Comment: Understanding Islamic banking

British consumers are increasingly making ethical decisions when choosing financial products. In recent years Al Rayan Bank – the UK’s oldest and largest Islamic bank – has enjoyed significant success in attracting ethically minded consumers to consider its products for reasons other than faith. In fact, almost a third of its customers are believed to be non-Muslim, and demand for residential finance has more than doubled between 2015 and 2018.

However, there is still work to do to educate potential customers on the opportunities that Islamic finance presents for the mainstream market.

Islamic banking products must adhere to the principles of Sharia law. This means banks cannot invest in industries associated with gambling, tobacco, alcohol, arms or any commodity not in keeping with the ethical values of Islam. Nor must interest be paid or charged.

This approach appeals not only to Muslims but to anybody who agrees that this fits with the underlying principles of equitable distribution, fair trading, prudent spending and the wellbeing of the community.

Unlike conventional mortgages, home purchase plans are based on co-ownership and leasing. Customer and bank jointly purchase the property as partners. Each monthly payment increases the customer’s ownership, while paying rent on the portion that the bank still owns. At the end of the term, the customer has sole ownership, without interest having featured in the transaction.

Al Rayan Bank offers the UK’s largest range of HPPs and is currently the only provider to offer 90 per cent and 95 per cent finance-to-value products. The bank also has a full range of buy-to-let purchase plans.

Al Rayan Bank has made great strides in raising awareness and understanding of Islamic finance in the UK, but there is more to be done, partly by driving education among intermediaries. We have a dedicated team, as well as an online platform, to provide guidance and support to brokers looking to offer Islamic home finance options to their clients.

The bank is committed to making Islamic banking products widely available to customers nationwide, as well as to expats buying property in the UK. By working with intermediaries, we are confident we will extend our reach still further.

Maisam Fazal, chief commercial officer, Al Rayan Bank

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