Islamic institutions and venture capital appear indifferent to Western (aka mainstream) markets. We all know the exponential growth in Islamic wholesale finance. Contributors to Islamic publications explain in detail how these products can be structured to be palatable to a Western audience whilst remaining Shari’a-compliant. Yet little, certainly not enough is said about the financial and social advantages of introducing Islamic retail finance to mainstream consumers.
Mainstream Western consumers are ready for an alternative to interest-based banking and would readily consider Islamic retail finance if they knew it existed if it was a simple customer proposition and was easy to access. Many industry observers believe that Shari’a-compliant retail finance must be promoted as an ethical product with cross-cultural community support programmes (charities/non-profit organizations) benefitting all involved.
It is optimistic to exclusively place cultural disagreements in the hands of politicians and governments. Politicians are inevitably motivated by self-interest in terms of re-election, and governments are guided by geo-political, economic and military considerations. Therefore, Islamic institutions can easily miss opportunities to influence peace and understanding within Islam and with those outside it from different cultural backgrounds.
While introducing Shari’a-compliant finance to the mainstream is not a strict Islamic requirement – promoting peace and understanding is. One can help the other, which is the point of this article.
There are numerous examples of successful cross-cultural community support programs. These include:
- Seeds of Peace does what no government can. It brings together young people, principally from different countries in the Middle East, to develop empathy and respect for each other and to give them the confidence to see the human face of their enemies by empowering them to emerge as tomorrow’s leaders.
- Barenboim-Said Foundation coordinates the East-West Divan Orchestra and organises workshops for young people with the aim of combining musical study and development with the sharing of knowledge and understanding among people from cultures that traditionally have been rivals.
- Hadassah Hospital in Jerusalem provides cutting-edge and compassionate health care to everyone regardless of religion or ethnicity.
- Medecins Sans Frontieres provides medical aid throughout the world regardless of race, religion or politics and tries to raise awareness of the plight of the people they help.
- Cricket For Change uses a shortened version of cricket called ‘Street 20’ to develop positive, long-term links between groups of young people from a range of ethnic, religious and social backgrounds who may have limited or no positive interaction with each other.
Anthony Apponyi is one extraordinary individual who has taken it upon himself to use Islamic finance to develop a value proposition for all, irrespective of their religion, race and colour. “When I first stumbled across Islamic finance I realized there was another financial system which, as with most outside the non-Muslim world, I knew nothing about,” he says. “I am now passionate about taking Islamic retail finance to mainstream consumers.”
Anthony’s enthusiasm is important, given that some Western banks have closed their Islamic windows and many Islamic banks in the West are failing to reach out to the mainstream non-Muslim population. One of the reasons for this failure is the size of Islamic banks’ customer base outside their home territories. How many Muslims are there in the UK and in the other major home-owning countries of Spain, Ireland, Norway, Belgium, Australia, USA and Canada? Not many and not all of them are consumers of Shari’a-compliant finance. Consequently, Islamic banks operating in the West are targeting a small customer base by offering more or less the same kind of products, albeit in a Shari’a-compliant way.
Many Muslim consumers in the West will not even consider Shari’a-compliant finance because it is generally perceived as complicated and more expensive than the interest-based alternative. Many non-Muslims, on the other hand, are now uncomfortable with Western finance as it is perceived as being neither fair nor transparent. After the recent financial crisis, many bank customers have stopped trusting high street banks. This provides an opportunity for Islamic banking and finance, but only if it realises the potential of this opportunity and comes up with innovative products that must serve as a subtle bridge between the Islamic world and the West.
“If ethical finance incorporated with cross-cultural community support programmes was promoted to Western consumers I believe it would go a long way to dispel some of the misnomers about Islam,” says Anthony optimistically. He is not the only one to show this optimism though. World Islamic Economic Forum Foundation’s Building Bridges through Business attempts to achieve the same goal.
Sadly, it would appear that neither Islamic financial institutions nor venture capitalists are interested in the mainstream. And ironically the current economic climate is ideal: interest-based banks are not trusted, competitive finance is in short supply and there is a dearth of innovative products that can work well in all market conditions.
In spite of enormous worldwide potential, companies trying to offer ethical financial products (aka Shari’a-compliant) to Western mainstream non-Muslim consumers can meet inertia within Islamic financial institutions and venture capital. Given this state of affairs, Chain Mender, a UK-based company authorized and regulated by the Financial Conduct Authority, has developed a series of Shari’a-compliant retail financial products for the mainstream UK market, with a unique 21st-century value proposition for all homeowners living in selected houses and postcodes. The products address the problem faced by home-moving households who want to avoid being caught “in a chain”. The chain problem is ubiquitous in countries where people use mortgages to finance their home purchases. Most homeowners in the process of buying or selling a house (whose only substantial asset is their home) will be in a chain (a sequence of linked house purchases each of which is dependent on the preceding and succeeding purchase). Chains add to the uncertainty, anxiety and stress associated with buying and selling residential property. Chains may involve five or six transactions. A broken chain can result in the failure of more than one transaction. One of the most common causes of broken chains is the failure of one or more of potential buyers to sell their existing property in order to create the necessary liquidity to purchase the next one. If one sale falls apart, it affects the whole chain, resulting not only in time delays but also financial losses for all the parties involved.
The Chain Mender products help homeowners who want to avoid the chain and would like to sell their house and secure their next one on a fast-track basis. There are two important products already structured and ready to be rolled out. The first product (a chain-avoiding solution) enables sellers to secure their next property for the lowest price before selling their own through their estate agent for the highest price (the customer never has to sell for less than market value). The real value proposition of this product is the maximisation of the benefits from the min-max of the two prices (i.e. minimisation of the purchase price and maximisation of the sale price). This product is not a regulated mortgage contract but rather offers the benefits of a real-time risk-averse priced put option (the company does not buy their house). Effectively serving as an insurance or takaful type arrangement.
The second product bundled with the first product is ready-made finance for their buyers. As the first product involves the valuation of the property the customer wants to sell an Islamic bank can include the second product with their other regulated mortgages to offer home financing in a cost-effective way.
These products, which sell well in a slow market have compelling unique selling points (USPs) and are unique in Western and Islamic finance, are proposed to be distributed business-to-business (distributer to estate agents) first nationally in the UK and later overseas by a franchising programme.
Chain Mender offers a business opportunity to Islamic financial institutions in the Islamic world looking to enter into the UK mainstream market. While there is a lot of talk about making Islamic finance relevant to the mainstream populations, Muslims and non-Muslims alike, there are very few Islamic financial products that may attract non-Muslims. The Chain Mender products are unavoidably relevant to the needs of all UK homeowners considering buying and selling a house. Concomitantly, the products annually will provide a very substantial number of captive mainstream customers for Islamic banks.
