Open Discussions/ Gulf Cultural Club
Alternative finance: The Muslim experience
Ajmal Bhatty
(Senior actuary & global insurance executive)
Shabbir Razvi
(Director International Finance Solutions Associates)
22nd September 2026
Islamic banking serves as a distinct alternative financial system because it replaces conventional, Interest-based lending with a framework rooted in sharia (Islamic law). It shifts the focus from purely financial speculation to productive, asset-backed economic activity. By embedding ethical boundaries and mutual risk into its architecture, it appeals not only to Muslim consumers but also to socially conscious investors seeking a stable, socially responsible alternative to conventional finance. We will discuss the key concepts in Islamic banking and other alternative financial systems and explore their use in the 21st century.
Shabbir Razvi: No one can become an expert in any subject. That is my firm view, even if you have been involved in an activity for 30 or 40 years. We should always remain students. I think that should be a motto for every human being.
George Galloway, when he opens his programmes, often says, “I’m a student.” And I think that is particularly appropriate when discussing language, history, religion, or any other subject. He is clearly very knowledgeable and well-read, despite not necessarily having followed the conventional academic route. Knowledge does not always require an Oxford education.
With that in mind, the topic tonight is the Muslim experience and Islamic finance.
Before I begin, I want to make one important point. Whenever we discuss finance publicly, we should always make it clear that what we are presenting is not personal financial advice. These are general views and ideas for discussion. Financial advice should be given at a personal level, taking into account an individual’s circumstances. As the standard financial warning says, the value of investments and the income from them can go down as well as up, and you may not get back the amount you invested.
Changes in currency exchange rates can also affect the value of overseas investments.
So tonight is about discussing ideas openly, rather than providing specific financial advice.
I would like to begin with a quotation attributed to Imam Ali which is particularly relevant to our discussion:
“Remember that the citizens of the state are of two categories: they are either your brethren in religion or your equals in creation.”
This is a quotation that has attracted considerable attention. It has even been referred to on occasions involving religious and political leaders. But I think it is important not
simply to remember those two sentences. We should also consider the wider context in which they were written.
The quotation comes from a letter written by Imam Ali to Malik al-Ashtar, who was appointed governor of Egypt during Imam Ali’s reign. It is a letter that I would encourage anyone involved in business or public life to read.
The letter discusses governance, finance, society, different groups within society, and the responsibilities of those who exercise authority. It also recognises something fundamental about human beings: regardless of whether people are Muslim or non-Muslim, they will make mistakes. They may act wrongly deliberately, or they may make mistakes through ignorance or neglect.
That point is extremely important when we discuss Islamic finance. We should not assume that someone’s outward appearance or religious identity automatically tells us that they are honest in business. Someone may appear extremely pious, perhaps even bearing the physical signs of religious observance, but that does not necessarily mean that they will behave honestly in a financial transaction. Equally, someone who is not Muslim is not therefore dishonest or incapable of conducting an ethical business transaction.
The principle is that all human beings have responsibilities, and all human beings are capable of making mistakes. In business and finance, what ultimately matters is conduct, responsibility, accountability and justice.
There is another interesting point in Imam Ali’s letter concerning people who have worked under previous political regimes. The letter warns against simply bringing people into positions of authority because they have experience, particularly where there are serious concerns about their previous conduct.
This raises an issue that remains relevant today. We often say, “He worked for the previous administration, so we must retain him because he has expertise.” But expertise by itself does not necessarily make someone suitable for a position of responsibility. If someone has previously participated in corruption or serious wrongdoing, simply transferring that person into a new system does not automatically solve the problem. In some circumstances, it may simply reproduce the same problems within the new system.
This brings us to another important thinker from the Indian subcontinent: Muhammad Iqbal. Most people know Iqbal primarily as a poet, but he also wrote extensively about economics. His work Ilm al-Iqtisad—the science of economics—is relevant to our discussion of Islamic economics and finance.
Iqbal’s economic thinking emphasised the importance of an economic system that protects human dignity and self-respect. The efficient use of resources, the welfare of people, and the reduction of poverty were central themes.
These are, in many ways, the objectives that Islamic economics and Islamic finance seek to address.
The theoretical framework of Islamic economics is based on justice, ethical conduct and the creation of real economic value. Interest, or riba, is prohibited in Islam, while legitimate business and trade are permitted.
The Qur’an states that God has permitted trade and prohibited riba. The concept of riba is generally understood, in the context we are discussing, as receiving a guaranteed return simply for lending money. The concern is that money should not simply generate money without productive economic activity, because this can create exploitation and injustice.
