Up to 1 million Muslims in the UK could open bank accounts for the first time if the Financial Services Authority agrees to lift restrictions on Islamic banks in this country.
They are keen to open UK branches but are prevented from doing so by legislation which requires operating practices against their religion – specifically, the payment of interest.
According to the Institute of Islamic Banking & Insurance director Nasr-Eldin Ayoub-Bey, the 2-3 million Muslims in the UK can choose to ignore Islamic principles by opening a bank account, but many prefer to keep their money at home. “They choose to keep their money under the mattress instead,” he says.
FSA chairman Howard Davies has agreed to meet The Institute of Islamic Banking & Insurance, the Islamic Foundation and the Muslim Council of Britain on September 8 to discuss amending legislation.
The Bank of England, which was responsible for granting banking licences before it handed over control to the FSA on June 1 1998, was unsympathetic to Islamic banks, says Ayoub-Bey. “The Bank of England believed Muslim banking policies did not safeguard shareholders’ interests.”
Under Islamic religious principles, all profits from money lending (from bank to customer and vice versa) must be based upon risk sharing. This means interest payments are wrong because they effectively pay the lender an income without them taking any risk.
Instead the banks make their money primarily through investing their deposits. There are no Islamic banks offering accounts outside Muslim countries.
Ayoub-Bey says regulators have been fearful of Muslim banking practices ever since the Bank of Credit & Commerce International (BCCI) collapsed in the early Nineties. BCCI was not an Islamic bank and did not employ Islamic banking principles but it had a high percentage of Muslim savers.
Not long after the collapse, banking regulations were tightened.
The UK has only had one Islamic bank, the Albaraka Bank, which returned its licence in 1993 after pressure from The Bank of England.