HSBC homes in on Muslims

When Shanur Miah's parents emigrated to the UK from Bangladesh to make some money and eventually 'go home', they didn't count on their son going native.

Yet Miah, now 24 and a teacher, feels that Britain is his home. He works in Tower Hamlets, east London, and wants to marry and settle down. The snag is that his tiny, rented, one-bedroom flat isn't the place to start a family, and Islam's ban on paying or receiving interest rules out a conventional mortgage.

A new scheme is to change that from tomorrow, however, and help people like him. HSBC will be the first high street bank to offer Britain's 1.8 million Muslims an Islamic alternative to normal homeloans.

Until now they have had to rent, buying homes with cash or break Islamic law by taking out a conventional loan.

The HSBC scheme, which is overseen by an international advisory board of religious scholars, could ease Muslim inhibitions and open up a £9.2 billion market, says the business information company, Datamonitor.

Under the scheme, the bank will buy each property and lease it back to the customer over an agreed term. The customer pays rent, which is seen as fair payment for the use of the property, rather than a charge for borrowing money.

HSBC received thousands of queries from Muslims even before it officially announced the new loans.

Iqbal Assaria of the Muslim Council of Britain said: 'A large majority of British Muslims have been locked out of the property market until now.'

'Out of necessity, some have resorted to conventional mortgages but have been racked with guilt.'

Seventy per cent of the 100,000 homes owned by Muslims are financed with conventional mortgages, although many existing mortgage holders are expected to switch to the new scheme, fuelling most of the demand for HSBC's new scheme.

Crucially, however, it opens the way for hundreds of thousands of British Muslims who felt that they should not buy homes in the UK.

Saayman Ahmed, 26, and his family of seven adults lived in a two-bedroom apartment for more than 13 years.

'It was a very difficult period because there was so little space and privacy,' said Ahmed, a T-Mobile systems engineer who finally took out an ordinary mortgage last year for a three-bedroom house in Manor Park, east London.

'I have been looking forward to the Islamic mortgage scheme for years and seriously want to switch.'

HSBC first initiated a small pilot scheme in the United States. Targeting the lucrative 800,000 Muslims in New York through selected branches, it has already handled $35m in Islamic finance, with another $20m in loans waiting to be processed.

HSBC isn't the first bank in Britain to offer Muslims shariah-compliant home-financing alternatives, however. West Bromwich Building Society set up a limited pilot scheme earlier this year for Muslims in the West Midlands. Ahli United Bank, formerly known as the Bank of Kuwait, has offered an interest-free home finance scheme for more than five years but some customers - Miah among them - dismiss this as elitist.

'I was rejected by the Bank of Kuwait because I could not afford the 20 per cent downpayment, in addition to outrageously high monthly repayments,' he said.

According to HSBC's Noaman Hassan, the bank's scheme is competitive because, unlike the Bank of Kuwait, it is a large financial institution and can therefore generate favourable economies of scale and pass on the savings to its customers.

Nevertheless, with almost 60 per cent of British Muslim families living below the poverty line, many like Ahmed and Miah want to know if it will simply be another financial product beyond the budget of lower-income families.

'I pay £619 a month for a regular £120,000 mortgage. Does the HSBC scheme offer me anything better?' asked Ahmed.

It is said to be competitive, but it may be too little, too late. Community experts say house prices could now just be too high for the average British Muslim. British Muslims are on the lowest ranks of unemployment and poverty in this country. Experts are doubtful if this scheme will be enough to really meet the needs of the mass market.

According to the National Statistics Labour Force Survey, people of Bangladeshi and Pakistani background are two-and-a-half times more likely than the white population to be unemployed and nearly three times more likely to be in low-paying jobs.

Leading market analysts disagree, however. 'The market for Islamic finance in the UK is set to grow hugely,' said Datamonitor analyst Nicholas Stephens.

More than half of British Muslims are under the age of 24. Datamonitor identified more than 5,000 Muslim millionaires with liquid assets of more than £3.6bn.

'Muslims have historically been under-served by UK financial institutions, but this is set to change. More and more banks will set their sights on this lucrative market.'

Future homeowners such as Amina Khan represent the new, financially savvy face of British Islam that market watchers like Stephens have their eye on.

'Financially, renting just doesn't make sense. We now pay £1,000 for a two-bedroom apartment in Stratford. It's bloody hard renting and we don't want to live with our parents forever,' says Khan, a 26-year-old who is between jobs. 'The high street mortgages are financially attractive, but ours is also a moral and ethical choice - anything that involves interest puts it out of reach. We take care in our earnings and how we spend them.'

Like Miah, Khan is conscious of the 'back home' mentality that defined her parents' generation. After all, 50 per cent of today's British Muslims were born and raised in the UK. The opportunity to buy their own homes may have a profound effect on how well future generations of British Muslims integrate into British society, community experts say.

Khan is more direct: 'Back home to us is Stratford E7. When you own land, you feel more part of it. Twenty-five years is a long time to commit to something. It's a statement - we're setting our roots here.

'A lot of uncles rented, and ended up putting their savings to build retirement homes in Dhaka or Islamabad. We're as likely to plan our retirement in Southend or Florida.'

With the home financing scheme set to be a success, perhaps HSBC and the high street ought to start thinking about Islamic alternatives to retirement planning, too.