Trade, on the other hand, involves economic activity, value creation, ownership and risk. It involves responsibility for an underlying asset or activity. This distinction is at the heart of Islamic finance.
However, this is also where the debate becomes particularly interesting. Islamic finance has developed a substantial vocabulary of Arabic terminology. Sometimes, simply giving a financial product an Arabic name can make it appear fundamentally different from a conventional financial product. The question we therefore have to ask is whether the underlying economic substance is genuinely different, or whether we are simply using different terminology for essentially the same transaction.
Take ijarah, for example. In basic terms, ijarah involves earning a return by leasing an asset. Suppose someone owns a shop and rents it to another person. The owner receives rent for allowing the tenant to use the property. That is a straightforward economic transaction.
In Islamic finance, a bank may structure a transaction around the ownership and leasing of an asset. The bank purchases an asset and then leases it to the customer, who makes payments over an agreed period. The question, therefore, is whether this represents a genuinely different economic arrangement or whether it is simply conventional financing expressed through an Islamic contractual structure. That remains an important subject for discussion among scholars and practitioners.
Another important structure is murabaha. In simple terms, this involves financing a trade transaction in which the cost and profit margin are disclosed. magine, for example, that you are importing refrigerators from China into England. There is a genuine product, a genuine purchase and a genuine sale. You might approach a bank and say that you need financing to purchase the goods. The bank may purchase the goods and then sell them to you at a higher price, with the profit margin disclosed and agreed in advance.
The important question is whether the bank is genuinely participating in a trade transaction and assuming the associated responsibilities and risks, or whether the transaction is economically equivalent to simply lending you money and charging interest. In a genuine partnership structure, the distinction becomes even clearer. A bank and a customer could theoretically invest together, with profits shared according to an agreed arrangement and losses shared according to the relevant ownership or partnership structure.
This is sometimes described through concepts such as mudarabah or musharakah.
In theory, therefore, Islamic finance is based on real assets, risk-sharing, ownership and accountability rather than guaranteed returns simply for lending money.
But there is an obvious question here: how much risk is actually being shared in modern Islamic financial products? Many Islamic financial products provide the customer with a very predictable cost. A bank may effectively say, “This is the amount you will pay,” just as a conventional lender might quote an interest rate.
That raises the question of whether the difference is genuinely substantive or primarily contractual and terminological. There is also the question of late-payment penalties.
In conventional finance, when someone fails to make a payment, penalties may be added to the outstanding amount. In Islamic banking, late-payment penalties may exist, but they are generally not supposed to become ordinary bank income or profit. Instead, under relevant Sharia arrangements, such amounts may be directed towards charitable purposes.
This becomes particularly interesting in the context of mortgages. Suppose interest rates rise and a homeowner can no longer afford their payments. In conventional finance, the situation can ultimately result in the property being repossessed.
What happens in an Islamic mortgage? There are important questions here about the relationship between the contractual rights of the financial institution and the principles of Islamic law. If someone argues that Islamic principles prevent them from simply being put onto the streets, what is the corresponding remedy for the financial institution?
These questions become even more complicated in relation to commercial property, where the transaction may be treated differently. The true objective of Islamic economics, therefore, is not simply to change the terminology of financial products. Its broader objective is to establish justice, promote ethical conduct and accountability, encourage wealth creation and social mobility, and ultimately benefit individuals and society.
In that sense, the theoretical objectives of Islamic finance are clear:
- to avoid riba;
- to encourage ethical business;
- to connect finance with real economic activity;
- to promote justice and accountability; and
- to contribute to a fairer and more compassionate economy.
The question is how closely modern Islamic finance actually follows those objectives in practice.
There have been many experiments over the years. Even major conventional banks have established Islamic finance operations. HSBC, for example, operated Islamic finance activities in the past.
Today, there are a number of institutions operating in the UK that offer products described as Islamic finance, including Islamic banks and other specialist financial providers.
But there is an interesting paradox.
Some people seeking Islamic finance may expect it to be cheaper simply because it is Islamic. But Islamic finance is not necessarily cheaper. There are additional contractual structures, legal arrangements and processes involved, and these can create additional costs.
There is also a wider question of public acceptance. At a conference in London, one of the topics discussed was whether there is an “acceptability gap” surrounding Islamic finance in the UK.
If you speak to ordinary people about Islamic finance and ask whether they would consider an Islamic mortgage, you will find a range of views. Some people may regard it positively, while others may believe that it is simply conventional finance with different terminology. This gap in perception is important.
