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The Islamic Bank of Britain (IBB) has pioneered Shari’ah compliant retail and business banking in the UK. Since the initial launch, IBB has offered a wide range of institutional and business banking products and services, including commercial property finance.
Interviewing Steven Amos, head of IBB marketing, Islam Online asked about the reasons why IBB felt the need to start operations in the UK.
“IBB was created with the aim of meeting the financial needs of British Muslims so that they can save and borrow according to the principles of their faith, i.e. without the use of interest,
“As Islamic values are also ethical in their nature, we also firmly believe that we have created an inclusive bank that welcomes all the cultures and faiths practiced within UK. customers, employees and shareholders. ” he said.
The Bank is continuously innovating and developing new products. Most recently it has expanded its offering to accommodate customers based overseas who are looking for purchase of residential properties in the UK in a Shari’ah compliant way, with the ‘Home Purchase Plan’.
In five years since its inception, IBB has helped individuals looking for Shari’ah compliant and ethical banking products by developing a wide variety of innovative products.
“For example, we have launched our Home Purchase Plan, the mortgage alternative, last year, and this has received interest from both Muslim and non-Muslim customers alike,” said Amos.
“Customers are drawn by IBB's competitive rates and offers. In fact, the fixed rate product has had a rate of 3.99% (until June 2010), one of the most competitive rates on the market. The feedback has been very positive demonstrating that Islamic home finance is not an expensive option, but in fact, an ethical and Shari’ah compliant alternative that suits customers' pockets as well. This means Muslims can now fully bank in accordance with their faith.”
According to Amos and IBB, there are two main differentiators between conventional and Islamic banking:
1. Islamic banking is ethical - it's the faith-based form of ethical banking. Investing in businesses that are considered unlawful is prohibited. This includes companies that deal in gambling, pornography, tobacco and other commodities that contradict with Islamic values. Interest which is considered effortless profit, is prohibited. This means no interest is received or paid by customers.
2. Interest is forbidden, instead, Islamic Banking is structured on principles of risk sharing and entrepreneurship. Rather than paying interest, Islamic Banks share profits according to a profit sharing ratio agreed in advance with their customers.
Amos cited examples of popular savings accounts where money is invested ethically, according to Shari’ah principles:
“Monthly profits are shared amongst the Bank’s customers based on the Wakala (proxy) principle. These have proven popular, even though most UK banks’ saving deposits have been retracting due to the financial climate.”
Islamic teachings do not allow a fixed return on capital, as charging and receiving interest riba (usury) is forbidden. As a Shari’ah compliant bank, all IBB products and services avoid riba.
Amos says that the relationship between IBB and its customers is based on risk sharing:
“…we share the rewards from the financing and investments we make on the customer’s behalf, based on the amount of profit obtained from each transaction.
“The main difference between Islamic and conventional banking is that Islamic teachings maintain that money itself has no intrinsic value, and forbids people from profiting through lending it, without accepting a level of risk – in other words, interest (known as "riba") cannot be charged.
“To make money out of money is prohibited – wealth can only be generated through legitimate trade and investment. Any gains relating to this trading are shared between the person providing the capital and the person providing the expertise.”
IBB generates all profits through Shari’ah compliant trading and investment activities, which is then shared through profits with customers at a pre-agreed ratio. IBB takes its community responsibility very seriously and works in close collaboration with a number of community bodies, including Masjids, community organizations and charities.
Case Study
Provided By IBB
Name: Mr Lefgoum
Age: 37 years
Lives: Aberdeen, Scotland
Background: Mr Lefgoum works as a Geophysicist team leader and has taken out the Home Purchase Plan from IBB for his new family home in Aberdeen, Scotland.
When Islamic Bank of Britain launched its Home Purchase Plan in Scotland, in April 2009, Mr Lefgoum was one of the first to make an application to buy his home using IBB's Sharia'a compliant mortgage alternative.
Speaking about the Home Purchase Plan, Mr Lefgoum said:
"It's exciting to be one of the first HPP customers for IBB in Scotland.
I'm really convinced by the product, and was drawn by its competitive rate
and low arrangement fee - it really is one of the lowest on the market."
