hare gew Tombs, something I had to pull together for moneyfacts

Up until a few years ago, British Muslims who wanted to open a bank account or purchase a house in the UK were forced to sacrifice their religious principles - because the concept of interest, or making money from money is banned in Islamic Law.

The ‘Islamic pound’ is a lucrative market in the UK, predicted to be worth £1.4 billion by 2009. Recent figures show that 75% of British Muslims want their bank accounts and their mortgages to meet the demands of their faith. The good news is that this has started to change with the arrival of a whole range of Islamic banking products, specially tailored to meet the needs of Britain’s growing Muslim population. There are now more than 2,000 products available, all designed to comply with Shariah Law.

The principles of Islamic finance

· All money must be invested in industries considered ethical.
· The giving or receiving of interest is considered sinful.
· Money cannot make money.
· Money can be used to buy goods or services, which can be sold for a profit.

Muslim scholars play an integral role in all aspects of Islamic finance, from looking at documents, to formulating how they work, and all the relevant charges that banks can make. This has resulted in a wide variety of Islamic bank accounts and mortgages becoming available.

Islamic Bank accounts – how do they work?

Islamic bank accounts operate on the principle of ethical investing, paying you no interest on your balance.

· Lloyds TSB current account pays no interest on balances in credit and offers no interest-free overdraft facility. If your balance is in the red you’ll be charged a flat fee.
· The Islamic Bank of Britain, which opened its doors in 2004, offers both current and savings accounts that operates under Mudaraba, which is profit sharing between both bank and customer. The money is invested in Shariah-compliant financing and investments and the profits are shared.

Islamic Mortgages – how do they work?

As the concept of paying interest is banned according to Islamic teaching, Islamic mortgages use the property as an asset to create a profit. This can be done in three main ways:

· Murabahah – With a Murabahah mortgage, the customer will find a property and the bank will buy it for them. The bank will then sell it back to the customer at a higher price, set by the bank, over the term of the mortgage.
· Ijara – With an Ijara mortgage, the customer will find a property and the bank will buy it for them. The bank will then lease it back to their client, so they will pay rent on 100% of the property. At the end of the term, the customer has the right to buy the property from the bank.
· Diminishing Musharaka – Under this principle, both the bank and the customer would own the property – so if the bank owned 80% of the property, the customer would own 20%. The customer would then pay the bank rent on the 80% of the property, plus the amount paid by the bank. However, as the customer pays off more of the debt, they would take greater ownership until the whole amount of the property is theirs.

· However, Muslim mortgages do take slightly longer than traditional mortgages in the time taken to complete. Because the contracts are slightly different, an extra team of solicitors are required for the bank, which tends to slow down the process.

How Islamic finance stacks up

One of the biggest issues that remain in Islamic banking is cost. Customers have to expect to pay more for their bank accounts and mortgages if they want them to be Shariah-compliant, because banks have to pay more initially.

Alburaq (in partnership with Bristol & West)

Murabaha mortgage
Minimum advance - £15k
90% loan-to-value(LTV) to £500k
75% LTV to £1m

HSBC

Ijara mortgage
Minimum advance - £25k
90% LTV to £300k
85% LTV to £400k
80% LTV to £400k+

The customer must agree to make both monthly payments to the purchase of the property and monthly rental payments. Rent is reviewed every six months.

Ahli United Bank

Diminishing Musharaka mortgage
Minimum advance - £40k
80% LTV to £100k

Ijara mortgage
Minimum advance - £40k
83% LTV to £250k

Posted By: Stoopish, Jul 24, 09:17:01