There is also a particular challenge for Muslims who want to follow Islamic principles while participating fully in the modern economy. For many Muslims, the basic prohibitions are straightforward. They were taught from childhood not to engage in certain activities, such as consuming alcohol or dealing in interest. These principles do not necessarily require complicated financial analysis.
The more difficult questions arise when modern financial structures become complicated. For example, what happens when large amounts of money from Muslim-majority countries enter the UK? What is the source of that money? Has it been generated ethically? If money obtained through corruption or other questionable activities is subsequently used to establish an Islamic financial institution, does giving the institution a Sharia-compliant structure resolve the underlying problem? That raises a fundamental question about the source of money as well as the structure of the transaction.
There is also the problem of terminology. We can take a conventional financial concept, give it an Arabic name, introduce a Sharia board and create a particular contractual structure. But the fundamental question remains: Is the transaction genuinely Sharia-compliant, or is it simply “Sharia cosmetics”—a conventional financial arrangement presented in Islamic terminology?
That, I think, is one of the central questions facing Islamic finance today. On one side, Islamic finance argues that conventional interest-based lending is fundamentally different from financing based on ownership, trade, leasing and risk-sharing.
On the other side, critics argue that some modern Islamic financial products reproduce many of the economic characteristics of conventional finance while changing the contractual form and terminology.
The debate therefore should not simply be about whether something has an Arabic name or carries a Sharia-compliant label.
We should ask much deeper questions:
What is the economic substance of the transaction?
Who owns the asset?
Who bears the risk?
Who receives the profit?
Where does the money come from?
What happens when something goes wrong?
And, ultimately, does the transaction promote the principles of justice, accountability, ethical conduct and human dignity that Islamic economics claims to represent?
Those are the questions that I believe we should continue to discuss openly.
Ajmal Bhatty: It is a genuine pleasure to be here and to have the opportunity to share some thoughts with you.
As you have just heard, my professional background is in actuarial science. For those who are unfamiliar with the profession, actuarial science is essentially about calculating the probability of things going wrong and persuading people to make appropriate provision for those risks.
For the last 30 years, however, I have been working in Islamic finance and, in particular, in the capital and insurance markets. Islamic finance is not complete if the structures that are built with that money cannot also be protected. So, throughout those years, I have continued to work with probabilities and risk, but from a different perspective: arguing that, rather than simply transferring risk to somebody else for a fee, we can find ways of sharing and managing risk collectively.
That tension between the individual and the collective, between the product and its purpose, and between what the financial system promises and what it actually delivers is what I want to talk about today.
I do not want to begin with statistics. I want to begin with a question: Who is our pension system actually built for? I want to approach that question from three different perspectives.
- First, what happens to pensions and retirement provision?
- Second, what happens to a family in the fortnight before and after the death of a loved one?
- Third, what happens to women living with health conditions that this country still struggles to recognise properly—conditions that can push women out of employment while employers and institutions look straight past them?
The question, therefore, is not simply whether we have a good pension system. The question is: who is the system actually designed for? When you look at the design of the current system, a very specific type of person emerges. It is someone with a continuous career, no significant breaks in employment, and earnings that remain consistently above the relevant thresholds.
Most of us in this room probably fit that model reasonably well. But we are not necessarily representative of the typical worker in this country. And when a system is built around an exception, it will predictably fail to serve everyone else.
What is a pension?
I want to make a fairly unconventional point. A pension is not simply a pot of money.
A pension is a promise: the promise that money will arrive every month for as long as you are alive. Yet over the last two decades in the UK, we have quietly exchanged that promise for something much closer to a savings product. We have told people that the two are essentially the same.
They are not. A pot of money can run out. A pension, in its traditional sense, is designed not to outlive the person receiving it. That is the entire point. And this brings us to the most difficult financial risk that an individual faces: longevity risk.
None of us knows how long we are going to live. You cannot diversify your own longevity. You cannot simply hedge it individually. It is a risk that, because of its nature, is much more effectively pooled.
Yet a drawdown arrangement transfers that risk directly back to the individual.
We are effectively asking everyone to become financially sophisticated and then calling the result “freedom of choice”.
Who is being left out?
Let me briefly mention some numbers. I apologise in advance because statistics have a habit of doing the opposite of what you intend. You put up a number to make something real, and people immediately start converting it into something else—or wondering whether it applies to them.But these figures matter.
Almost half of working-age people in this country are either not saving into a pension or are saving too little. Within that broad group, there are three particularly important groups: the self-employed, women, and Muslim workers.
The self-employed are an invisible workforce within the pension system. Only around 20% of self-employed workers contribute to a pension, compared with roughly 80% of employees. That amounts to around 4.4 million working adults who are essentially invisible to workplace-pension policies.
