Brief History

The mid-1970s saw Islamic finance really develop. It’s argued the events which encouraged the development of the Islamic banking sector included the influx of “petro-dollars” and a “general re-Islamisation” following the Yom Kippur War and 1973 oil crisis.

In 1975 the Islamic Development Bank was set up. Its mission was to provide funding to projects in the member countries.

In the UK, it wasn’t until September 2004 the first Islamic bank – The Islamic Bank of Britain (now known as Al Ryan) – opened its doors. It started offering mortgages the year after.

Islamic Finance in the UK

Since then, we’ve seen the larger mainstream banks dip in and out of Islamic finance. Sadly, none of these banks provide Islamic products in the UK anymore.

HSBC has closed its Islamic finance operations in 2012. They ran this under its Amanah Finance brand. Their services included mortgages, current accounts, stockbroking and pension funds. Operations in the UK, the UAE, Bahrain, Bangladesh, Singapore and Mauritius were all closed that year.

At the time they claimed that wanted to focus on Saudi Arabia and Malaysia – which is what they are currently doing.

In the same year, Barclays and Deutsche Bank also scaled back their Islamic banking teams in Dubai.

Reports at the time suggest some of the issues the banks faced. Unsurprisingly, they claim they weren’t making enough money…

Two key reasons why these banks failed:

1. They couldn’t compete with the Gulf’s local Islamic banks, who were far been better placed to capture business.
2. In 2011, Qatar’s central bank forced the closure of Islamic banking units by ordering a separation of sharia-compliant lenders and conventional lenders.

Lloyds used to offer Islamic mortgages and Islamic current accounts, which they launched in 2006. The mortgages were discarded in 2018. The current accounts were removed from their offering a while back.

Arab Banking Corporation used to offer Islamic mortgages in collaboration with Bristol & West under the “Al Buraq” name. However, they have not been offering Islamic mortgages for a number of years now.

How are they doing?

In 2018, HSBC Amanah raised 500 million-ringgit ($120.63 million) worth of Islamic bonds linked to the United Nations’ sustainable development goals.

According to the AP, the proceeds from sukuk (unsecured Islamic bonds) are due in 2023. They are priced at a fixed profit rate of 4.3%. According to the lender, this was the lowest coupon for a 5-year non-government guaranteed bond issuance in the Malaysian market in 2018.

Where can I get an Islamic mortgage in the UK right now?

We have a great article listing the Top Islamic Mortgage providers.

There are 3 providers of home purchase plan (HPP) products in the UK today:

• Al Rayan
• Gatehouse
• Al Ahli

It’s a small and relatively new market, so options are limited. We’ve also written about if Islamic mortgages are cheaper than conventional ones here. In short, no. They can be much more expensive.

However, Islamic mortgages are currently the only genuine solution for Muslims in the UK.*

*Interestingly, in 2019, Amir Firdaus, Chief Financial Officer for Al Rayan wrote in the Telegraph that 80% of all fixed-term deposit customers of Al Rayan bank are not of the Muslim faith. So in an interesting twist, non-Muslim savers are funding Muslim mortgages.

Try Using Mortgage Calculators and Search Engines

The best Islamic mortgage calculators can be found here on IFG.

Every bank will have their own calculators. Unlike IFG’s, a bank specific calculator will only show you offerings for their products. You can use the calculators on IFG to compare different banks against each other. Of course, you should try and use every tool you have out there.

The benefit of using this regularly during your house hunt is that you know exactly what you can afford, how much it will practically cost month-to-month and as a deposit.

Sources

https://www.theguardian.com/money/2004/sep/22/currentaccounts.savings – First UK Islamic bank opens its doors

https://www.theguardian.com/money/2005/mar/06/loans.islamicfinance – Muslims join the financial mainstream

https://www.ft.com/content/bdb5f212-0f1c-11e2-9343-00144feabdc0 – HSBC’s Islamic closures highlight dilemma

https://www.bloomberg.com/profile/company/0612542D:MK – HSBC Amanah Malaysia Bhd

https://www.ft.com/content/014a27f2-421f-11e2-bb3a-00144feabdc0 – Islamic finance: Large groups struggle to make money out of sharia compliance

https://www.theguardian.com/money/2006/jun/14/religion.islamicfinance – Lloyds launches Islamic portfolio

https://www.telegraph.co.uk/business/business-reporter/uk-islamic-finance/ – The UK can be a world leader in Islamic finance

https://uk.reuters.com/article/us-hsbc-sukuk/hsbc-issues-first-islamic-bond-tied-to-u-n-development-goals-idUKKCN1ME06N – HSBC issues first Islamic bond tied to U.N. development goals