II :: Sector Watch - Islamic finance market growing dramatically

The demand for Islamic finance is growing at a dramatic rate, with one bank revealing that it has gone from having products available in five branches to 2,000 in the space of two years.

Another interesting development is that the Islamic products are not just being offered in predominantly Muslim areas anymore.

Islamic finance works in accordance with Islamic law and under Islamic Sharia law; making money from lending, such as charging interest, is usury and not permitted.

Wealth must be made through investment in assets and legitimate trade and making money from interest is therefore forbidden.
Because of this, Islamic current accounts offer no interest or overdraft facilities.

Emile Abu-Shakra from leading high street bank Lloyds TSB revealed that the number of Islamic financial services available was increasingly dramatically.

"We have expanded our range of products and we now offer a current account, a mortgage, a student account, an investment fund and a business and corporate account - which we just launched the other day," he said.

And Mr Abu-Shakra also revealed that because the principles of Islamic finance can be applied to a variety of products, he expected to see more and more options available to Muslims in the future.

"The principles of Islamic finance could be applied to a number of different products, so there are possibilities for Islamic versions of credit cards, loans, saving accounts and asset finance as well.

"It's just a matter of time. We've started by offering the products that we know our customers want, and as you'd expect, that's a current account and a mortgage and then business services have followed that. But in time, we'll definitely be looking at other products."

The importance and relevance of Islamic finance was highlighted at Westminster earlier this week.

On Monday, economic secretary Ed Balls hosted a summit of Islamic financial services experts and leading members of the Muslim community at No 11 Downing Street.

The summit discussed recent government budget measures in the Islamic finance area and explored the ways to drive Islamic finance forward, with the focus on the relation between UK business and the Islamic community working closely with the UK government.
Speaking after the meeting Mr Balls said: "The UK is at the forefront of developments in Islamic finance.

"I am keen to capitalise on the momentum gained in Budget 2007 by listening to the industry and ensuring that the government takes every opportunity to promote innovation and growth in this area.
"By enhancing the competitiveness of the financial services sector, through creating a level playing field for Islamic finance products, we are also able to increase choice of, and access to, financial products for Muslims and non-Muslims in the UK."

New measures introduced by the government include plans for sukuks, the Islamic equivalent of a bond, to be issued, held and traded in the same way as corporate bonds.

Another development is that guidance from Her Majesty's Revenues and Customs has been issued on the treatment of musharaka, a common structure used for Islamic mortgages and takaful products, to provide more clarity and encourage growth in these markets.

As well as this the Financial Services Authority has introduced a Home Purchase Plan that gives Muslims new protections to buy homes in the UK in a way that complies with Islamic law.

Also, UK Trade and Investment plans to "develop a strategy to make the UK a gateway for Islamic finance, as part of their wider strategy on promoting London and the UK as an international financial centre".
And Mr Abu-Shakra highlighted the legislation changes as important to the continuing development of Islamic finance.

"There have been a number of changes to legislation that have allowed Islamic finance providers to do more and to provide Islamic finance products much more easily.

"The best example is the issue of double stamp duty, because Islamic mortgages are designed in a completely different way to normal mortgages, there are two sales of the same property.

"That has meant in the past there was a need for two payments of stamp duty, which made it very expensive to buy a house under Islamic law.
"Now it's much easier for banks to offer products which are affordable for customers and we've therefore seen a development and increase in the market."

For over ten years, Islamic finance has spread from the Middle East and taken a hold in financial centres in Asia, North America and Europe.

The market for Islamic finance stands at £500 million, with a predicted annual growth of around 15 to 18 per cent.

Hassan Hakimian, the Cass Business School's associate dean for Off-Campus Programmes, recently told Business Week that he expects Islamic finance to grow for at least the next decade.

With more and more high street banks in the UK offering Islamic financial products, it is a fair estimation.