Despite it only being on the mass populace’s radar for a relatively short time in the UK, a boom in Islamic lending is expected this year, following the government’s continued support for the Islamic finance sector. The development of new Islamic finance products is a massive growth area currently, meaning that Britain’s burgeoning Muslim population will have access to a wider range of alternatives than ever before. The government’s commitment to supporting this area, as laid out in the recent budget, is likely to encourage more Muslims in the UK to start seeking out Halaal financial alternatives to traditional financial solutions.
Shariah-compliant products forbid the giving and receiving of interest (which prohibits traditional mortgages and loans). Wealth should be generated only through legitimate trade and investment in assets, and the Islamic financial model works primarily on a risk-sharing basis between the customer and the bank, who then divide any profits between them. This area is undergoing a huge explosion in popularity currently, driven in part by high-net worth individuals from the Middle East as well as an increasing middle class Muslim population in the West. A report by consultancy firm Accenture published earlier this year forecasted that ‘the market’s global value will increase by £5.1bn at present to £18bn in 12 years’ time.’ This relatively new area of the market is offering exciting new opportunities for the UK banking sector; a golden vista previously largely untouched is now becoming increasingly sophisticated and competitive.
In February, European Financial House (which is a subsidiary of Qatar Islamic Bank) became the fourth wholly Islamic bank to operate in the UK, and more are sure to follow.
Humphrey Percy, Chief Executive of the Bank of London and the Middle East (BLME) notes that ‘Islamic finance is becoming very much more mainstream and influential…. We have seen increasing interest in Islamic financial products, not only from Islamic institutions, but also from conventional financial institutions and consumers, which is likely to stimulate growth in the months to come.’
This forward looking view is also shared by LloydsTSB, which has been catering for British Muslims’ financial needs since 2006 and now offers a fairly wide range of products complying with Islamic law. Increasing demand means that the bank has now ‘launched a Shariah-compliant version of the account used by all banks to distribute payments to customers,’ allowing persons and businesses that receive payments from abroad the safe knowledge that the money can be handled according to Islamic law all the way along the line.
Dr Humayan Dar, honorary fellow at Cass Business School, notes that the growth in Islamic finance occurs more in investment banking than on the retail side of things, although he does acknowledge there is some demand for consumer products. Dar sees that the burgeoning demand is not as much as analysts perceive it to be, and comments that ‘Over the past two years…. some existing customers have stopped using these products…. and have gone back to conventional products.’ Dar also notes that there is a gap in the market for financial solutions aimed at small to medium sized Muslim-owned businesses.
It seems that over the coming months, Islamic finance will become increasingly popular and ever-more visible as banks begin to offer more and more numerous and increasingly sophisticated products to the market.
Quotes and information taken from an article ‘Interested Parties’, written by Mapara Syed and published in Credit Today (April 2008, Athene Publishing), p.21. www.credittoday.co.uk
Gi Lewis
