Archive for United Kingdom

Interest-free Sharia MasterCard launched

Interest-free Sharia MasterCard launched

CreditCards

Knowing you have a Sharia credit card? Priceless

The UK’s first sharia-compliant prepaid MasterCard was launched today.

The Cordoba Gold MasterCard does not charge or receive interest as this is in direct conflict with sharia Law.

The company also donates at least 10% of its profits to registered charities in the UK and abroad.

A company spokesman said: “Because this is a prepaid card, the customer pays no interest on their balance.

“The difference with this card is that Cordoba Financial Group does not earn any interest on the balance either.

“Normally when someone puts money on a prepaid card the company that issues the card will earn interest on the balance until the person spends it.

“This is not the case with Cordoba, as you can neither earn nor pay interest under sharia law.”

The Cordoba Gold card is available to UK residents aged 18 and over, and is being launched in London.

The UK’s Muslim population totals about two million and fully sharia-compliant banks have more than 30,000 customers across the UK.

Source: http://www.metro.co.uk/news/article.html?in_article_id=258913&in_page_id=34

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Muslims to be offered Sharia-compliant pensions by Government

Muslims to be offered Sharia-compliant pensions by Government

Muslims are to be offered Sharia-compliant pension funds by a new Government body.

The scheme to provide retirement funds for millions who do not already have a company pension is likely to include a special option that would not invest in companies deemed sinful under Islam.

Ministers are keen to get Muslims saving with the Personal Accounts Delivery Authority, as many who have low-paid jobs or who have moved to Britain in recent decades are unlikely to have put away much for their old age.

The decision to provide a Sharia-compliant pension fund is another sign of the growing influence of Islamic law in British public life and in particular the country’s finance industry.

The prospect of some aspects of Sharia law such as divorce proceedings and dispute resolution being enshrined in the English legal system – raised by the Archbishop of Canterbury and Lord Chief Justice this year – remains highly controversial because of fears that the system discriminates against women and that a two-tier approach would be divisive.

But more and more financial products are being tailored to cater for Britain’s population of 2million Muslims.

The religion’s holy book, the Qu’ran, forbids Muslims from making money from money, so they cannot use products that involve the charging of interest nor invest in traditional financial services firms.

Gambling, drinking and pornography are also seen as immoral under Islam, so Muslims cannot put their money into companies that promote these activities.

The Islamic finance market is estimated to be worth £500million already and is growing rapidly.

Families can already get Sharia-compliant baby bonds under the Government’s Child Trust Fund scheme while the UK is likely to become the first Western country to issue Islamic bonds in order to raise money from the Middle East.

This year has also seen the launch of Britain’s first Islamic insurance company and pre-paid MasterCard. There are a handful of wholly Islamic banks in the country and several more that offer alternatives to mortgages which do not involve the charging of interest.

When the Personal Accounts Delivery Authority launches in 2012, as many as 10 million people who do not have a decent occupational pension will become automatically enrolled and made to save a minimum of 4 per cent of their earnings a year, matched by a 3 per cent contribution from their employer and 1 per cent tax relief from the Government.

Savers will be able to choose from a range of funds into which their money will be invested, with one option likely to be Sharia-compliant.

A spokesman for the authority said: “In early 2009 we will be consulting on the potential approach to investment. Issues that we envisage incorporating into the consultation document include the overarching investment objective, the default strategy and lifestyling of funds and fund choices beyond the default strategy.

“This will include the appropriateness of making available religion compliant funds (e.g. Sharia) and funds focussing on social, environmental and ethical issues.”

Its plan was backed this week by a report by the Pensions Policy Institute and the Equality and Human Rights Commission on how to improve the lot of Britain’s “under-pensioned”, such as disabled people, women and ethnic minorities, who in many cases have not worked long enough to be entitled to a full state pension of £90.70 a week when they retire.

The study said: “The inclusion of a Sharia-compliant investment choice might be important to encourage participation among some ethnic minority groups.”

Douglas Murray, director of the Centre for Social Cohesion think tank, said the Government should not be creating parallel financial or legal systems for different groups in Britain.

He said: “It’s a great mistake for the Government to think this is desirable or even necessary.”

