Here, Sultan Choudhury, the chief executive of Al Rayan Bank, the UK's largest Sharia-compliant bank, talks to The National about the business and Islamic finance in Britain.
Why does Islamic finance appeal to non-Muslims?
Islamic finance appeals to anyone who agrees with the underlying principles: equitable distribution for everyone; prudent spending; and the well-being of the community as a whole. Islamic banking also provides an ethical alternative to traditional banking. Al Rayan Bank works with its customers as partners, and does not invest their deposits in unethical activities, such as gambling, alcohol, pornography, tobacco, arms and other commodities in keeping with the values of Islam. The bank has been recognised as an ethical alternative to conventional banking by the Move Your Money campaign, and is in the top 10 ethical current account providers, according to ratings compiled by Ethical Consumer magazine. Al Rayan Bank is structured to ensure that it operates ethically on a day-to-day basis. An internal ethics (Sharia-compliance) department monitors the products and how the bank conducts its business, ensuring that everything it does is aligned with the ethical principles of Islam. Products are also reviewed and approved by an external and independent Sharia supervisory committee. Sharia-compliant banks share in the risk of a transaction as well as the reward, because fairness is a key principle of Islamic banking. Al Rayan Bank enters into a partnership with its customers and invests their money in Sharia-compliant asset-backed activities. The profit from these investments is shared between the customer and the bank after an agreed period of time. Islamic banks are transparent about where they invests customers' deposits – and where they do not invest them. Deposits are invested in asset-backed, relatively secure commodities such as property or metals. They are never invested in any activity not in keeping with the values of Islam. Finally, as an Islamic bank, Al Rayan Bank does not charge arbitrary fees to customers.
What is a home-purchase plan?
Home-purchase plans (HPP) are structured differently to conventional mortgages. HPPs are based on the Islamic finance principles of ijara (leasing) and diminishing musharaka (co-ownership). Essentially, this means that the customer purchases the property in partnership with the bank, with each party owning a share. The customer pays rent on the share of the property that the bank owns while gradually increasing their share through the payment of a monthly acquisition payment. Once all payments have been made, full ownership of the property transfers to the customer. Interest forms no part of the agreement.
Do you expect your non-Muslim customer base to grow?
Islamic banking appeals to customers of all faiths. The bank is confident that its non-Muslim customer base will continue to grow in the coming years. Currently the bank estimates that more than a quarter of customers are non-Muslim. We estimate that last year about 94 per cent of our new fixed-term deposit customers who joined the bank were non-Muslim.
How is Al Rayan able to offer high growth rates on its accounts?
Al Rayan Bank does not charge or pay interest on any of its products. This is because interest is forbidden in Islam as Muslims believe that it promotes unfairness in financial transactions, which ultimately leads to unfairness in society as a whole. Instead of interest, Islamic banks pay profit to their savings customers. This profit is generated by investing customers’ deposits in Sharia-compliant, asset-backed activities. As there is an element of risk, the rate of return on these savings accounts cannot be guaranteed and that is why Islamic banks, such as Al Rayan Bank, quote “expected” profit rates.
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