Islamic families to lose out on new child fund

Children of Britain's 1.8 million Muslim families will be unable to take advantage of the new Child Trust Fund (CTF) when it is launched in April, because there is nowhere suitable to invest the money that meets the rules of their religion.

Children of Britain's 1.8 million Muslim families will be unable to take advantage of the new Child Trust Fund (CTF) when it is launched in April, because there is nowhere suitable to invest the money that meets the rules of their religion.

Earlier this month, the Government unveiled the names of the 75 companies offering CTFs. But not one offers an account that is specifically compliant with Islamic Sharia law.

Sharia forbids the receipt of interest on savings, so Islamic banks use a principle known as mudaraba, which is based on a profit-sharing arrangement, whereby one party provides the funds and the other provides the expertise to manage the trading activity and generate a profit. Where money is invested, rather than just put in a savings account, Sharia demands strict ethical rules and prohibits buying shares in companies that produce alcohol, tobacco, arms, pork or pornography. The Government has started to send out vouchers to the parents of babies born on or after 1 September, 2002. These are worth a minimum of £250 at birth, and a similar sum when they reach the age of seven.

If parents do not designate an account for the child within a year, the Government will automatically pay it into a default fund - a stakeholder scheme from one of the providers. With no Sharia-compliant CTF, Muslim children will have their money put into investments which do not comply with the rules of their religion, meaning they will be unable to withdraw their money when they are 18.

A number of banks and building societies offer Sharia-compliant services, but none have committed themselves to offering a trust fund. The Treasury said there was nothing in the legislation that prevented CTFs being set up to be compliant with Sharia law. A spokesman said: "The Government is keen to encourage them, and it is early days in the market." Iqbal Asaria, the special adviser to the Muslim Council of Britain's secretary-general on business and economic affairs, said: "We hope that a high-street bank will be launching a Sharia-compliant Child Trust Fund, and this could be up and running as early as June.

"Several ethical funds could be used for the Child Trust Fund if some small, further restrictions on their investment profiles were put in place, and we hope some of the big providers will be doing this."