By David Oakley, The Financial Times
Launching a bank in the face of the worst financial crisis in almost 80 years does not appear to make business sense.But that is precisely what investors in two of Britain’s five Islamic banks did as demand continued to grow in Europe for financial products that avoided paying interest, in line with strict religious rules. These products pay profits from an underlying business or rent from a building used as collateral to raise money. The European Finance House launched in January and Gatehouse Capital followed in April, while a third Islamic bank, the Bank of London and the Middle East, opened for business in July last year – a month before the August credit crunch surfaced.
All three are growing steadily, even as the credit crisis deepens, because they are not exposed to the toxic assets and derivatives that have seen losses mount higher and higher, above $650 billion (Dh2,385.5 billion) at the latest count, among the conventional banks.The European Islamic Investment Bank and the Islamic Bank of Britain – the two other British Islamic banks – are also expanding.
The IBB launched its first Islamic, or Sharia-compliant, residential mortgage in September, just as Lehman Brothers, one of Wall Street’s most renowned banks, collapsed under the weight of its credit exposure. Humphrey Percy, chief executive of the Bank of London and Middle East, says: “We have not been affected to the same extent that the conventional banks have, although we have been indirectly impacted by the general lack of liquidity.”
Sultan Choudhary, commercial director of the Islamic Bank of Britain, adds: “We are still growing, not contracting. We never had the asset exposure in terms of the toxic assets that other banks have.”As the city has been devastated by financial losses and job cuts, Islamic finance is a refreshing positive among the gloom for London, which has pioneered the growth of this sector in Europe and the west. Britain is the only country in the European Union that has established Islamic banks. The Treasury is still planning to launch an Islamic bond, known as sukuk, even though this market has suffered in recent weeks.
Principal Insurance, the UK’s first Islamic insurance company – and the first in western Europe – was also launched in May, providing Britain’s two million Muslims with the opportunity of insuring their cars or houses in a Sharia-compliant way.