Source: http://www.telegraph.co.uk/finance/personalfinance/pensions/3496730/Muslims-to-be-offered-Sharia-compliant-pensions-by-Government.html

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The Difference Between Shari’a-compliant and Shari’a-based Islamic Finance Institutions

The Difference Between Shari’a-compliant and Shari’a-based Islamic Finance Institutions
Natalie Schoon, The Bank of London & The Middle East – 22 Jan 2008

This article considers the subtle differences between the two key players within the Islamic finance industry – Shari’a-compliant banks and Shari’a-based banks – and how they could co-operate to achieve the real potential of this market.

On 9 July 2007, the Bank of London and The Middle East (BLME) was launched in London. BLME is the second wholly Shari’a-compliant investment bank authorised and regulated by the UK’s Financial Services Authority (FSA). This brings the number of fully Islamic banks in the UK to three, with the total number of financial institutions offering Islamic financial services in the UK at 24. Another three Islamic financial institutions are in the process of applying for a licence with the FSA, showing the strength of the UK as the largest Islamic finance hub outside Muslim geographies.

Although a young segment of the financial industry, Islamic finance has gone through an exceptional growth period. Over the past 10 years, the industry has grown at a rate of 15-20% per year. This level of growth is expected to continue in the coming years and by far exceeds the rate of growth in conventional finance. The increase in wealth resulting from the rise in oil prices and the subsequent requirements for investment in oil-producing countries is a large contributor to the expansion of the Islamic finance industry. Coupled with relatively high returns, this attracts banks and investors alike.

Islamic financial products are not only offered by fully Shari’a-compliant banks but also by conventional banks employing specific distribution channels, such as Islamic windows and Islamic branches. The issue that arises is whether Islamic financial products offered by a conventional bank are equally acceptable to Muslims as those offered by fully compliant Islamic financial institutions. There is, after all, a difference in the level of Shari’a compliance of conventional and Islamic banks.
Shari’a Supervision

Islamic financial institutions have an additional layer of corporate governance over and above the governance mechanisms in place for conventional financial institutions. In addition to a supervisory board, independent external auditors, adequate policies and procedures and other governance mechanisms, Islamic financial institutions also have to ensure compliance with the Shari’a principles, which are reviewed and monitored by the Shari’a Supervisory Board (SSB). The role of the SSB is to issue fatwa (opinions) setting out how the bank’s operations should be carried out in order to be consistent with Shari’a rules and principles (ex-ante compliance). In addition, because of its role within the corporate governance framework, the SSB is also responsible for the monitoring of the institution’s Shari’a compliance in applying the fatwa in practice (ex-post compliance).
Shari’a Compliance

In order for a financial product to be Shari’a compliant, it needs to satisfy, at a minimum, the criteria of Shari’a law regarding the avoidance of Riba, Maysir and Gharar. Once these are satisfied and the bank obtains Shari’a supervisory board approval, the product or structure can be marketed as Shari’a compliant. As far as conventional banks are concerned, this is where Shari’a compliance stops. It does not constrain the bank from employing non-Islamically raised funds to invest in Islamic structures.
Shari’a Based Banks

A fully Shari’a-compliant or Shari’a-based bank takes the compliance with Shari’a law a step further. Not only do individual products have to meet all requirements but also all operations within the bank are required to be compliant with Shari’a law. This extends to contracts with suppliers, rental contracts and labour contracts. The bank is completely set up to work in line with the ethical framework of Shari’a, which makes it more likely to be able to structure all products to meet the requirements. In addition, there is no co-mingling of conventional and Islamically raised funds, since all funds are raised in line with Shari’a requirements.
Impact on Investment Decisions

The decision any investor, depositor, Sukuk issuer or other client of a bank will have to make is related to the trade-off between the level of Shari’a compliance and the reputation and historic track record of the bank.

A large conventional bank with a proven track record will provide a relatively higher degree of certainty than a newly established Islamic bank. In addition, large conventional banks have the advantage of the backing of a big balance sheet and structuring capabilities that are well beyond the potential of Islamic banks, at least at the moment. This becomes immediately clear when comparing the total assets of the largest Islamic bank with total assets of large conventional banks. At the end of 2006, the largest Islamic bank (Al Rajhi) had total assets of US$28.1bn. The likes of HSBC, Barclays and Citi, on the other hand, each had a total asset base close to US$2 trillion at the end of December 2006.

As a result, it is much easier for conventional banks to underwrite large Sukuk issues and to structure sizeable project finance structures than it is for Islamic banks. Between June 2006 and June 2007, five of the 10 biggest Sukuk arrangers were conventional banks. Issuers choose conventional banks for their proven track record, their ability to raise large sums of money and, most importantly, their competitive pricing.

