Newspaper article The Journal (Newcastle, England)

Ethical Approach to Banking

Newspaper article The Journal (Newcastle, England)

Ethical Approach to Banking

Article excerpt

Byline: By Jane Hall

Racking up interest is an essential requirement for most people, and never more so than now, with most savings vehicles offering only about four per cent.

Unless, that is, you are one of Britain's two million Muslims, for whom earning interest and investing in unethical companies is forbidden.

Under Islamic law - known as Shari'ah - there are widespread restrictions about where a Muslim can save or invest. Many traditional British financial products, including mortgages, insurance, unit trusts and Isas, are unsuitable because they are interest-based.

Interest, or Riba, is seen as usury because it creates a situation where the lender can exploit the borrower.

This means Muslim homebuyers have to buy a property outright with cash or give up their dreams of owning. Alternatively, they have to break Shari'ah. An estimated 100,000 of Muslim-owned homes in the UK are financed with a conventional mortgage.

It is possible for Muslims to hold credit cards, providing the balance is paid off in full every month so that no interest is incurred. Debit cards are also allowed.

Many Muslims also keep their money in traditional deposit or current accounts, but they give any interest to charity. Others invest in their own business or the community instead.

But all that could be about to change. HSBC yesterday become the first major UK bank to offer a home finance scheme and a current account that meet Shari'ah law. Developed by HSBC's Amanah finance division over 18 months, the products have been approved by an independent committee of world-renowned Islamic scholars.

The Amanah current account has no overdraft, debit or credit interest. And money paid in will be administered in accordance with Shari'ah and not be used for interest generation.

Under the Amanah home finance scheme, HSBC will buy the property and lease it back to the customer over an agreed term - typically 25 years. The customer will then make monthly payments made up of rent and a sum towards the purchase price. HSBC will own the property until the customer has made the final payment.

In Islamic terms, the rent is not another name for interest; it is seen as a fair payment for use of the property rather than a charge for borrowing money.

The customer can arrange for the property to be sold at any time and the rent will be reviewed twice a year.

HSBC's move has won the backing of the Muslim Council of Great Britain. Spokesman Iqbal Asaria said: "The launch of these Islamic finance products by HSBC is welcome news for many thousands of Muslims who regularly battle with their consciences over financial decisions.

"Some are racked with guilt because they have broken Islamic law. While others' values are beyond question, they are more pragmatic in order to keep a roof over their family's head. HSBC's initiative frees them from this dilemma and is the first step to delivering a level playing field for Muslims seeking financial solutions in the UK."

While HSBC is the first major British lender to go down this path, it is not the first to offer an Islamic mortgage. The Kuwaiti-based Ahli Bank has been offering what are branded as Manzil Home Purchase Plans for six years in the UK.

West Bromwich Building Society also offers Shari'ah-compliant mortgages through an arrangement with the Ahli Bank. The society began offering this type of mortgage last September.

Jim King, of the West Bromwich, said: "About 20pc of our customers are of Asian origin, many of whom will be Muslims. So far, about 10pc of customers who have contacted us have taken it forward."

It is a shrewd move by the likes of West Brom and HSBC to begin offering tailored finance. Though the UK's Islamic mortgage market is now worth only pounds 40m, it could be worth billions more. According to market researchers Datamonitor, demand for Islamic mortgages in the UK is so strong that gross advances could reach pounds 4. …

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