LONDON—Britain opened its first bank on Wednesday that promises to fully abide by Sharia, or Islamic, law, meaning it won’t give or receive interest, and will invest only in ethical industries, a guideline that bars alcohol and tobacco companies.
“We are delighted to be opening our first branch. It marks a new era in Islamic banking in the U.K.,” said Michael Hanlon, the managing director of the Islamic Bank of Britain.
“We are confident that we can provide customers with a range of Sharia-compliant products and services,” he said. But Hanlon also emphasized that they will be equivalent to those in conventional banks and competitively priced.
As he spoke, the bank showed off its first branch on Edgware Road in a fairly posh area of central London where some of Britain’s 1.8 million Muslims live.
The Islamic Bank of Britain received authorization from the country’s Financial Services Authority watchdog last month and will meet British banking regulations and consumer safeguards.
Other banks in the country already offer products that follow some Islamic principles, but they all originated with non-Sharia institutions.
Under Sharia law, it is forbidden to give or receive interest payments. Therefore, instead of offering interest on savings accounts, the bank will trade in Sharia-compliant investments and share the profits with savers.
Any money invested by the bank must be put into purely ethical industries, which bars ones handling interest payments, tobacco or alcohol.
To ensure the bank is operating according to Sharia law, Islamic scholars will sit on a supervisory committee that must approve the bank’s services, investments and activities.
Since there are different interpretations of thought in Islam in the Muslim world, that could theoretically lead to scholarly disputes about the bank’s compliance with Sharia.
The new branch began offering savings accounts Wednesday, both in person and via telephone or the mail, and the first three it started ranged from 1 pound ($1.80) to 100,000 pounds ($180,000), officials said. It plans to launch current accounts and loans in November, followed by mortgages, credit cards and business banking accounts in 2005.
The bank plans to open branches in Birmingham and Leicester in November, followed by eight branches in other parts of the country and internet banking next year.
To fund its expansion plans, the Islamic Bank of Britain is now offering 160 million shares priced at 25 pence (45 cents) each, with minimum purchases of 4,000 shares.
Last month, The Daily Telegraph newspaper reported that as the bank prepared to open it was funded by $25 million, most of it from investors in Middle Eastern countries such as Qatar.