Since advertising savings rates of up to 4.8 per cent on comparison sites such as Moneysupermarket.com, the Bank of London and the Middle East (BLME) has seen a fourfold increase in customer deposits.
HSBC, one of the largest UK banks, said it had seen the customer base for its Islamic Amanah Finance, which offers current accounts and loans, double in the past two years. “There has been an increase in understanding of what Islamic finance is,” said Razi Fakih, deputy chief executive of HSBC Amanah. “Non-Muslim customers like the ethical stance that the accounts take, and the popularity is such that we’re now looking at the prospect of offering savings accounts.”
Rather than paying interest on customer money, Islamic savings accounts offer an “anticipated profit rate”, based on returns from commercial transactions. These commercial ventures must not include activity counter to the ethical stance of Islamic finance – which means deposits cannot be used to back businesses associated with tobacco, alcohol or pornography.
“If we think that we won’t get the return advertised, we write to the clients and allow them to either dissolve the investment, taking their money and the rate advertised up to that date, or continue with the investment at a lower rate,” explained Samir Alamad, senior manager at Islamic Bank of Britain.
Islamic finance is still a developing market in the UK, and relative newcomers such as BLME and IBB hope that market-leading rates will attract high street banking customers unhappy with the low interest rates offered by UK institutions, and their conduct during the financial crisis.
Although a small number of banks from the Middle East came to London to offer bespoke services in the 1970s and 80s, it is only in the past decade that the industry has launched retail products, such as sharia-compliant credit cards, car loans and insurance.
IBB, set up in 2004, was bought out by Qatar International Islamic Bank in 2010, following substantial losses. But, like BLME, it is regulated by the Financial Services Authority, which means that balances up to £85,000 are protected by the Financial Services Compensation Scheme. Although returns are “profit”, they are treated in the same way as interest on cash savings accounts for tax purposes.
However, Islamic bank accounts will not be suitable for all savers. IBB requires customers to deposit at least £1,000 while BLME sets a more prohibitive £50,000 minimum – bringing it closer in line with investment banks than high street banks. Average deposits at BLME are currently £93,000.
Islamic banking services even extend beyond sharia-compliant products. United National Bank – formed in 2001 from the merger of the UK branches of two Pakistani banks, United Bank Limited and National Bank of Pakistan – now offers non-Islamic savings accounts. Its three-year bond, paying 4.25 per cent, is the best non-Sharia rate now available to savers.
Parents interested in setting money aside for their children when Junior Isas are launched in November can also opt for the sharia junior individual savings account (Isa), investing in the Global Islamic Equity Fund, from Scottish Widows Investment Partnership.
source: Financial Islam