Lloyds extends Islamic finance scheme

Lloyds TSB today extended its pilot Islamic banking service, making it available to more customers in the south of England.

The bank's current account and home finance products, which are designed to comply fully with Islamic sharia law, are now available from branches in Slough, Walthamstow, Stevenage and Barkingside.

The guiding principle in Islamic finance is that money itself has no intrinsic value, and payment and receipt of interest (riba) is forbidden under sharia law.

The bank's current account does not pay interest to customers who are in credit and has no overdraft facility. Funds are invested in accordance with Islamic law, meaning they cannot be invested in pornography, alcohol or tobacco firms.

Instead of lending money to buy a house, the bank uses diminishing musharaka (a partnership system) and ijara (a leasing arrangement) schemes to complete property purchases.

Under these systems, Lloyds TSB buys the home for up to 90% of the purchase price, with the customer paying the remaining percentage. The customer then repays the outstanding sum to the bank over an agreed term, together with a rental payment instead of interest.

The bank said its sharia-compliant products had proved very popular and said it would soon extend the pilot further.

"By the end of the year our customers will be able to access Islamic current accounts and home finance in many more branches across the country," said Gordon Rankin of Lloyds TSB Islamic Financial Services.

Mr Rankin said that the products were truly competitive, as well as meeting specific needs of Muslim customers. The current account is fee-free, doesn't require a minimum balance and comes with a debit card.

"There is now a real choice on the high street for Muslims who want an alternative to conventional current accounts and mortgages and we're proud to be able to give these customers something we know that they will value," Mr Rankin said.

The finance group Ansar Housing today announced the development of a sharia-complaint property purchase product, run under the musharaka system, which it intends to launch within weeks.

Tarek Diwany, a consultant to the firm, said the deal offered by Ansar will be more in line with Islamic principles than many of the schemes that are currently available.

The scheme will offer customers help with up to 80% of the purchase price of their property, but rather than buying the property with monthly payments to Ansar, they will be able to opt not to increase the proportion of the property they own.

Ansar will take a monthly rent and retain its holding in the building. It plans to finance up to 200 UK properties over the next three years.

"Other providers require customers to buy property shares at a certain price, which makes it look exactly like a standard mortgage which is just compliant on the surface," said Mr Diwany.

"The contract we offer is approved of by stricter scholars."

There are an estimated 1.8 million Muslims living in the UK and a number of banks and lenders have been fighting for their custom in recent years as the Islamic finance sector has grown.

In 2003, HSBC began offering sharia-compliant products and the Islamic Bank of Britain became the first UK bank to operate wholly in line with Islamic law in September 2004.

Lloyds TSB entered the Islamic finance market with the launch of its pilot products in March 2005 and with today's expansion, has 16 branches offering the services across the UK.

www.ansarfinance.com
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