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BRITAIN embraces Islamic Finance: - Muhammad Adnan Arshad - 07-15-2006
LONDON (AFP) - "You may have heard stories about cash under pillows," said Islamic scholar Abdul Kadir Barkatulla, recalling a time when British Muslims preferred to keep their money in the bedroom rather than in a bank account.
But times have changed, with Britain's estimated two million Muslims being catered for by a small number of banks - notably Lloyds TSB - who are providing financial products which comply with Islamic or Shariah law.
"Some Muslims are likely to suffer social exclusion," said Barkatulla, who advises Lloyds TSB on Islamic financial law.
"We are bringing them into the mainstream" by offering Islamic financial services, he added.
British finance minister Gordon Brown believes this can help Britain to become the gateway to Islamic finance and trade - a move favoured by the country's Muslim leaders.
Last week, Chancellor of the Exchequer Brown noted that London has more banks supplying services under Islamic principles than any other Western financial centre. His comments came as Lloyds TSB, the fifth-biggest bank in Britain, began a roll-out of its Islamic financial services across Britain following a successful pilot scheme.
Lloyds' 2,000 branches in England, Scotland and Wales now offer a current account which complies with Islamic law while most of its banks allow Muslims to apply for Islamic home loans.
Lloyds' Islamic current accounts offer no interest or overdraft facilities. Under Shariah law both payment and receipt of interest are forbidden because it is deemed unacceptable to make profit on the investment of money alone.
An Islamic home loan, meanwhile, works by the bank buying a property on behalf of the customer, contributing up to 90 percent of the purchase price.
The customer pays the remaining percentage up front and pays the outstanding sum over an agreed term, together with a rental payment.
Lloyds says the amount paid on an Islamic home loan over the usual 25-year term would be broadly similar to payments on a conventional mortgage.
Lloyds is ahead of its rivals, but the bank's head of Islamic Financial Services, Paul Sherrin, expects greater competition. Global banking giant HSBC is offering also Islamic products, although not on the scale of Lloyds. âThis greater the competition, the greater the acceptance of Islamic banking in the UK," Sherrin said.
The bank chief pointed to research by Datamonitor which suggests that the Islamic home loans market in Britain could reach 4.5 billion pounds (6.59 billion euros, 8.31 billion dollars) in 2006.
With 40 percent of British Muslims under the age of 25, there is clear potential for home ownership among the religious grouping.
According to independent research carried out on behalf of Lloyds, 75 percent of British Muslims want Shariah-compliant financial services.
And almost 18 months after Lloyds began offering Islamic finance on the high street, non-Muslims are also making use of the service.
According to Barkatulla, some Sikhs and Hindus are signing up to Islamic banking.
"It is perceived not as Islamic per se but as ethical," he explained.
Islam's Shariah law also prohibits clients' money from being invested in companies linked with areas such as alcohol, tobacco and pornography.
Noting the attraction of Islamic banking, British finance chief Brown has said London can be the financial location of choice for Muslim countries all over the world.
The Scotsman made his comments during a speech last week to The Islamic Finance and Trade Conference held in the British capital.
Muslim Council of Britain secretary-general Abdul Bari told the conference that trade and financial markets were an ideal place to promote peace and dialogue between Muslim and non-Muslim countries.
Lloyds' move into Islamic banking followed the opening in September 2004 of the Islamic Bank of Britain (IBB). Based in London, the IBB was the first bank in Europe to specifically address the needs of the Muslim community.