Sultan Choudhury, CEO of Al Rayan Bank, talks about Islamic finance in Britain and its appeal to non-Muslims. He says, Islamic finance appeals to anyone who agrees with the underlying principles: equitable distribution for everyone, prudent spending and the well-being of the community as a whole. It also provides an ethical alternative to traditional banking. Al Rayan Bank is structured to ensure that it operates ethically on a day-to-day basis. The bank's home-purchase plans (HPP) are structured differently to conventional mortgages. HPPs are based on the Islamic finance principles of ijara and diminishing musharaka. Currently the bank estimates that more than a quarter of customers are non-Muslim and the customer base is expected to grow in the coming years.
In Great Britain there are currently six Islamic banks, while another 20 lenders offer Islamic financial products and services. Al Rayan is Britain’s largest Sharia-compliant bank with 70,000 customers and 13 offices and branches. The bank underwent a major overhaul in 2014 when it was acquired by its Qatari parent, Masraf Al Rayan. Since that point, the brand was made more accessible, the imagery is no longer just Arabic, the bank uses British imagery as it is targeting all Brits. CEO Sultan Choudhury says about 25% of the bank’s customers are non-Muslim. Mr Choudhury also has his eyes fixed on the potential of the wider international market. In particular, he highlights the GCC national and expat market and HPPs (mortgages with an interest-free and Sharia-compliant structure). He says, Al Rayan's ambition is to be the number one bank for HPPs for GCC nationals and expats.
London Stock Exchange welcomes the largest Sukuk issued by a supranational globally in 2017, raising $1.25bn. The isssuance is listed by the Saudi Arabia based Islamic Development Bank and is a five-year bond with a 2.393 % yield. This listing adds to the broad range of Islamic finance products available to investors on London Stock Exchange. According to Nikhil Rathi, CEO of the London Stock Exchange, the listing demonstrates London’s standing as the world’s most international financial centre and confirms the UK as the key destination for Shariah-compliant financial products. The CFO of Islamic Development Bank, Dr. Ahmet Tiktik, said choosing London as the location for the new $1.25bn Sukuk shows the bank's continuous support for London Stock Exchange.
Global law firm Baker McKenzie has successfully acted for Dubai Islamic Bank in its defence of a $2 billion claim brought against it in the English Commercial Court. The claim was brought by Plantation Holdings, a holding company owned by an Argentinian-resident property developer. The allegation was breach of contract related to plot of land on the outskirts of Dubai, which Plantation had planned to develop into a high-end luxury lifestyle and equestrian complex. The Bank took security over the project as part of the restructuring of a $500 million debt owed to it as a result of a complex receivables financing fraud. The case was heard in an eight week trial, with evidence from witnesses from seven jurisdictions. The court ruled that Plantation's principal director had made up evidence and that another of Plantation's witnesses had manufactured documents, Plantation has been ordered to pay 70% of the Bank's costs on the indemnity basis. The nature of the case also resulted in examining the volatility of the Dubai property market and the functionality of its property registration system, as well as the Dubai authorities' approach to financial misconduct.
Warba Bank has recently purchased a newly constructed UK vehicle imports-exports facility strategically located next to Immingham port. The property is leased to KIA Motors UK for unbreakable lease term of 20 years. The facility has a capacity of over 15,550 cars and totalling 86.68 acres (35.08 hectares) of land. In addition, the site also includes a warehouse space of 63,515 ft.² (5,901 m²), facilitating distribution, refurbishment, valet, inspection, refuelling, offices and gatehouses. The site receives on average c.1,200 vehicles a week. KIA anticipate 100,000 UK car sales target by 2020. Warba Bank’s CEO, Shaheen Hamed Al Ghanem, said this acquisition was one of the best risks mitigated real estate investment of the bank, generating a steady and secured return from unbreakable long lease. He elaborated that the investment plan for 2017 is highly ambitious and the bank is looking for more international real estate investment opportunities in USA, UK and other continental European countries.
Al Rayan Bank has introduced a new range of home purchase plans (HPPs) to facilitate the move of an existing home finance product to the Sharia-compliant provider. The lender will assist customers by waiving or contributing to the fees associated with refinancing home finance to another provider. Al Rayan will waive the £399 HPP administration fee and the valuation will be paid by the bank, up to a maximum of £600, while the first monthly payment will see Al Rayan pay a cashback of £300 to the customer. The news comes after Al Rayan posted a 228% surge in home finance completions in January as it reported demand for Islamic finance was at an all-time high.
