Islamic bank aims to tap into Scottish market BANKING: EXPANSION Sharia-compliant institution plans to open branch in Glasgow. Check it out:
(The Sunday Herald Via Thomson Dialog NewsEdge) THE Islamic Bank of Britain plans to establish its first Scottish branch in Glasgow next year buoyed by a worldwide resurgence in interest in Islamic finance.
The bank, which launched an internet and phone banking service last week, is also looking at expansion into France and Germany in 2008.
Ashraf Piranie is finance director of the Islamic Bank, which became the UK's first standalone Sharia-compliant retail bank when it launched two years ago. He is keen to serve Scotland's Muslim population, which is approaching 50,000 and has its highest concentration in Glasgow.
"Glasgow is on our target list. We'd like to have a branch office there in 2007.
We've had very positive feedback, not just from Glasgow but also Dundee, " Piranie said.
The bank, which has its headquarters in Birmingham, is to roll out a series of new products, such as Sharia-compliant overdrafts and trade finance terms for business banking. It already offers personal banking products and residential and commercial property finance.
The term Sharia refers to Islamic law and the overarching principle relating to financial transactions is that interest, known as "riba", is forbidden. This means that Muslims are not permitted to earn interest on bank deposits nor to purchase property using mortgages which involve interest repayments.
However, earning profit from legitimate trade and transactions is permitted.
Piranie said there is a growing awareness among the UK's two-million strong Muslim community and Muslim visitors to the UK that there is now an alternative to conventional banks which allows them to remain true to their religion without losing out financially.
"All of our products are very competitively priced. Our aim was that Islamic products should not be charged at a premium, " Piranie said.
Islamic financial products have been around globally since the 1960s, but an increased focus on Islam has drawn greater attention on the sector, with traditional banks such as Lloyds TSB now targeting Muslims with Shariacompliant products.
Piranie said the UK is leading the way in Europe in terms of efforts to establish a supportive legislative and fiscal framework for Sharia-compliant products. He said the Treasury and Customs and Revenue have been engaged in high-level discussions to approve new products.
A number of banks operating in the UK, including the subsidiaries of Middle East-owned banks and HSBC, as well as stockbrokers and mutuals, offer Shariacompliant products. Piranie said that the Islamic Bank's unique proposition is that it is the only dedicated UK bank offering such products whose entire financial activities are ring-fenced.
"We do not invest in alcohol, firearms or pornography. We earn profits for ourselves and for our customers by permitted activities such as trading in metals and property investment, and we only place our funds with other Islamic banks so we do not earn interest at any point in the cycle, " Piranie explained.
The bank is advised by Islamic scholars, who must approve all new products, and it also undergoes a quarterly Sharia compliance audit. Piranie said that the bank's ethical stance as well as the transparency of its charging structure and investment policy have attracted a number of non-Muslim customers. "At one point 20-per cent of our customers in Leicester were non-Muslims, " he said.
The Islamic Bank was set up with capital from UK and Middle East Muslims, including the Qatari royal family who remain shareholders. Its shares trade on the Alternative Investment Market. It has seven branches, including three in London, two in Birmingham, one in Leicester and one in Manchester, with plans to open a further six in the UK.
PIRANIE said: "We started from zero and have acquired 23,500 customers. Since we opened more branches and launched more products, growth has taken off. Customer growth has been 67-per cent in the past six months and deposits have grown by 47-per cent to GBP70 million." The customer base is diverse and includes a range of socioeconomic and ethnic groups, from Bengalis to Arabs and Pakistanis.
After just two years of operations, the bank does not yet have a credit rating, but Piranie said it is well capitalised at 10 times the minimum capital adequacy ratio. "We've raised GBP54m, " he said. The bank is still incurring set-up costs and posted half-year losses of GBP4.2m to the end of June 2006 and forecasts that it will become profitable in 2008.
Piranie, who formerly worked for Alliance & Leicester, anticipates strong growth in home and commercial property finance. This entails the bank buying a property and then leasing it back to the customer, who pays a monthly rent with an agreed profit margin, ultimately transferring ownership to the customer.
He also predicts growth in products aimed at the small and medium business sector. "One in three Muslims owns their own business, compared to one in 10 for the wider UK community, so business banking is very important."
NEED TO KNOW
THE FACTS
The Islamic Bank of Britain is planning to open a branch in Glasgow.
BACKGROUND
Islamic finance is based on Sharia law, which is derived from several sources including the Koran; Sunna (the practice and sayings of the prophet Muhammad); and Ijtehad (reasoning and logic applied by Islamic scholars). The main principle of Islamic finance is that interest (riba) is forbidden. It also enshrines the sharing of risk and reward between a bank and customer, with returns generated on profit from transactions.
The Islamic economic system has four key principles: the abolition of interest; economic prosperity within Islam's moral structure; universal brotherhood and justice; the desirability of economic enterprise.
There are more than 250 Islamic financial institutions worldwide and the global Islamic banking market is estimated to be worth some dollars-500 billion.
NEED TO KNOW MORE?
www. islamic-bank. com Website of the Islamic Bank of Britain.
Copyright 2006 Newsquest Media Group. Source: Financial Times Information Limited
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