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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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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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.

Non-Muslims Snap Up Islamic Bank Accounts

Non-Muslims both in England and in Islamic countries are increasingly opening Islamic bank accounts, which operate in compliance with Sharia law. Under Sharia Islamic law, making money from money, such as charging interest, is usury and therefore not permitted. Wealth should be generated only through legitimate trade and investment in assets. Sharia also forbids investing money in arms, tobacco, alcohol, gambling, and pornography. Non-Muslims find this version of ethical finance increasingly appealing and are therefore opening such accounts at major UK banks.

Islamic Bank Customers Share Risks And Rewards

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.

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.”