Mr Lefgoum continued:
"As a Muslim it's important for me to try to live my life in accordance with
the principles of my faith. This includes abstaining from alcohol,
eating only foods that are halal, and using financial products that are Sharia'a
compliant - they're all equally important to me. However, so far it's been
difficult, as Islamic mortgage products in Scotland have been so
expensive. Although I'm a Muslim, I live in the real world, and have to
manage my finances in a financially viable way. I've always seen it as
a bit of a compromise which I'd rather not have to make."
With the arrival of IBB's Sharia'a compliant ‘Home Purchase Plan’ in Scotland, Mr. Lefgoum feels that he now has a real choice about how his home is financed. Amidst the current financial climate Mr. Lefgoum is actually quite reassured that his home finance is with IBB and not a conventional bank. He is particularly drawn to the partnership element of the HPP and sees this as a more ethical way of financing home purchases and home refinancing.
Mr Lefgoum commented:
"Really, I think HPPs are the way in which people should finance their
homes - it just seems like a more stable and ethical way of doing things.
Since the credit crunch began I've felt unsure about placing my money
and assets with conventional providers, and I feel reassured that IBB is
based on an alternative system that has so far been more resilient. I can't
see why Muslims or people of other faiths don't take out HPPs - at least since
everything is transparent and we know what's happening with our homes
and money."
Mr Lefgoum looks forward to trying out further products from IBB and is delighted that he has a real choice in how he manages his finances, which gives him financial, ethical and Islamic benefits.
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Islamic Banking for All
Not all the Banks' customers are Muslim, as customers of other faiths often join either for the ethical nature of the products, or simply for the really good rates or products on offer.
Despite an official worldwide recession, IBB has demonstrated strong and steady growth in customer number, deposits and financing during 2008 compared to the same period in 2007. The Annual results for 2008 demonstrated the following figures:
- The number of Customers increased by 10% to be 47,000
- Deposits increased by 15% to be £158m
- ·Customer financing increased by 48% to be £23.5m
As the figures demonstrate, IBB’s customer and account numbers increased despite the credit crunch. Muslims make up the core of the customer base although Amos pointed towards an “increase in enquiries from non-Muslim customers.
As the only, full service, wholly Shari’ah compliant retail bank operating in the UK, IBB, has been better protected from the credit crunch crisis affecting mainstream banks because the Bank was not impacted by its root cause, i.e. ‘toxic assets’. Amos clarified that IBB is very prudent in its approach, and manages the risks for the assets it takes on very carefully.
Amos feels that overall; the advantage for individuals banking with IBB is that it allows:
“…Muslims to manage their finances in line with their faith. They no longer have to compromise on good value, profits and competitiveness.
“IBB competes with any other conventional bank and this benefits its customers on a financial, ethical and religious levels.”
Continuous Regulation
IBB has a team dedicated to Shari’ah compliance which manages the development of new products to ensure they are in line with approved Shari’ah financial principles and also to help train the Bank’s employees. The team is highly trained and experienced in all aspects of financial Sharia’h compliance, and they work closely with the Shari’ah Supervisory Committee to ensure that this is maintained for all operations, products and services. The Shari’ah Supervisory Committee (SSC) comprises experts in the interpretation of Islamic law, and its application within modern day Islamic financial institutions. They are world leading scholars representing a wide spectrum of the Islamic faith and they ensure that Shari’ah compliance is at the heart of everything IBB does and every product and service that they offer.
“The Committee meets on a regular basis to review all contracts and agreements relating to our transactions as well as to advise us, guide us and sanction any new services that we introduce,” said Amos.
“They also certify every account and service we provide - without their approval, we cannot introduce a new product or service.”
Asked if IBB has plans to expand to mainland Europe Amos said:
“While IBB does not currently have any immediate plans to expand into mainland Europe, opportunities are always considered for the Bank to accommodate Muslims and non-Muslims overseas seeking Shari’ah compliant and ethical banking products.
“Overseas customers have access to the Bank's competitive ‘Home Purchase Plan’ for property they wish to purchase here in the UK. Individuals can also access the Bank's deposit and savings products, such as the Savings Account and Term Deposit Accounts, and manage their investments online from the comfort of their own home, wherever they may live.
“Islamic Banking is increasingly considered by many as an ethical and stable alternative to conventional banking. Islamic finance providers also have an obligation to be open and honest with customers who are in effect the Bank’s.
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