Conventional banks, however, provide Islamic finance as part of a broader range of financial products and although the individual offerings are Shari’a-compliant and the distribution channel is different from other financial products, a conventional bank is likely to co-mingle funds raised in an Islamic manner with conventionally raised funds. In addition, conventional banks can hedge positions using innovative financial products that are often not allowed in Islamic banks, given the speculative nature of the majority of hedging products.

A small, relatively young Islamic bank does not have a long track record and can hence be seen by investors and depositors as carrying a higher risk. Although some comfort can be found in the fact that the bank is regulated, conventional banks are regulated in the same way. As a result of the smaller balance sheet size, Islamic banks are not currently in a position to underwrite large Islamic finance transactions unless they are part of a syndication effort and, even then, some transactions are out of their scope due to large exposure regulations and size limitations.

On the other hand, a Shari’a-based bank operates completely within the remit of the ethical framework defined by Shari’a law, something that could be of significant interest for Muslims. A fully Islamic financial institution will not only be audited internally and externally, but will also be subject to an annual review by the Shari’a supervisory board as an independent third party to ensure ongoing Shari’a compliance for the whole of the business. An Islamic window or branch of a conventional bank does not necessarily go through this type of ex-post compliance audit, and in any case does not have to report the results in its annual report.
Compete or Co-operate?

There is a strong call in the market to form an Islamic ‘mega’ bank but given the size of the individual Islamic banks, this appears to be quite a way off.

Although the number of Islamic banks is growing exponentially, their balance sheet size on a consolidated basis is not even remotely close to the size of any of the large conventional banks on their own. Thus, the two types of players operate in different market segments, which actually make them very complementary. In the end, there is a place for both Shari’a-compliant and Shari’a-based banks. By working closely together, they can achieve high market penetration and work on reaching the full potential of the market.

Source: http://www.gtnews.com/article/7055.cfm

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First Islamic equity product launched in UK

First Islamic equity product launched in UK

Mushtak Parker | Arab News – 23 June 2008

LONDON: The London-based ABC International Bank’s Islamic Asset Management (IAM) entity, both of which are subsidiaries of the Bahrain-based consortium bank, Arab Banking Corporation (ABC), has launched the first retail Shariah-compliant capital-protected equity product in the UK under its ‘Alburaq’ brand.

The savings product, which has a minimum subscription of just £500 and is a Shariah-compliant alternative to a conventional guaranteed equity bond, adds to an increasing number of retail Islamic financial offerings in the UK market, which now includes mortgages, Takaful (insurance), pensions, current and deposit accounts and even escrow accounts for money transfers. Other Shariah-compliant retail products in the process of being launched include ISAs (investment savings accounts) and child trust accounts.

The product was structured by ABC International Bank and is offered in partnership with the Bank of Ireland, which has a long history of providing guaranteed equity bonds to UK consumers. ABC Group is one of the largest banks in the Arab world with assets totaling around $32.7 billion at the end of December 2007. The group announced net profits of $125 million for the year 2007.

The government of Prime Minister Gordon Brown has been very supportive of developing the Islamic finance sector under the Labor Party’s social and financial inclusion policies. At the same time, it is the stated policy of the UK to develop London into an international hub for Islamic finance, investment and trade. Only yesterday at the Jeddah oil summit, Brown reiterated that oil producers in the GCC states should divert some of their record liquidity surpluses to investment in the developed countries in renewable energy initiatives and other sectors. These funds could be channeled through sovereign wealth funds; through conventional or Islamic capital flows. Bahrain-based Arcapita Bank, for instance, was one of the first Islamic financial institutions to invest in alternative energy in the UK in a wind farm project developed by Innogy.

The UK Treasury and Financial Services Authority (FSA), however, are only too aware that the Islamic finance industry in the UK needs to improve customer access to and awareness of Islamic retail financial products. UK Economic Secretary and City Minister Kitty Ussher, who is effectively in charge of Islamic finance at the treasury, at a meeting of the Islamic Finance Experts Group (IFEG) at the treasury earlier this year, stressed that “the UK is at the forefront of developments in Islamic finance and London continues to seize new opportunities. We have made tremendous inroads in the wholesale markets. But there is also an important domestic market, which we want to be accessible and open.

