The UK’s sole Sharia Law-compliant bank has seen a huge surge of customers during the credit crunch, as its strict religious principles have made it a ‘safe haven’. The Islamic Bank of Britain says it has seen a significant growth in non-Muslim customers taking out accounts since the financial crisis took grip of Britain.
Under the strict rules of Sharia Law, the charging or paying of interest is prohibited, leaving many Islamic banks unscathed by the credit crisis – and nervy customers flocking to put their savings in safer hands.
Islamic Bank of Britain head of marketing Steven Amos said: ‘Our core business will always be Muslims but the numbers of non-Muslims are really picking up. ‘We’ve had massive interest and it’s down to the number of reasons why we’re insulated from the credit crunch.
‘There were two reasons for the crunch – the first is liquidity, with banks lending to each other on the money markets – but Islamic banks do not borrow or lend on money markets because interest is not allowed. ‘The second reason Islamic banks are insulated is to do with assets – everything has to involve an underlying asset or service and if you are going to trade in an asset you have to own it first.
‘The explosion in complex derivative products over the last few years has left Western banks reeling from exposure to toxic assets often far-removed from their everyday activities. ‘In contrast the more risk-averse Islamic finance system did not embrace this kind of deal. ‘Conventional banks didn’t know what they were buying in these derivatives but we have no exposure to subprime as we just don’t deal in it full stop.
‘We guarantee you we won’t invest customers’ funds in alcohol, tobacco, pornography or in any form of gambling.’
The Islamic Bank of Britain is the UK’s only stand-alone fully Sharia-compliant retail bank. In July 2008 the bank launched its Home Purchase Plan, billed as ‘the mortgage alternative’, which enables customers to purchase their homes in an ethical and Sharia-compliant manner. The plan is based on the Islamic financing principles of Ijara, which means leasing, and Diminishing Musharaka – partnership. The bank contributes 80 per cent of the purchase price and the customer puts in 20 per cent. Over a period of up to 30 years, the customer will make monthly instalments buying back the bank’s share of the home and with each instalment paid the bank’s share decreases.
Many of the big conventional UK banks have entered into the Islamic finance market in recent years, with big names such as Lloyds TSB offering a Shariah-compliant home finance product.
Source: Daily Mail (UK), 06th October 2008