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Saturday, 4 October 2008

Non-Muslims turn to Islamic Bank as a safe option

Growing numbers of non-Muslims are turning to Islamic banking as customers spooked by turmoil in the Western banking system increasingly see the sector as a safe haven.
The Birmingham-headquartered Islamic Bank of Britain said it had seen significant growth in non-Muslim customers since the onset of turbulence on financial markets as Islamic banks, bound by strict religious principles, are largely seen as insulated from the credit crisis.
Islam’s prohibition on the charging or paying of interest - riba - as well as rules on the kinds of investments they can make are among the reasons Islamic banks are coming through the crisis unscathed.
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 credit crunch. The first is liquidity - 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.
“That is one of the fundamental reasons we are insulated.”
Stipulations that you must own the asset you are trading in also mean practices such as short-selling are not a feature of Islamic banking.
Mr Amos also said the principle of partnership underlying Islamic finance means banks would never enter into the subprime-style agreements behind the current crisis.
“For the benefit of the customers and the bank themselves, we enter into a partnership agreement. “Islamic banks don’t just enter into any agreement, we make sure the agreement is right for both partners.”
The growth in ethical investment in the UK over the last few years has also spelled an increase in interest from non-Muslims attracted by the strong ethical tenets of Islamic banking.
“We guarantee you we won’t invest customers’ funds in alcohol, tobacco, pornography or in any form of gambling.
“These factors are often in keeping with the ethical products that we’ve seen growing in the UK over recent years,” said Mr Amos.
The Islamic Bank of Britain is the UK’s only stand-alone fully Shariah-compliant retail bank.
In July it launched its Home Purchase Plan, billed as “the mortgage alternative,” which enables customers to purchase their homes in an ethical and Shariah-compliant manner.
The plan is based on the Islamic financing principles of Ijara, which means leasing, and Diminishing Musharaka - partnership.
For example, 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.
(Birmingham Post)
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