“There are nearly two million Muslims living in the UK and, thanks in part to legislative changes introduced by this government, the Islamic mortgage market is now worth over £500 million. Going forward, the government and industry want to continue to do all it can to see the retail market flourish and ensure that everyone – regardless of faith – has equal access to competitive financial products,” he said.

ABC International Bank claims that the Alburaq savings plan provides a new way for those wishing to invest in accordance with their faith and provides savers easy exposure to potentially unlimited returns linked to shares in major companies, all with the added comfort of capital protection and Shariah compliance.

According to Keith Leach, head of Alburaq at ABC International Bank, said, “Alburaq is very excited to be the first to bring a Shariah compliant capital protected product to the retail market in the UK. Over the past few years the UK has seen an increase in the availability of Islamic home finance products, but there remains very few options for Muslims wishing to save money in accordance with their religious beliefs. This new account is also an easy way for Muslim savers to gain exposure to the equity markets, in a secure way. While it is considered permissible within Islam for Muslims to own shares, there are restrictions on the type of companies that are considered allowable. The companies must not be over-reliant on debt nor must they be engaged in activities that conflict with the principles of Shariah. Many of these principles will be similar to those required by ethical investors.”

Savers will be able to deposit funds with the Bank of Ireland for five years in an account structured under the Wakala contract. At maturity, savers will receive their initial capital back together with 100 percent of any gain in the performance of a basket of 20 shares in global companies selected from the Dow Jones Islamic Market (DJIM) Titans 100 Index.

Des Crowley, chief executive of the Bank of Ireland UK Financial Services, is confident that “this is a highly innovative product, which is the first of its kind and directly addresses the saving needs of the Muslim community. We have been working with Alburaq for four years providing Islamic Home Finance and (this product) should be seen as the next stage in our development of Shariah compliant products.”

The Alburaq fixed-term savings product offer closes on Sept. 5 2008 and investors will have their funds tied up for five years. The maximum opening deposit is £1 million and the promoters stress that there is no cap on the returns; in other words customer’s enjoy 100 percent of the calculated return.

Capital protected funds are not new in the market. Several institutions – such as HSBC, the National Commercial Bank, Al-Rajhi Bank, Deutsche Bank and others – have launched Shariah-compliant capital protected funds in the Middle East.

While this product is new in the UK, Islamic equity funds per se are not, although they have had a very mixed record. Al-Madina Equity Fund, the Al-Safa Equity Fund and the Parsoli Global Equity Fund, which were launched at different times over the last decade or so, have all dismally failed. The first two were closed soon after they were launched. The latter has failed to make any impact. The reasons are manifold – the wrong promoters, wholly inadequate marketing strategies and resources, and perhaps the wrong timing.

Source: http://www.arabnews.com/?page=6&section=0&article=111139&d=23&m=6&y=2008

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First Sharia-compliant capital savings plan launched in the UK

First Sharia-compliant capital savings plan launched in the UK

By Richard Harris | 16:12:15 | 13 June 2008

Alburaq, the London arm of Bahrain-based Arab Banking Corporation (ABC) today launched what it says is the UK’s first shariah-compliant capital protected savings plan.

The product, which is being offered in partnership with the Bank of Ireland, allows savers to deposit between £500 and £1 million in a five year account, as an alternative to a guaranteed equity bond.

Keith Leach, head of Alburaq at ABC, said despite growing availability of Islamic home finance products there had previously been a dearth of options for Muslims wishing to save money in accordance with their religious beliefs. The new account was an easy way for Muslims to gain exposure to equity markets in a secure way, he added.

‘There are restrictions on the type of companies that are considered allowable,’ he said. ‘The companies must not be over reliant on debt nor must they be engaged in activities that conflict with the principles of shariah.’

‘Many of these principles will be similar to those required by ethical investors.’

The core principle of Islamic finance is that interest is forbidden, though according to Shariah law investment in companies which profit from the sale of alcohol, pork or pornography, for example, is also forbidden, or ‘haram’. Alburaq has a committee of independent scholars to ensure shariah compliance.

At maturity on 5 September 2012 savers will receive their initial capital plus 100% of any gain in the performance of 20 shares selected from the global Dow Jones Islamic Titans 100 Index.

Source: http://www.citywire.co.uk/personal/-/news/money-property-and-tax/content.aspx?ID=305719

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