Islamic finance in the UK
Presented by:
Keith Leach
Head of alburaq
ABC International Bank plc
Presentation Summary
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Introduction
The Government’s approach
Consumer banking products
Takafol
Commercial property finance
The future
Introduction
• ABC International Bank plc, London
– Subsidiary of the Arab Banking Corporation, Bahrain
Islamic Asset Management Team, London
alburaq
Real estate finance and investment
Leasing
Structured finance
• ABC Group includes ABC Islamic Bank, Bahrain
Introduction
• alburaq
– Specialises in Islamic retail products in the UK
• Home finance
– Buy-to-let,
– Non-UK residents
– Self-cert, fixed and variable prices
• Commercial property finance
• Savings account (new)
– Products available directly or through
• Lloyds/TSB, Islamic Bank of Britain, IFA market
Islamic finance in the UK
• Strongly supported by the Government
– To help the UK’s Muslim community
• An ‘inclusive’ approach to help ensure that the Muslim community
(and all ethnic/other minorities) do not suffer financial exclusion due
to religious beliefs or for other cultural reasons
– To promote ‘UK plc’ as a centre for Islamic finance
• See London as a global hub for Islamic finance, certainly in the
West
Islamic finance in the UK
• Islamic finance experts group
– Hosted by the Treasury and meets 3 - 4 times a year,
chaired by Economics minister (Ed Balls and now
Kitty Ussher)
• UK trade and investment (UKTI)
– Supports UK business helping them trade
internationally and encourages domestic investment
Government support - action
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1997
1999
2003
2005
2007
2007
2007
2008
Labour Government in power
Sir Eddie George - Working Group
Finance Act – Stamp Duty
Islamic Bank of Britain authorised
Treasury – IF Experts Group
FSA regulation of HPP’s
Review for UK Gov Sukuk issuance
Gov Sukuk announcement
Islamic banks and windows
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Albaraka (mortgages)
United Bank of Kuwait (AUB) (mortgages)
HSBC (mortgage, current a/c)
ABC International Bank (alburaq (mortgage)
Islamic Bank of Britain (retail banking)
Ansar Finance (community focused NFP)
RBS/Bank of Ireland (Commercial property)
EIIB (Investment Bank)
Lloyds TSB (current a/c)
Children’s Mutual (Child Trust Fund)
United National Bank (mortgages, Scotland)
BLME
EFH
Gatehouse plc
British Islamic Insurance Co (Takafol)
1980s
1996
2003
2004
2004
2004
2004
2005
2005
2005
2005
2007
2008
2008
2008
UK authorised Islamic financial institutions
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Islamic Bank of Britain
European Islamic Investment Bank
Bank of London and the Middle East
European Finance House
Gatehouse plc
British Islamic Insurance Holdings
Muslims in the UK
• Increasing population now approaching 2 million
• Ethnic origins
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43% Pakistani
17% Bangladeshi
9% Indian
31% others
» Census 2001
• 45% live in London and the South-East
Muslims in the UK
• Comparatively young population
– Average age 28
– 9 in 10 under 65
– 34% under 16 years of age
• Most interested
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2nd Generation
Born in the UK
Professional careers
Both male and female
Muslims in the UK
• 411,000 households (Census 2001)
• 183,386 in rented accommodation
» 73,034 Council
» 41,329 other
» 69,023 privately rented
• 211,591 home owners
» 74,891 outright
» 133,912 mortgage
» 2,788 shared ownership
• 16,438 living rent free
Muslims in the UK
Only
Products
Prefer Shariah Products Cheapest Most
Convenient
Government Support
• Regulation and Tax
– Legislation to allow Islamic products to
compete on a level playing field
– FA 2003, 2004, 2005, 2006, 2007
– Alternative finance return and profit share
return economically equivalent to interest
– Regulation of Islamic home finance (HPPs)
HPP Regulation 2007
• Effective 6th April 2007
• Home Purchase Plans
• Sympathetic disclosure documents
• IDD, RFS, FIS
• Few intermediaries authorised
• Fewer offering an advice service
• VAT
Residential finance
Financing techniques
• Murabaha
• Ijara
• Diminishing Musharaka
• Commodity Murabaha (Tawarruq)
Savings options (not many)
• Mudaraba and Wakala accounts
– IBB
• P&L accounts -Commodity Murabaha based
– Alburaq
• Protected Equity Linked Account
– Based on Wakala principles pays a return based on the change
in value of a basket of Sharaih compliant shares
• Child Trust Fund
• Collective Investment Schemes
– HSBC and Scottish Widows Global Islamic Equity
Funds
Takafol
• British Islamic Insurance Holdings
– FSA authorised April 08
– Products to be launched end of the 2nd qtr
• First products
– Car Insurance
– Property insurance
• HSBC Amanah
– Takafol property insurance
Commercial Property Finance
• Market
– UK residents for business purposes
– UK residents for investment purposes
– Non-UK resident investors
– Corporate or individual purchasers
• Estimated 100,000 Muslim owned SMEs in the UK
Financing Models
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Murabaha
Ijara
Commodity Muarabaha (Tawarruq)
Diminishing Musharaka
Parallel Istisna (development finance)
Government Support
• 2006 –
• 2007 –
SDLT relief extended to corporate
entities
HMRC guidance on tax treatment of all
financing techniques covering
» Capital allowances
» VAT
» CGT
Issues for financiers
• Property usage screening
• Must be permissible activities
• Potential contamination liabilities
• Contaminated land
• Asbestos
• Other 3rd party liabilities as owners
• Personal injury
• Negligence
• VAT
• Payable on purchase price
• Payable on rental payments
• FRI leases
• Owner’s obligation to insure
• Owner’s obligation to maintain
Future
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Ongoing tweaking of laws and regulations
UK Government Sukuk
Islamic funding for Government PFI projects
Securitisation of UK Islamic mortgage
portfolios
• More Islamic finance companies in London
Islamic Finance in the UK
Presented by:
Keith Leach
Head of alburaq
ABC International Bank plc
23rd October 2007