The principal reasons are the small size of Islamic banks, and the additional legal transactions involved with Islamic mortgages. In the UK, Muslims are often surprised to find that Shariah compliant Islamic mortgages are noticeably more expensive than conventional ones. A conventional mortgage is a reasonably simple transaction to document legally. Conversely, a residential Islamic mortgage involves both the bank and the new owner occupier purchasing the property jointly. The contracts used are less standardised and there are simply more pieces of legal paperwork involved in an Islamic mortgage. Furthermore, the stand-alone Islamic banks in the UK are very small compared with the very large conventional banks. All these costs must ultimately be borne by the customers and are reflected in the higher prices Islamic banks charge for Islamic mortgages.
EdAid has launched the first ever Sharia-compliant crowdfunding platform to finance Muslim students interest-free. QardHasan will help students raise up to £30,000 within 40 days, channelling funds from charitable trusts and potential employers. The UK-based impact investment firm looks to contribute to each crowdfunding campaign by doubling every £500 raised by a borrower through the platform. The firm's founder and chief executive Tom Woolf said the new platform aims to provide affordable and fair funding options to Muslims. Woolf said the project falls somewhere in between LinkedIn and Kickstarter, as it helps students build up a broader network for their academic and professional career.
Amid Brexit-fuelled uncertainty, London is trying to do its best to stay afloat as one of the most important hubs for Islamic finance in the Western world. There are now five fully-fledged Islamic banks, one Shariah-compliant hedge fund manager and one dedicated takaful provider in the UK. Also, there are over 20 banks providing Islamic financial services in “banking windows,” more than in any other European country. They benefit from the depth and liquidity of London’s capital markets, the large pool of expertise offered by specialists. Furthermore, the London Stock Exchange is a key global venue for the issuance of sukuk.
Experts say that one of the biggest drawbacks of Brexit for the entire UK banking industry will be the loss of “passporting” privileges that allow UK banks to access the single EU market without restrictions. Another issue is legal uncertainty for existing Islamic banks over to what extent current banking and financial regulations – which have largely been influenced by EU law – will change.
Gatehouse Bank looks set to expand into Islamic mortgage lending after registering two trademarks for shariah-compliant loans. The lender bought the trademarks for Gatehouse Mortgages and Milestone Mortgages last week. Gatehouse is currently known for shariah-compliant real estate investment and financing. Last month Gatehouse announced it had hired Aldermore group managing director of mortgages Charles Haresnape. Haresnape will join Gatehouse later this year. A Gatehouse spokesman declined to comment.
Yielders has claimed to be the first UK Fintech company gaining a Sharia Compliance Certification. The equity-based property crowdfunding platform, founded by Irfan Khan, successfully completed the independent sharia certification conducted by IFC. Achieving the certification means that Yielders may significantly expand its market presence by operating across Asia, Europe, and the Middle East. Being compliant with FCA regulation, Yielders offers the opportunity for the public to invest as little as £100 towards buying a share of a crowdfunded property. Yielders explains that the UK Islamic market is one of the largest, most vibrant and dynamic outside the Middle East. Ethical Islamic investment is described as being crucial to the Yielders’ philosophy. Yielders only offer pre-funded investments to the retail crowd, meaning the assets are already generating an income.
The University of East London Centre for Islamic Finance, Law and Communities held a public lecture on 22 February 2017 focused on FinTech in Islamic Finance. The keynote speaker was Professor Volker Nienhaus. Professor Nienhaus dealt with four topics: Islamic FinTech and crowdfunding regulations, Shari’ah limits to innovation in FinTech, Shari’ah encouragement for FinTech solutions and the potential disruption of Islamic consumer banking by genuine trade credit. Nienhaus predicted that Islamic consumer banking could be disrupted in the future by genuine trade credit. Islamic-compliant cash rich e-commerce platforms could provide financial services equivalent to Amazon or Alibaba on a Shari’ah-compliant basis. These platforms could sell halal goods and approve Shari’ah compliance. These platforms could instantly check the credit worthiness of buyers and would have a higher credit risk tolerance than traditional banks.
Qatar Islamic Bank's QInvest is exiting the St. Edmund’s Terrace LP Fund. The Shari'ah compliant fund was jointly owned by QInvest and a range of GCC institutional and retail investors. It invested GBP 50 million into developing a new, prime residential project through a real estate development company. The Fund was created to provide investors with the opportunity to invest in London’s prime residential market. At completion, the Fund generated 22% net returns to investors. Craig Cowie, Head of Real Estate at QInvest said the returns exceeded expectations and added a notable asset to the luxury real estate market in London. The project, 50 St. Edmund’s Terrace, completed in June 2015 and comprises of three residential blocks and 37 units. It delivered an average selling price in excess of GBP 2,600 per square foot.
