FSA approves first purely Islamic bank

The Financial Services Authority has approved the first purely Islamic bank based in the UK, to be called the Islamic Bank of Britain. Although Islamic banking facilities have been available for several years, they have been from foreign banks, British banks such as HSBC, or joint ventures.

The Financial Services Authority has approved the first purely Islamic bank based in the UK, to be called the Islamic Bank of Britain. Although Islamic banking facilities have been available for several years, they have been from foreign banks, British banks such as HSBC, or joint ventures.

Islamic law forbids Muslims from receiving or paying interest on loans. This in effect barred Muslims from buying houses unless they saved the entire purchase price in advance. Investments must be put into exclusively ethical industries and cannot be invested in companies that deal with interest, tobacco or alcohol. The FSA called for the establishment of an Islamic bank nearly two years ago, to serve Britain's 1.8 million Muslims.

Michael Hanlon, the managing director of the Islamic Bank of Britain, said: "As Islamic banking operates without the use of interest, the products that we offer our customers are structured in a different way to those in conventional banks."

The bank will buy items for customers then charge them rent, or draw up a leasing contract, until the items have been paid for. It will offer a range of Sharia'a-compliant savings products, as well as current accounts with debit cards and consumer financing agreements.

It hopes to be operating nationally by November, through telephone and postal banking. It also plans to introduce a mortgage product by the end of the year, subject to regulatory approval, and internet banking early in 2005. Its website is www.islamic-bank.com.

The Islamic Bank's headquarters will be in Birmingham, and it will open its first branch in Edgware Road, London, in September, followed by further branches in Birmingham and Leicester.