Demand — and supply — for “halal” financial products on the rise

Saving and investing in line with religious principles is important for many Muslims and an increasing range of financial products is now available to meet Sharia rules. There are 1.8 million Muslims in Britain and surveys show that about three-quarters are interested in the idea of running their savings and investments in keeping with principles laid out in the Koran. While Sharia products are in their infancy in the United Kingdom, the uptake is very rapid.

While trade and investment are encouraged, Sharia rules prohibit involvement in companies whose activities touch on a wide range of industries including alcohol, gambling, pornography, human cloning, arms and many forms of entertainment. Industries associated with pork are also out. However, the biggest difficulty for devout Muslims and those financial groups which aim to serve them is the principle of riba. Riba means that you cannot receive or pay interest, because Islam defines interest as a form of usury.

Interest is hard to remove from any financial transaction. The entire conventional banking industry, with products from mortgages through to credit-cards and deposit accounts, depends on calculating interest. The answer that Sharia-compliant accounts offer is to convert the interest normally paid into a form of profit or loss. Accounts or mortgages will often be marketed as offering competitive rates measured against non-Sharia, interest-based products, but the structure of the financial proposition is different. British banks have come up with a wide range of Islamic financial products such as accounts, mortgages, investment plans and credit cards, adapting to the strong demand among the Muslim population.

Islamic banks will soon begin operations in France

Likely beginning by June 2009, Islamic banks will be authorized to open in France. Experts expect three banks will be shari’ah compliant – the Qatar Islamic Bank already established in London, the Kuwait Finance House, and the Al-Baraka Islamic Bank from Bahreïn. According to a study undertaken in May 2008, 500,000 Muslims in France are extremely interested in doing their banking in shari’ah-compliant banks.

In the recent second French forum on Islamic banking, Christine Lagarde, Minister of the Economy claimed that, “We are determined to make Paris an important site for Islamic finance.”

The first Islamic bank opened in London in September 2004.

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Le Figaro (French)

UK Islamic banks to double in five years

With the Sharia-compliant market growing by up to 15 per cent a year and estimated to be worth a trillion dollars (Dh3.67tn) by 2010, the number of Islamic investment banks in the UK is predicted to double within five years, said Samer Merhi, the executive director of the Gatehouse Bank, an Islamic finance house based in the UK. “It has the potential to grow because of the high demand and the interest to make the UK the international heart of Islamic finance business,” Mr Merhi said at an Islamic finance forum in Kuala Lumpur last week. Gatehouse, a subsidiary of the Securities House of Kuwait, which started operating in London in April, is one of five Islamic investment banks based in the UK. There is also one fully fledged retail bank, the Islamic Bank of Britain, which became the first independent Islamic bank in Britain to register with the Financial Services Authority (FSA) in 2004.

It was an institution established with considerable input from the Abu Dhabi Islamic Bank to give the two million-plus Muslims in the UK a bank of their own, although now more than 20 other conventional UK banks are offering customers Sharia-compliant products. With active encouragement from the government – and, particularly, then-chancellor Gordon Brown – the UK became the first EU member state to authorise Islamic banks. Though the French are now doing their best to catch up, it has maintained its lead by adopting a level regulatory playing field for both traditional and Sharia-compliant banks. David Sapsted reports.

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Credit Crunch ‘Will Help Islamic Banking’

The religion-based system’s attitude to risk stands it in good stead compared to Western banks.
Islamic finance is set to be a big winner in the current financial crisis, BDO Stoy Hayward said today.
The financial advisor claimed that the religion-based system retains large amounts of money available to borrowers. This is in contrast to mainstream lenders, many of whom depend on inter-bank loans for revenue and have therefore been forced to make cutbacks due to the frozen money markets.

Invented in the mid-20th century by muslims looking for a system of finance that was in-keeping with the tenets of their religion, Islamic finance also has a radically different attitude to risk than other forms of banking. Commonly, the system works on a “risk-sharing” model. For example, Islamic insurance works by policyholders paying into and claiming from a central pool, which is used by all – in contrast to the common Western model. With usury from loans banned by Islam, the leverage – or, more simply, the amount of money owed – by Islamic financial institutions also tends to be lower.
Speaking to FT Advisor Dan Taylor, head of banking at BDO Stoy Hayward, explained: “As the risk profile of Islamic Banks is generally lower than conventional western banks, this presents a more solid option for both retail and institutional investors and suggests that dealings with Islamic financial institutions will grow dramatically as people switch to more secure products in this environment.

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International Financial Centres Battle for Islamic Markets

International investment services compliant with Islamic financial law are competing for a slice of the oil revenue in the Middle East. With the price of crude oil almost doubling in the last year, countries with large Muslim populations and connections – including Singapore, Hong Kong, London, Birmingham and Paris – are vying to act as key centres of expertise in the new boom. A spokesperson for the British Standard & Poor’s claims that, “By preparing the ground for Islamic finance, France can help financial innovation and benefit from the deep pockets of Middle Eastern investors as liquidity has dried up elsewhere in the global financial markets.”

Generally, more and more businesses have come forward to meet demand for Shariah-compliant services. Approximately two-thirds of the world-wide market for Islamic bonds (sukuks), an estimated $100 billion, is currently based in Malaysia, where the industry first took off. Outside of Asia and the Middle East, Britain in particular, is seen as the clear leader, worth about $6.5 billion.