Auto-enrolment has been an extraordinary policy success, with more than 22 million people enrolled. But it was built around the assumption of a conventional employment contract. If you do not have that contract, the system simply does not look for you.
The gender pension gap
Then we come to women. There is a retirement crisis hidden in plain sight. By the time women reach State Pension age, the average woman has around £105,000 in pension savings, compared with around £252,000 for the average man. That is a difference of approximately £137,000.
For people aged 55 to 59, the gender pension gap is also substantial, with women holding approximately £51,000 compared with around £156,000 for men. This gap is not mysterious. It is connected to career breaks, part-time employment, caring responsibilities and lower lifetime earnings. And, as I will explain shortly, women’s health conditions are another important factor.
Muslim workers and Islamic finance
Then we have Muslim workers. They are excluded by the structure of the system, rather than necessarily by choice. There are approximately 1.1 million Muslim workers in the UK, yet only around three in every 92,000—or approximately 3%—of Muslim workers are actively contributing to pension schemes.
This creates what has been described as billions of pounds of missing pension assets—money that could have been saved had there been a suitable default fund into which people could participate without compromising their religious principles.
I want to be very precise about this. This is not necessarily disengagement. It is not necessarily financial illiteracy. It can be structural exclusion. When the default option conflicts with a person’s beliefs, opting out is not necessarily a matter of apathy. It may simply be the only option the system has effectively provided.
The consequences in retirement
Let us consider what this means in practice.Suppose someone has a pension pot of around £137,000 and takes a 4% annual drawdown. That produces approximately £5,500 a year. Add the State Pension, which is around £12,500, and the total comes to approximately £18,000 a year.
But current retirement-living-standard calculations suggest that a moderate retirement for a single person may require around £31,700 a year—and that is before we consider higher housing costs in London. So we have a significant gap between what people may actually have available and what they may need to maintain a reasonable standard of living. There are already almost two million pensioners living in poverty.
And the situation is changing again.
Changes to pensions and inheritance
From April 2027, following the Finance Act 2026, most unused pension funds and death benefits from life-insurance policies are due to be brought into the value of an individual’s estate for inheritance-tax purposes. The relevant inheritance-tax rate is 40%, although transfers to a spouse, civil partner or charity remain exempt.
What does this mean for people who have been treating their pension as something they will never touch because they intend to pass it on to their children?
It changes the calculation. The practical consequence is that a pension becomes less efficient as an inheritance vehicle.
In some respects, it takes us back to the original purpose of a pension: income for life, spent during the life for which it was saved.
If people are now going to spend their pension rather than preserve it as an inheritance, we need to ask whether suitable products exist to help them spend that money wisely and fairly.
A forgotten third space: mutual protection
So far, I have described the state and the market. I now want to spend a few minutes on a third space that Britain has almost entirely forgotten: mutual, community-based protection.
There is a strong tradition of this type of institution in Islamic history and tradition. One concept that is particularly relevant is waqf. Let me illustrate the need using something very specific and uncomfortable: the cost of death.
The average funeral in the UK now costs around £3,800. When you add flowers, catering, arrangements and other expenses, the figure can rise to just over £5,000.
Once probate, professional fees and other costs are included, the total cost associated with a death can approach £10,000.
Around one in six families experience serious financial difficulties as a result of funeral costs. Where there is a shortfall, it can average around £2,365.And remember when that bill arrives. It arrives within days of a death—long before probate has been completed and before the wider financial affairs of the deceased have been resolved.
Think about what that means in practice.
A family has just lost someone. Within a fortnight, they can be confronted with a four-figure bill.
They may have to use credit cards, borrow from relatives or take out loans at precisely the moment when they are least able to make good financial decisions.
Building a social mutual
Here is what I believe we should consider building: a social mutual based on the principles of community, mutual support and endowment.
Imagine a national or nationwide community organisation in which members make small regular contributions—perhaps the price of a cup of coffee rather than the price of a conventional insurance policy.
The contributions would be endowed rather than simply extracted. The fund would cover funeral expenses for members, and any surplus could become a permanent hardship fund supporting vulnerable people in the community. It could provide bereavement support, help people facing financial hardship and assist those who reach later life without adequate pension provision.
Let me give an illustrative example. This is not a proposed price or a final actuarial calculation, but it demonstrates the order of magnitude. Suppose there were 10,000 members, each contributing £5 per month. That would generate £600,000 a year.
Based on UK mortality rates, a membership of that size might experience somewhere in the order of 80 to 100 deaths a year. If the average funeral cost were approximately £4,000, that would require somewhere between £320,000 and £400,000 annually.
