Last week, Sharia-compliant Al Rayan Bank expanded its presence with the launch of a new office in Bradford.
Now that a deadline has been set for Britain to invoke Article 50, Naveed Mohammed, founder of Islamic finance guide IslamicFinance.com and asset securitisation database Sukuk.com, has claimed that Brexit could see Britain strengthen ties with Islamic markets.
“I see Brexit as an opportunity for Islamic finance,” Naveed insisted.
“The previous chancellor had already outlined Islamic finance as a key target growth market for the City, along with renminbi, rupee [and] green finance.
“Leaving [the] EU will [lead to a] push for more engagement with developing Islamic markets.”
Naveed explained that the UK market was the perfect environment for Islamic finance to thrive.
“All this [is] backed up and has been facilitated by the passing of tax neutrality laws in [the] UK some years back.
“The [British] legal system is trusted [the] world over and [it] really does give the UK an edge which competing centres in [the] Middle East and Far East are unable to match.”
What is Sharia-compliant finance?
Islamic finance requires transactions to be compliant with Sharia law, which usually involves trading an underlying asset in order to remove the basis of earning interest, or riba, on money.
Mortgages are typically divided into two categories, ijara and diminishing musharaka.
In the former, the borrower essentially leases the property from the bank, while diminishing musharaka sees the borrower purchase a property in partnership with a bank before buying it out on a monthly basis.
Sharia banking also pools risk between the investor and the customer, allowing borrowers to retain any equity they already owned in the event of a default.
Despite these intricacies, it is not just Islamic banks and Muslims that are interested in Sharia-compliant finance.
Indeed, Naveed alleged that up to 50% of a prominent Islamic bank’s customers for savings products did not follow the Muslim faith.
“I had a UK mid-sized SME specialist bank contact me some months back asking how they could structure their products [to be] compliant to Islamic financial contracts, so they could offer [it] to their customers,” Naveed added.
“[Sharia-compliant] Bank of London & the Middle East are already doing some work in this space, but it is good conventional banks are showing interest.”