August 12, 2004 - Britain's first Islamic bank gets official approval
THE scriptural advice is clear: banking will not get you into the Almighty's good books. All three of the Abrahamic religions frown on usury. But while most Christians and Jews long ago found ways of squaring the needs of their businesses with the demands of their faith, many Muslims still believe that charging or paying interest is wrong.
Until recently this meant that the devout were excluded from British banks, which all pay interest on deposits and charge it on loans. Middle Eastern firms developed sharia-approved financial services in the 1970s, and the global market is now worth about $200 billion, according to Permal, a finance house involved in the sector. Islamic mortgages have been available in Britain (from the Ahli United Bank) since 1997, and HSBC launched a halal mortgage in 2003.
Last week regulators granted a licence to Britain's first sharia-compliant bank, the Islamic Bank of Britain. It plans to offer Islamic versions of traditional services—deposit accounts, personal loans and mortgages—in Muslim areas of Leicester, Birmingham and London, although the bank will be open to anyone. "We'll compete with all the major banks up and down the high street," says Michael Hanlon, the managing director.
So how will it work? On top of banning interest, the Koran prohibits "making money from money" and investment in sectors considered immoral. Deposit accounts will operate rather like unit trusts, with funds invested on the depositor's behalf and a share of the profits replacing interest payments. A sharia committee will make sure that no money goes to questionable outfits involved in, for example, pornography or alcohol—or usurious, non-Islamic banking. Mortgages and loans will use a "hire-purchase" scheme whereby the bank buys goods on the customer's behalf. He then pays the bank a series of instalments until the cost, plus a profit for the bank, has been met.
Some of this may seem like hair-splitting—for example, a normal interest-bearing loan is, in effect, the same as the bank's hire-purchase system—but the distinction matters to many. Mr Hanlon points out that those among Britain's 1.8m Muslims who were previously unwilling to take out a mortgage will now be able to buy a house. Even religious demands create their own supply.