But the government wants to improve financial services for Muslims in Britain, and banks have responded with a growing range of products and services that adhere to sharia. This is the Islamic legal code that forbids the payment or receipt of interest and vetoes investing in activities such as pornography or financial services.
Aszal, 24, and his wife Sara Azim, 27, have been able to get a foot on the housing ladder with a mortgage from Lloyds TSB, which last week announced that Islamic banking services will now be available in all its 2,000 branches.
Aszal, an optician from Birmingham, said: “I would not describe myself as a strict Muslim, but I try to adhere to the rules of Islam where I can.
“My father, who is a practising Muslim, was eventually able to buy a house without taking out a mortgage but, with property prices the way they are now, buying outright is not an option for many young Muslims. The introduction of Islamic mortgages is therefore a real help, especially as the rates are relatively competitive.”
Sharia-compliant home- finance deals are also available from HSBC, Bristol & West and a number of specialist banks, including Islamic Bank of Britain and Ahli United Bank. But mortgages are not the only Islamic products on offer. Sharia-compliant current accounts are available from Lloyds and HSBC, among others, and Lloyds plans to launch a student account later this year.
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Aszal said: “I am considering opening an Islamic current account and would be interested to learn more about other Islamic banking products.”
Islamic Bank of Britain also offers savings accounts that use the money paid in to trade in sharia-compliant investments. Any profits are shared between the bank and its customers.
The nature of the accounts means returns will vary, but savers have three options: the no-notice savings account, with a minimum balance of £1; the term deposit savings account, which requires £5,000 and is available over one, three or six months; and the Treasury deposit account. The Treasury account, also available over one, three or six months, requires a £10,000 deposit. Customers can then set an agreed profit rate with the bank.
HSBC’s Amanah division offers a pension fund that tracks an index including the top 100 companies involved in permitted activities.
Other Islamic investment opportunities are also available through investment-banking arms of global players such as HSBC and Citibank, while the European Islamic Investment Bank has recently applied for Financial Services Authority approval to become the first independent Islamic investment bank in this part of the world.
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It is not only Britain’s 2m Muslims who are taking advantage of this banking revolution.
Paul Sherrin of Lloyds said: “The Islamic current account, which does not pay or charge customers interest but offers most of the usual features, also appeals to Mormons and Orthodox Jews, who are not that keen on dealing with interest.
“The fact that any investments made with customers’ money are limited to companies involved in activities that do not conflict with Islam also makes it attractive to people with an ethical viewpoint. We already have some non-Muslim customers, despite the fact that we have not really marketed the account.”
One thing that may put some non-Muslims off the account, however, is that it does not offer an overdraft facility. Account holders who mistakenly go into the red are charged a flat fee rather than interest, but must repay what they owe as soon as possible.
Sherrin said: “Islamic law views money as a token of exchange, meaning that Muslims cannot borrow money unless that borrowing is backed up by an asset. So an overdraft is not something that we can offer with this account.”
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Those attracted by the ethical ringfencing of any funds held in the account may also be better off with a current account from Co-operative Bank.
All its current accounts offer assurances about how funds within them will be used, as well as credit interest — albeit at only 0.1% — and authorised overdraft facilities at 19.56%, 12.9% or 9.9% depending on which account you go for.
When it comes to home finance, Lloyds’ lowest Islamic mortgage charges are equivalent to an interest rate of 5.18%, or repayments of £595 on a £100,000 loan. An HSBC Amanah mortgage for £90,000, meanwhile, would cost about £570 a month.
Sherrin said: “Rates on Islamic mortgages are comparable with those on standard loans, although it is difficult for us to compete with short-term deals.”
Minimum deposits may also be higher than with conventional mortgages.
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HOW THE MORTGAGES WORK
Sharia-compliant home finance deals work in two ways: