London—As more and more British banks offer special services to Muslims, the government says its wants to make the United Kingdom the most Islam-friendly economy in Europe.
Treasury officials said they wanted to create a “level playing field” for banks selling financial products that comply with Islamic law (shari’a.)
In addition to providing for the 1.8 million Muslims who live in Britain, Treasury spokesman Tom Youldon said the government would continue to promote the country as a center of Islamic finance for Muslims based abroad.
According to government estimates, global assets controlled by Islamic banks stand at around $500 billion and are growing at a rate of 10-15 percent a year.
“Shari’a-compliant” finance forbids any form of interest—called “usury” in the Koran. Although a Muslim cannot earn interest, Islamic institutions can pay investors a share of profits, as earning a profit is not prohibited.
All partners in a business venture must share risk equally and Muslims cannot invest in businesses dealing in alcohol, gambling or pornography.
To get around these restrictions when selling mortgages, for example, a bank will buy a property and then rent it back to its customer for a set number of years.
Currently, the Islamic Bank of Britain is the only fully Islamic retail bank here, but several British banks have begun to offer a line of shari’a-compliant products in the last year or so.
Humayon Dar, an economist specializing in Islamic finance, said most British Muslims wanted Islamic banking, but only if it came with the convenience they were used to getting from other banks.
He said he personally favored Western banks offering shari’a-compliant services over the creation of small Islamic institutions.
Ashraf Piranie, financial director at the Islamic Bank of Britain, said many laws relating to purchasing and leasing commercial property were unfair to Muslim business owners.
They were either forced to pay a higher rate of tax when using shari’a-compliant business arrangements or to compromise their religion.
Piranie said his bank had been in talks with the government and predicted tax rules would be adjusted once Chancellor Gordon Brown unveils the government’s 2006 budget on Wednesday.
“Thankfully the Treasury has been very keen to understand the issues facing the development of Islamic financial products,” he said.
While analysts agree that the core of Islamic banking will probably remain in the Middle East, many argue that London is a natural magnet for such activity.
Rodney Wilson, a professor of economics at the University of Durham, said that since the city is already a major financial center, many Middle Eastern bankers were already comfortable with doing business there.
One problem Islamic financing in the West faced was the shortage of people knowledgeable in shari’a who were able to help structure complex deals, he said.
Another was that while a particular scholar may be qualified in terms of religion, his English may not be good enough to understand complicated contracts.
Hamid Yunis, a lawyer with the London firm of Taylor Wessing, said Islamic financing was flexible enough to tackle projects of almost any size.
Last year, his firm helped an international consortium buy a $250 million office complex in the heart of London in a shari’a-compliant deal that used a form of Islamic bonds as equity.
“In Islam, there’s a saying that in matters of [business] dealings, everything is possible—unless it’s prohibited,” he said.