Switzerland: Second Islamic bank

As Islamic finance and banking products continue to grow, Switzerland will soon get its second Shariah compliant bank in less than two years. The bank I set to be launched before the end of the year, and will target investors and wealthy individuals from the Gulf region. The new bank will be the second private Islamic bank established in Switzerland; the first Shariah complaint bank – Faisal Private Bank – opened in Geneva in 2006. Among the principals advocated by Shariah banking institutions include the forbidding of Muslims from usury, receiving, or paying interest on loans, and Islamic bankers and finance institutions cannot receive private funds for transactions involving alcohol, gambling, pornography, tobacco, weapons, or pork.

Lloyds TSB introduces Shariah-compliant money transfer account

UK high street bank Lloyds TSB has launched a Shariah-compliant nostro account that enables customers to transfer money around the world in line with Islamic principles prevents any funds being invested in industries – such as alcohol and gambling – that are prohibited under Islam. Lloyds TSB says the account, which is aimed at the UK’s two million Muslims and 100,000 Muslim firms, is the first of its kind to be offered by a mainstream western bank. Whilst many Muslim customers make and receive international payments through an estimated 250 Islamic banks worldwide, the process of transferring the money between banks has not been in line with Islamic principles, says the UK bank. “We’ve designed this account to help the growing number of Islamic banks across the world, which deal with our customers’ transactions,” says Diana Brightmore-Armour, CEO corporate banking and co-head corporate markets, Lloyds TSB. “We’re providing the missing link in the chain, so now any person or business receiving payments from abroad into their own Islamic account knows the money will be dealt with according to Islamic law, from start to finish.”

As Islamic banking takes off, new courses are being set up in the universities

It’s the fastest-growing sector of the banking industry, yet few City boys know much about it and hardly any finance students are being taught it. But Islamic banking’s mysteries are now beginning to be unveiled and just this last month a business school and an accountancy body have announced new postgraduate programmes specialising in it. There are more than 250 Islamic banks worldwide, with at least _300bn in assets, up from _5bn in 1985. Small fry in the global economy, but growing at an astonishing 15 to 20 per cent a year. Rising oil prices and Europe’s growing Muslim population are driving an extraordinary surge in financial products compliant with Islamic law, eschewing interest and respecting Islamic ethical norms in investment. Just a few years ago, Islamic banks stood accused of funding terrorism. Now Gordon Brown has promoted London as a hub for Islamic finance, three British Islamic banks have been set up, and big players such as HSBC and Lloyds TSB have started offering Islamic financial products and services. To train bankers to develop these products, Bangor University’s business school is starting up a fully fledged Islamic banking Masters this September, the only university so far to offer one. Nick Jackson reports.

Private banking seeks new Islamic niche

It seems logical: combine two of the fastest growing financial sectors in south and south-east Asia – Islamic banking, and private banking – to create a new niche: private banking for rich Muslims in the region. After all, about 350m believers live in the rapidly expanding economies of India, Indonesia and Malaysia. If only a few hundred thousand of them are high-net-worth individuals, the CIMB Private Bank in Malaysia is a pioneer in this segment. It announced in April it would offer high-net-worth individuals with MDollars 1m (Pounds 145,000, Euros 208,000, USDollars 297,000) or more of investable assets a service based on shariah principles…

Islamic Banking ‘Goes Mainstream’

The bank has taken advice from Islamic scholars A new High Street bank account compatible with Islamic sharia law is due to be introduced. The Lloyds TSB account will offer no interest or overdraft facilities, as under Islamic law the receipt and payment of interest is forbidden. The introduction of the account follows the opening of a specialist Islamic bank in the UK last year. Gordon Rankin of Lloyds TSB said its new account would make Islamic banking “mainstream”. “Our research shows that over three-quarters of British Muslims want banking services that fit with their faith. “However, until now their banking needs have been largely uncatered for and many British Muslims have often had to bank in a way that is against their principles,” Mr Rankin said. Scholars’ Guidance Ibrahim Mogra, the chairman of the Muslim Council of Britain’s Mosque and Community Affairs committee, agreed that many of the UK’s two million Muslims have had little choice but to use interest-paying accounts. I think all High Street banks will take this route sooner or later because there’s a huge Muslim market in the UK. “What the sharia scholars tell us to do is whatever interest you gain you get rid of it without the intention of gaining reward from God. “Even though at the end of the year I just take the interest out and give it away, I’ve still, in a way, handled money from interest which I really shouldn’t be doing,” he said. Until the opening last year of the first UK-based specialist financial institution – the Islamic Bank – Muslims were able to access sharia-compliant current account facilities only through Middle Eastern banks with branches in the UK. The Islamic Bank opens its third branch in Leicester on Tuesday and plans to open five more by the end of 2005. Ibrahim Mogra of the MCB believes other high street banks will now follow Lloyd’s TSB’s lead: He said: “The high street banks want to hang on to their customers and now there is an Islamic bank available they may be anxious they might lose their customers. “I think all High Street banks will take this route sooner or later because there’s a huge Muslim market in the UK.”