'No interest' gains interest with British Muslims

When Abul Rahman and Shalina Begum, two young Bangladeshi immigrants to Britain, got married five years ago, their parents urged them to get into the housing market quickly.

They would have liked to, but they couldn't. It would have meant taking out a mortgage, and paying interest on the loan. Mr. Rahman and his wife are devout Muslims; paying interest is forbidden by the Koran. The British banking system could not help them. They found a place to rent, instead.

Today, however, the young couple are proudly living in their own three-bedroom terraced house in east London - and not breaking any religious rules. They are among thousands of families taking advantage of a boom in Islamic finance in Britain, offering Muslims bank accounts, home financing, and insurance policies that comply with sharia, Islamic religious law.

"There are 1.8 million Muslims in Britain, and a good number of them have found it very difficult" to bank, says Ashraf Piranie, finance director of the Islamic Bank of Britain (IBB), which opened its first branch in London a year ago Wednesday. "There was a gap in the market."

The IBB is not alone in seeking to fill that gap; Lloyds TSB and HSBC, two of the country's largest retail banks, are also providing services that do not offer or charge interest, nor invest in businesses dealing in alcohol, tobacco, pornography, or pork.

"There is a demand," says Amjid Ali, the head in Britain of HSBC Amanah, the international bank's Islamic arm. "Muslims' values and belief systems are different, and many of them have refrained from entering the world of finance using conventional mortgages and interest-bearing accounts."

Mr. Rahman, a community warden who helps the police in the predominantly immigrant neighborhood of Tower Hamlets in east London, is one such Muslim. "You shouldn't change your religion because it is inconvenient," he says, adjusting his knitted black skullcap. "I would never have taken a regular mortgage."

Strictly speaking, Rahman and his wife don't own their home. Their bank bought it from the previous owners, and now rents it to the couple, whose monthly fee includes capital repayment. When their payments amount to the price of the house plus an administrative fee, in about 20 years, the bank will transfer ownership to them.

This arrangement "gives us peace of mind," says Rahman. "We know we have adhered to Islamic principles" that forbid making money on money as usury.

Many Muslims don't care too much - or know too much - about those principles, including Rahman and Ms. Begum's parents. "We had to really fight with our parents," recalls Begum. "They said, 'just buy like everybody else does.' We thought renting might be expensive, but at least it is not 'haram' [forbidden]."

If about a quarter of British Muslims "are really staunch believers and have completely excluded themselves from the financial system," estimates Mr. Piranie, and another 20 percent at the other end of the spectrum don't really care, "the bulk of [banks' Muslim] customers are ... feeling really uncomfortable, knowing they are doing something wrong, but feeling they don't have an alternative," he says. "That's the target we want to get at."

Sumaya Gassar, a housewife in the midlands city of Leicester, is one target he hit. She switched to the IBB five months ago, she says, because at her last bank, "I was getting interest on my account, and I wasn't happy with that."

When she asked her bank to withhold interest, "they looked at me like I was crazy," she recalls with a laugh. At the IBB, where Ms. Gassar's savings account earns money in line with the success or failure of the bank's investments, "I have a weight off my shoulders," she says.

The potential market for Islamic home financing and other services is enormous, HSBC's Mr. Ali says. Some 134,000 Muslim households have conventional mortgages, worth £9 billion ($16.2 billion), he says; half the British Muslim population is under 30. "This is a key market for us," Ali says.

For the time being, the market is modest. HSBC Amanah says it has sold 2,000 home-finance packages and opened 1,000 bank accounts, while IBB has 9,000 customers after a year of operations.

The banks have had to work for those customers. They held lengthy discussions with British tax authorities and the agency regulating financial markets, explaining Islamic transactions and negotiating changes in the law to accommodate them.

"The British government was very receptive," says Piranie, from the moment a few years ago when Eddie George, then governor of the Bank of England, got talking on a train with a Muslim couple who explained why they could not buy a home and asked him to help. "He immediately set up a working group to see if the problem could be solved," says Piranie, "and we've been very pleased with how supportive the Inland Revenue [tax authority] has been."

Both IBB and HSBC Amanah faced skepticism from serious Muslims, who doubted their products were really sharia-compliant. "A lot of young graduates use the Internet to explore our products, find out who is on our sharia board, and in the beginning we had to answer a lot of difficult questions," says Ali.

Britain is the only European country to have authorized Islamic banking. That is partly, suggests Michael Gassen, a German Islamic finance consultant, because Pakistanis - numerous in Britain - are more involved in banking than North Africans, who predominate in French immigrant circles, or Turks, who make up most of Germany's immigrant population.

Britain's multicultural approach to minority issues - accommodating minorities wherever possible - encouraged the sort of official effort needed to legalize Islamic banking, he points out. "In France, it would be much more unlikely that the government would support any religious group," Mr. Gassen says.

Not that the initiative is necessarily entirely altruistic. "The UK wants to be recognized as a major player in Islamic finance," says Ali, and with billions of dollars flowing into markets from the Gulf countries, the stakes are high.

The stakes are high for Begum, too, though in a different way. "We try to do everything according to Islamic laws," she says, scooping her 3-year-old son Fahim off the floor. "I want my children to grow up in an environment where we don't just preach something, we practice it, too."

The Koran makes four references forbidding riba, which is translated as usury. Islamic scholars have generally equated any interest, not just "excessive" rates, as usury. Verses 278 and 279 of the Al Baqarah Sura of the Koran read, "O you who believe, fear Allah and give up what remains of your demand for usury, if you are indeed believers. If you do not, take notice of war from Allah and his messenger, but if you turn back you shall have your capital sums, deal not unjustly and you will not be dealt with unjustly."