The remaining £200,000 or so could potentially be used to build a permanent endowment or hardship fund.
Obviously, this would need to be properly priced and actuarially assessed before anything was established. But the basic principle is worth considering. Why should this be another insurance product? Because an endowment is not necessarily designed to generate returns for shareholders. Its purpose can remain connected to the community. It is an institution rather than simply a product.
And institutions can support people in ways that individual financial products cannot.
Women’s health and the pension gap
This brings me to my final point—and it is the one on which I am going to ask you to take action before you leave the room. I mentioned earlier that the gender pension gap has multiple causes. One of those causes is health.
Let me be specific.
Endometriosis affects approximately one in ten women—more than 1.5 million people in the UK. It can take many years from the first visit to a GP to receiving a diagnosis. During that period, women may be dealing with severe and recurring symptoms while trying to remain in employment.
One in six people with endometriosis are reported to be pushed out of employment because of a lack of reasonable adjustments. Office for National Statistics data has also indicated that the probability of being in work can fall following diagnosis, with monthly earnings falling alongside it. The wider economic cost of endometriosis has been estimated at billions of pounds a year.
But connect that with everything I have just said about pensions. Every year someone is out of work is potentially a year without pension contributions.
There may be no employer contribution, no investment growth and no compounding.
This is therefore not a separate problem. It feeds directly into the gender pension gap.
Recognition in law
There is another issue. Gynaecological conditions are not specifically named in the Equality Act 2010. The relevant guidance on disability dates back to 2011.
Yet endometriosis can be long-term, often lifelong, and fluctuating or recurring. Those are precisely the kinds of characteristics that disability legislation is designed to address.
In recent years, there has been legal precedent concerning the recognition of endometriosis as a disability in individual circumstances.
But the question remains: should the guidance itself be updated to explicitly recognise these conditions? The government has indicated that it does not currently plan to amend the guidance.That is why the next threshold matters.
A petition reaching 100,000 signatures can be considered for debate in Parliament.
At the time of this speech, the petition had already received more than 55,000 signatures, with the deadline approaching on 27 September.
This is therefore a very immediate opportunity for people to make their voices heard.
Bringing the threads together
Let me bring all of these threads together. The pension system was designed around a relatively simple model of the worker—someone with a continuous career, stable employment and access to an employer-sponsored pension. That worker no longer represents everyone.
Millions of people are outside that model. Women experience career interruptions, caring responsibilities, part-time employment and health conditions that can significantly affect their lifetime earnings and pension contributions. Muslim workers may face a different form of exclusion when the default pension arrangements do not accommodate their religious principles.
The self-employed may simply fall outside the workplace-pension infrastructure altogether. And then there is the question of what happens when someone dies.
A family can face a substantial financial bill within days of a bereavement, at precisely the moment when they are least prepared to deal with it. These are not isolated problems. They are connected. They all raise the same fundamental question:
Are our financial institutions and social systems designed around the real lives of people, or are people being forced to fit themselves around systems that were designed for somebody else?
We need to rethink pensions as more than investment pots. We need to recognise longevity as a collective risk rather than simply an individual responsibility. We need to find ways of including Muslim workers who are currently excluded from conventional pension arrangements. We need to address the gender pension gap, including the role played by women’s health. And we should explore community-based mutual institutions that can provide protection at moments of vulnerability, including bereavement.
There is also a practical opportunity for action. I encourage you to support the petition concerning the recognition of endometriosis and related women’s health issues.
I also encourage you to support the wider work around the gender pension gap and the development of community-based mutual protection. These issues are ultimately about much more than financial products. They are about dignity, fairness, community and whether our financial system serves the people it was created to serve.
*Ajmal Bhatty is an insurance and actuarial professional who has spent his career fixing the gaps that make people’s financial lives fragile. He works to make insurance fair, simple, and genuinely protective — not just profitable. He has led major insurance companies in the UK, the Gulf, and Southeast Asia, shaping how risk is priced, how solvency is protected, and how customers stay secure. His focus has always been the same: turning what is fragile into what is resilient.
Shabbir Razvi is a writer, broadcaster, political activist, community worker, economic commentator and a poet. He has specialist expertise in Islamic Finance and International Relations with reference to the Middle East, Iran, South Asia, USA, Europe and UK and the Washington Consensus. He is the Director of the International Dialogue Foundation and a Principal of International Finance Solutions Associates based in London. He is also a Fellow of the Royal Society of Arts.
Shabbir Razvi describes himself as a financial matchmaker, the cupid of money, and the guardian of great advice.
