Guest Blog — Banking you can believe in
By: Tim Sinclair, Head of Marketing and Online Channels, Islamic Bank of Britain
Islamic Bank of Britain (IBB) turns ten this year. Over the past decade, we’ve worked hard to develop a strong reputation as the UK’s leading Islamic retail bank. We’re proud of the fact that, by solely focusing on banking activities which are in keeping with Islamic principles, we’ve been able to make a significant and lasting difference to many thousands of Muslims and non-Muslims throughout the UK.
But whilst awareness of Islamic finance in the UK is greater than ever, it’s still a relatively new concept for some, and misunderstandings can still exist. So, how is Islamic finance different from conventional finance and why is it considered ethical by those who use it, both Muslim and non-Muslim?
Islamic banks work in a fundamentally different way to conventional banks, operating entirely without interest, which is forbidden in Islam, as money itself is considered to have no intrinsic value.
Islamic banks are not permitted to use complicated financial instruments, which are based on speculation and can introduce a high element of risk to customers’ savings; instead they generate returns for depositors by entering into profit sharing agreements.
An Islamic bank invests a customer’s deposit in relatively low risk physical assets, such as property or metals and then shares any profit. Because there is an element of risk, the level of the profit cannot be guaranteed; therefore Islamic banks quote ‘Expected Profit Rates’ or ‘EPR’. However, it is worth pointing out that in ten years, IBB has always achieved the expected profit rate it has quoted to its customers, and on occasions it has even paid more.
Islamic home finance is based upon the principle of joint ownership. IBB Home Purchase Plans (HPPs) work in a relatively simple way. The Bank and customer purchase the property together, the customer then acquires our share over time and pays rent on the portion that they do not yet own. Interest is not involved in the transaction at any point.
Unlike conventional banks, Islamic banks don’t invest in any activity which could compromise Islamic values. That means that customers’ deposits are not invested in companies, industries or sectors deemed to have a negative impact upon society, such as gambling, pornography, arms, alcohol or tobacco.
To ensure that IBB operates in accordance with these ethical principles, the Bank has a Sharia Compliance Department, much like an internal ethics department, which sits at the heart of the business and reports to an independent external Sharia Supervisory Committee (SSC). This committee, which is made up from leading scholars of Islamic finance, reviews every product that the Bank offers, as well as how we operate and the way that we act to ensure that everything we do is consistent with Islamic teachings. This influence guarantees that our actions are not only concerned with the direct needs of the Bank and our customers, but also with the wider needs of society as a whole.
This ethical approach to banking is the antithesis of what has been dubbed in some quarters “Casino banking” and it is not just Muslims who have come to appreciate its many virtues. In fact, we estimate that for the period 1 March 2013 to 31 July 2014, 81% of applications for our Fixed Term Deposit Accounts were from non-Muslim customers.
We welcome them to a pioneering, growing and aspirational bank, which has made a real commitment to the communities it serves. Ten years on from our first branch in Edgware Road, London, we’re confident that by taking a prudent and transparent approach to managing our customers’ money, we can offer individuals and businesses, Muslim and non-Muslim, an ethical and socially responsible alternative to conventional banking.
We call this, “banking you can believe in”.
Originally published on 22nd August 2014 at moveyourmoney.org.uk