, regardless of race, religion or ethnic background – and based on the shared values between the faith traditions. Through this we created a shared values framework titled the Edinburgh Finance Declaration.
The UKIFC has already helped six countries develop enabling regulatory frameworks for Islamic finance, enhancing financial inclusion to over 15 million people. And with the support of our partners, we look forward to continuing this work, particularly as we rebuild our economies after the coronavirus pandemic.
Omar Shaikh is advisory board member for the Islamic Finance Council UK and Chief Executive of the Ethical Finance Hub, a non-profit research hub based at Edinburgh’s Heriot-Watt University that promotes ethical finance.
Read our feature on Islamic finance on page 32 of the Spring issue of Chartered Banker magazine.