Islamic Bank to vie for Muslim clients
Catholic-raised Anthony Green chose to emulate the prophet Mohammed when he became a Muslim 16 years ago.
Green, a 40-year-old father of eight, now rents in the London suburb of Croydon and is looking for a way to buy a house without violating Islam's ban on paying interest.
"I am really feeling the urge to get a place of my own that isn't rented," said Green, who changed his first name to Abduraheem, or servant of God, when he converted.
Islamic Bank of Britain, the first bank in Europe and the United States to offer only mortgages and accounts that comply with Islamic law, or Shariah, may provide a chance to do so. The UK Financial Services Authority (FSA) licensed the bank on Friday, allowing it to compete with lenders such as HSBC Holdings Plc that offer some Islamic products. London-based researcher Datamonitor Plc expects the Islamic market to grow to 4.5 billion pounds (US$8.3 billion) in 2006.
"Everything we do in the organization will be Shariah compliant," said Michael Hanlon, chief executive of the Birmingham, England-based bank. "Everything that the customer receives is totally pure."
The bank plans an initial public offering in the UK within six months and a private placement of shares to investors in the Middle East and Asia to raise about 36 million pounds (US$66.6 million), said Hanlon.
To comply with Muslim beliefs, Islamic Bank will negotiate so- called purchase agreements that allow it to buy properties on behalf of homebuyers. The customers will then rent their homes from the bank until they have repaid the bank's investment plus an agreed profit. Account holders will receive a share of the returns on investments made with their money instead of interest.
1.8 million Muslims
If Islamic banks can match conventional financial products without increasing the cost to the customer, they are likely to lure Muslims from other banks, said Helen Smith, a financial-services analyst at Datamonitor, whose clients include HSBC, Lloyds TSB Group Plc and Barclays Plc. There are 1.8 million Muslims in the United Kingdom, or 3 per cent of the population.
"The Islamic market is going to become more important," Smith said. "The market in the UK has a natural limit in terms of the number of Muslims, but if you have products that can be exported that vastly increases the scope."
Ahli United Bank UK, a unit of Bahrain-based Ahli United Bank, introduced Islamic mortgages to Britain in 1997. It has about 1,000 Islamic mortgage clients, said Alan Stevenson, Ahli's head of residential lending in London. Unlike Islamic Bank, Ahli also provides interest-bearing mortgages.
Out of 211,000 Muslim homeowners in the United Kingdom, 134,000 have conventional interest-bearing mortgages, HSBC estimates. Islamic Bank expects about 10 per cent of them eventually will switch to Islamic mortgages, said Ahmad Salam, a spokesman for the bank.
Islamic Bank is headed by Hanlon, a Christian who worked for Barclays, the United Kingdom's third-biggest bank, and was recruited to provide UK expertise. Before joining Islamic Bank, Hanlon was Barclays's director of retail banking in central London.
Islamic Bank is backed by 14 million pounds from Persian Gulf and UK-based investors, including Qatar's ruling Al-Thani family; Bahrain-based Islamic Joint Venture Partners; DCD Group, a London-based Islamic trade finance company; and Al-Baraka Banking Group, according to Hanlon.
The company plans to expand to France, Germany and other European countries with large Muslim populations, Hanlon said.
"There is currently no bank that holds itself out to be a pure Islamic bank in the UK," FSA spokesman David Eacott said before the Islamic Bank licence was approved. "We're obviously mindful of the fact that the Muslim population is a significant group of individuals, and if there is demand for this type of product we wouldn't want to impede its provision."
The FSA requires that all banks comply with one set of laws, rather than creating separate regulations for Islamic banks. Hanlon and the FSA, along with Shariah scholars, have spent more than a year molding bank accounts, mortgages and other financial products to make them acceptable to both UK and Islamic law.
"The principles of Islam means it's more of a partnership between the customer and the bank, taking risks," Hanlon said. "You don't find this in conventional banks, and this is why it's been a challenge."
Assets controlled by Islamic banks worldwide, including Kuala Lumpur-based Malayan Banking Berhad and Dubai Islamic Bank, total US$200 billion to US$500 billion and are growing by 10 per cent to 15 per cent annually, according to FSA estimates.
The spirit of the ban on interest comes from the belief that all wealth belongs to God and is held in trust by humans who should use it to benefit society, said Sheikh Essam Mohammed Ishaq, a member of Shariah supervisory boards for banks including Al-Baraka Islamic Bank in Bahrain.
"It's about fairness, it's about equitable distribution, it's about not allowing monopoly or anything which leads to monopoly, or anything that causes more and more wealth to be directed to fewer and fewer people," Ishaq said after addressing an Islamic finance conference in London.
At least three Shariah scholars sit on supervisory boards of Islamic banks, deciding by a majority vote which products are acceptable. The banks also shun investments in industries such as liquor makers or casinos since alcohol and gambling are prohibited by the Koran.
Some Muslims still won't accept an Islamic mortgage.
"It wouldn't feel right," Nahid Ahmed, a secretary at London Central Mosque, said above the din of a mailing machine. "When you borrow money from the bank, you pay them back double."
(China Daily 08/11/2004 page12)
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