MANCHESTER – Two years after its launch, the country’s first fully Islamic retail bank cannot yet offer traditional products like mortgages, but Muslim clients say they feel more at home there. “You feel you’re putting your money in the right place,” said Kuwaiti-born Mona Aabbassi as she walked into the Islamic Bank of Britain ( IBB.L ). Behind the bank’s glass walls, engraved with Arabic calligraphy, the staff can speak Arabic, Urdu, Bengali and Punjabi as well as English. Licensed in August 2004 by the Financial Services Authority (FSA), IBB has its headquarters in Birmingham and opened its seventh branch in Manchester in January. It aims to expand further in northwest England before moving into mainland Europe. According to the most recent census in 2001, around 13 percent of the country’s 1.6 million Muslims live in the northwest. Islam prohibits paying or receiving interest, “riba” in Arabic, considering it immoral to profit from money alone. Islam allows people to make a profit only if they bear the risk of an investment — as with equity in traditional western finance. Aabbassi feels comfortable with the way other customers at IBB share her values. “Some money went missing from my account but I recovered it because the person who got it by mistake phoned the bank,” she said. “It is because people here put Allah before themselves.” IBB aims to compete with conventional banks but to comply with Islamic principles, to ensure Muslims do not break the rules of their religion when they open a bank account. “Muslims want a good return,” said IBB Managing Director Michael Hanlon, who came to the bank after 34 years at Barclays ( BARC.L ). “But their faith might not necessarily drive them down the route of accepting the benefits regardless of what is available.” To offer a return on deposits, Islamic banks must share with customers any profits — and any risks — arising from trades the banks carry out with clients’ cash. “We generate profits from commodity trading activities and then we seek to pay our customers profits that are consistent with market rates generally,” Hanlon said. CLASH OF CONCEPTS To get its licence, IBB worked closely with the FSA as under British law, banks must guarantee that depositors receive their money back in full — a concept which clashes with the Islamic principle of risk-sharing. The solution was to offer a full guarantee for clients’ deposits, but let them choose whether to share any losses the bank may make. While trying hard to rival conventional banks, IBB is counting on its clients’ willingness to accept that returns may be lower for the sake of their faith. It recently launched a young persons’ savings account offering a target return of 3 percent before tax. This compares with a current 4.43 percent gross from Natwest’s ( RBS.L ) children’s savings accounts. “Only retail customers are attached to the religious argument,” said Standard & Poor’s analyst Anouar Hassoune. “Corporate borrowers and depositors usually do not care about religion: they ask for price and service.” Estimates of assets controlled by Islamic banks globally range between $200 billion (106 billion pounds) and $500 billion, growing at a pace of 10 to 15 percent per year, the FSA said. But IBB, which said it had some 14,000 customers at enD-2005, faces competition from conventional banks which are also offering services compliant with Islamic law, or Sharia. HSBC ( HSBA.L ) first introduced Sharia-compliant current accounts and home-finance schemes in July 2003 through its Islamic finance division. HSBC Amanah now has around 2,000 accounts and has financed as many home purchases. Lloyds TSB ( LLOY.L ) followed suit early last year and Lloyds’ Islamic services are now available at around 35 branches with more planned across the country, a spokesman said. Islam also bans investments in industries such as tobacco, alcohol, pornography, gambling and arms, so special committees have been set up to monitor banks’ Islamic products and services. Each bank has its own Sharia Supervisory Committee, employing experts in Islamic finance to ensure that all the bank’s products and transactions comply with Sharia.