The growth of Islamic retail banking and mortgages in the UK

It may surprise many to know that the UK can justifiably lay claim to being one of the first countries to embrace and accommodate Islamic banking and particularly in facilitating the growth of Islamic mortgages and retail banking in accordance with Shariah.

With a Muslim population of around 2 million, or 3% of the total population, the UK has by no means the largest Muslim population of a country outside the Muslim world.  Even within Western Europe, both France and Germany have similar or larger Muslim populations so it is interesting that the UK is such a facilitator for Islamic finance.

To explore in any great detail the political, social and economic background as to why this has occurred is beyond the remit of this article. However, there are some obvious factors that will have directly contributed to some of the most recent advances during the past 10 years and these include:

• A growing Muslim population, that is increasingly affluent and articulate and that has been persistent in its lobbying of Government and regulators to recognise Islamic products and to allow them to be brought to the market in a viable way.
• In 1997 a Labour government came to power with pledges on tackling social and financial exclusion.  This, in part, provided the environment within which the issues and challenges presented when trying to introduce Islamic retail banking products in a non-Muslim country could be tackled.
• London, as a leading financial centre, having the resources and skills to innovate and construct the products that the Muslim community had called for, against a backdrop of implied regulatory and government support.

The history of Islamic retail finance in the UK actually goes back much further than 10 years, to the mid to late 1980s.  At that time there were two banks that had a particular appeal to the UK's Muslim and Asian community, these being AlBaraka International (an Islamic bank and part of the large Dallal Albaraka group of companies and banks based in Saudi Arabia) and the now infamous Bank of Credit and Commerce International, BCCI, which had over 120,000 UK customers at the time of its closure in 1991.  Both banks had a number of retail branches in many towns with high Muslim populations and from this Albaraka were able to see the potential for Islamic mortgages.  Their product, the first of its kind in the UK, operated on the principles of shared equity whereby the house was notionally divided into shares in accordance with the financial contribution of each party.  The bank's shares were then sold to their customer over a period of time at a price, which included the bank's finance charge, with the price of the shares being reviewed from time to time to reflect changing funding costs.  Unfortunately, the BCCI scandal affected many in the Asian and Muslim community and understandably damaged the confidence in such institutions.  It was, perhaps, the fallout from this that led Albaraka to take the decision to close its retail operation and with it the only Islamic mortgage then available in the UK.

It wasn't until 1997, when the Islamic Investment Banking Unit, part of The United Bank of Kuwait (UBK), launched the Manzil programme that Islamic mortgages became available again.



Keith Leach, Senior Manager
alburaq - UK Islamic Financial Services
ABC International Bank PLC
0207-776-4183
email - keith.leach@arabbanking.com
www.alburaq.co.uk/teaser.html