Leading banks prepare to launch special home-loans
has learned of moves by the Treasury and the Bank of England to encourage
Islamic mortgages, investments and current accounts in
With the number of well-to-do British Muslims growing, many are avoiding buying homes.
Many Muslims are renting their homes
That is because it is against Islamic law to borrow or lend at a rate of interest.
Now it has emerged that at least three leading banks are preparing to launch special home loans that get round the problem by avoiding charging interest.
But they need the Treasury to change the rules to make their plans viable.
at the Ar-Rum social club in the City of
They have got the resources for a conventional mortgage, but they would not do that because it does not comply with their religious beliefs
Here the drinks are soft, the food is halal and the entertainment is clean.
But when it comes to finance, British Muslims are in a constant dilemma.
Under Islamic law - Sharia - you cannot lend or borrow at a rate of interest.
Either you break the law, or you do not get a mortgage.
"If you follow the strict law of Islam, you should not be giving interest and you should not be receiving interest," said one.
"Living in the Western society, it becomes extremely, extremely difficult to avoid."
"It's a necessary evil," said another.
Market research from Datamonitor shows the number of wealthy British Muslims is growing.
Led by HSBC, British banks are now trying to devise mortgages for them that avoid charging interest.
Aftab Siddiqui is the British head of iHilal, a Dubai-based finance house that helps banks market home loans that comply with the Sharia.
"There is this problem that they have got the resources available to get a conventional mortgage, but they would not do that because that does not comply with their religious beliefs or Islamic lifestyle," he said.
"That has been an issue of concern for them and they are still living in a rented property."
How does it work?
With Islamic mortgages, the bank might buy a 90% share of the home while the homebuyer buys 10%.
The homebuyer borrows nothing, but pays a rent instead, only some of which will go straight to the bank.
The rest goes towards gradually buying the bank out of its share of the property.
home loans do comply with the Sharia, said the
Islamic scholar, Dr Zaki Badawi
of the Muslim college in Ealing, west
"You may say; 'but that's very much like the other companies', [but] there is one difference which is very important," he said.
"Supposing he failed to pay and we're going to sell the house. If I am a bank, a Muslim bank, lending to a Muslim, sharing with him, I am not going to sell the house in the way that it is sold now, by putting it in an auction and selling it at the easiest and the fastest price."
The question these new financial services will raise is whether or not ordinary Muslims will be interested.
Amer al-Ali, who runs a halal takeaway at a west
in Europe -
For now, Islamic mortgages are only for the wealthy.
Because the bank takes ownership of the property before the homebuyer does, two sets of stamp duty are paid.
On his own initiative, the Bank of England governor, Sir Edward George, has met Islamic bankers and the Treasury has set up a working party to look at whether that can be changed.
The hope is that by next year, affordable Islamic mortgages will be a reality.
University's Islamic research tie-up
Prof El-Awaisi (right) heads the institute
A Scottish university is aiming to boost
Now, at a time of heightened international tension, it is more important than ever for Abertay to do what it can to foster greater understanding between the world's major faiths
Abertay Dundee's principal, Bernard King
five-year deal the Al-Maktoum Institute for Arabic
and Islamic Studies in Dundee is becoming a division of the
institute has been given financial backing by Shaikh Hamdan
bin Rashid Al-Maktoum, deputy ruler of
converting a former school and college building in the centre of
Abertay's principal and vice-chancellor, Professor Bernard
King, said: "Not only is the Al-Maktoum
Institute the first academic initiative of its kind in
"Now, at a time of heightened international tension, it is more important than ever for Abertay to do what it can to foster greater understanding between the world's major faiths."
The Al-Maktoum Institute, under the leadership of Professor Abd al-Fattah El-Awaisi, was "the perfect vehicle" for this.
cross-cultural developments were essential to meet
Although this has been given added impetus since 11 September, talks have been going on for about a year.
The institute intends to offer a masters degree and postgraduate diploma course in Islamic studies and "Islamic Jerusalem" studies.
It hopes to recruit about 20 students for courses beginning this autumn.
The university will validate the courses.
In the future, research degrees are planned in a range of specialist fields related to Islamic studies.
Abertay's courses will be taught in English by specialist staff of the institute, who will be appointed to honorary positions at the university.
Professor El-Awaisi himself has been made an Honorary professor in Arabic and Islamic studies.
"We are very excited about the potential offered by our close relationship with Abertay," he said.
university has a proud track record of multi-cultural recruitment both in
Other universities already offer Islamic studies, usually combined with another subject.
El-Awaisi also wants to investigate
"This will be a completely new area of research," he says.
instance, no-one knows the exact number of Muslims there are
The separate focus on "Islamic Jerusalem" is designed, according to Abertay, to contribute to better international understanding of the background to one of the world's longest-running areas of tension.
The MP for Dundee West, Ernie Ross, went to school in what is now the institute's base.
He has been closely involved in the discussions which led to its being set up.
"I think it's a very exciting development," he said, "and to my knowledge its the first time a British university has established such close links with the modern Arabic world.
High Street bank offers Islamic mortgage
HSBC has become the first major UK bank to offer mortgages that comply with Islamic law.
Under Islamic law, the receipt and payment of interest is forbidden.
As a result some of
This can leave them having to pay in cash for large purchases, such as houses.
Under the HSBC scheme, the bank buys the property and leases it back to the customer over an agreed term.
The customer makes monthly payments made up of rent and contributions towards the purchase price.
HSBC owns the property until customers have made their final payment.
Crucially, at no stage is the customer paying interest - the paying of 'rent' is seen as a fair payment for use of the property rather than a charge for borrowing money.
In addition, HSBC is launching an Islamic law-compliant current account, which has no overdraft or credit card facility.
Money paid into the current account will be administered in accordance with Islamic law and not used for generating interest.
The current account and mortgage products are to be introduced in selected HSBC branches from 14 July.
Previously only relatively small institutions such
as the National Bank of
Last year a report from market analyst Datamonitor estimated that demand for Islamic mortgages in the UK was so strong that gross advances could reach £4.5bn ($7bn) in 2006.
According to Iqbal Asaria, spokesman for the Muslim Council of Great Britain, HSBC's move is long overdue.
"Some (Muslims) are wracked with guilt because they have broken Islamic law. While others' values are beyond question, they are more pragmatic in order to keep a roof over their family's head.
"HSBC's initiative frees them from this
dilemma and is the first step to delivering a level playing field for Muslims
seeking financial solutions in the