Al Rayan Bank has revealed that applications for two of its home finance plans reached an all-time high in 2016, as demand for Islamic finance soared. Both the bank’s home purchase and buy-to-let purchase plans received a record number of eligible enquiries last year. This surge follows a 9% rise in applications to the bank in 2016, marking a 99% increase over the past five years. Keith Leach, chief commercial officer at Al Rayan, said there was still substantial room for growth in the market and the bank expects demand to continue to rise in the coming years. Al Rayan estimates that 94% of its fixed-term deposit customers who joined last year are not of the Muslim faith. The announcement comes just weeks after Al Rayan launched a Sharia-compliant buy-to-let range in Scotland.
The Islamic Insurance Association of London (IIAL) has called on brokers to better serve the needs of Muslim clients by offering solutions that comply with Sharia or Islamic law. The trade group conducted a global survey of potential buyers and almost 50% of the respondents felt that they were not offered the right option by their brokers when it comes to placement or renewal discussions. IIAL chairman Max Taylor said there is a real need for the Islamic insurance markets to work together to tackle the misconception that cover is not currently available. He added that global standards would create a level playing field and provide clarity for the buyers, leading to an increased appetite for Islamic insurance products.
According to Maisam Fazal, head of commercial finance at Al Rayan Bank, Sharia-compliant peer-to-peer (P2P) lenders could soon be coming to the UK market. Despite welcoming more firms to the Islamic finance market, Maisam suggested that rates as low as Al Rayan’s could make it off-putting for potential new entrants. He explained that having competitive rates was paramount for Islamic finance banks, as the cost of funding could make products more expensive. Maisam claimed that Al Rayan was unique in offering lenders Sharia-compliant debt.
The increasing economic importance of banks in Muslim-majority countries has made Islamic finance a useful skill. The globalisation of business education means that many schools now have campuses in countries where Islamic finance is a significant part of the local banking sector. British higher-education institutions lead the non-Muslim world in the teaching of Islamic finance, with longstanding courses run by London Business School, Durham, Aston, Bangor, Salford and Cass Business School. More than 60 institutions in the UK now teach Islamic finance, up from fewer than 10 a decade ago. London Metropolitan University is the latest UK institution to add an option to learn about the subject, relaunching its MBA in January with Islamic finance.
The Church of Scotland and Islamic Finance Council UK are meeting at a private round table in the British Parliament. As part of the interfaith initiative for a more socially responsible financial system, faith leaders, parliamentarians and finance practitioners gather to agree a shared values framework. The joint venture was launched earlier this year in response to the systemic failure and non-sustainability of the current financial model. The event is the second in a series of three workshops. The first reviewed the theological and philosophical underpinnings of Christianity and Islam in order to identify commonalities. At the second workshop the shared values framework will be reviewed and refined before participants explore the practical obstacles to realising ethical finance. Omar Shaikh of the Islamic Finance Council UK said that bringing the debate to the heart of London sends a strong international message that faith communities can work together for the greater good of society.
The British government has announced that it has removed Bank Saderat Iran (BSI) from its list of sanctioned entities. The decision to delist the bank was in line with the amended regulations by the European Union regarding the lifting of sanctions against Iran. The regulations required the sanctions against the BSI to be maintained until 22 October 2016. Britain has previously lifted sanctions against three other Iranian banks. In January, the Bank of England announced that it had reactivated the licenses of Melli Bank, Persia International Bank and Bank Sepah International. This followed the implementation of a nuclear deal between Iran and the P5+1 group of countries. Iran agreed to restrict certain aspects of its nuclear energy activities in return for measures by the P5+1 to remove certain economic sanctions imposed against the country.
Cobalt Insurance and Capita Managing Agency have received approval from Lloyd’s of London to launch the first Sharia-compliant syndicate of the specialist insurance market. Once it gets full approval, the new Lloyd’s business will be named Cobalt Syndicate 1438, which is the Islamic calendar’s number for the year 2017. Cobalt founder Richard Bishop said the aim of the syndicate was to look to underwrite new business from emerging markets and working with others in Lloyd’s to extend their participation in those markets. Cobalt will start underwriting in the first quarter of 2017 with initial focus on developing a property and specialty-focused book of commercial business from emerging markets in the Middle East, North Africa and Asian regions.