Al Rayan Bank hosts packed Islamic Finance ‘Question Time’

21 April 2016

Scholars address public’s Islamic finance questions

Al Rayan Bank staged a packed ‘Islamic Finance Question Time’ event last month, as more than 70 members of the public gathered at the Bank’s operational headquarters in Birmingham to ask a variety of questions about the nature of Sharia compliant banking. The event was designed to educate attendees on Islamic finance and directly address any questions or concerns that they may have.

The panel consisted of prominent experts in Islamic finance. Present were two members of Al Rayan Bank’s Sharia Supervisory Committee (SSC) - Sheikh Nizam Muhammed Saleh Yaqoobi, a well-known scholar who supervises many Islamic financial institutions and is a member of the AAOIFI Sharia Board and Mufti Abdul Qadir Barkatulla, a highly regarded and respected Sharia scholar who is very active in the Islamic finance industry. Also present was Dr Samir Alamad, Al Rayan Bank’s Head of Sharia Compliance and Product Development, an Islamic finance expert who has advised the UK government on various Islamic finance initiatives, including Sharia compliant student finance and the Help to Buy HPP Guarantee and ISA schemes. Dr Alamad also recently advised the Bank of England on Sharia compliant liquidity facilities. The event was moderated by Sultan Choudhury, Al Rayan Bank’s Chief Executive Officer.

Commenting on the event, Dr Alamad said, “Islamic finance is an increasingly important feature of the banking landscape in the UK, and this Question Time event gave us the opportunity to both promote greater understanding of Sharia compliant banking and directly answer any questions. The scholars on the panel welcomed the opportunity to engage directly with the public, and feedback from the audience following the event has been very positive. We certainly look forward to more events like this in the future.”

Home finance proved to be a popular topic for discussion. One member of the audience queried the Bank’s practice of not sharing the loss in a negative equity situation, and asked whether this compromised Sharia compliance. Dr Alamad responded by explaining that a Home Purchase Plan (HPP) contract is a business partnership, designed to enable customers to finance their homes in a Sharia compliant way. The Bank undertakes that it will never force a sale in a negative equity situation and has the right to refuse if the customer requests to do so. However, the customer has the right to elect to purchase the Bank’s share in the property at its initial purchase value, and then can sell it on at any price they wish. In the more common situation of a property increasing in value at any time, the Bank forgoes its share of the profit generated by the increase, allowing all of the profit generated to go to the customer.

There were questions about whether the Bank’s home finance and savings products follow the Bank of England Base Rate (BBR). The panel explained that although the Bank does benchmark its property finance products against the BBR as a measurement tool, as is standard practice across all Islamic banks in the UK, this does not mean that interest forms part of the contract.

There was a question about why the responsibility for maintenance of a property was not shared between the customer and the Bank. The SSC explained that with a HPP contract, to keep costs down and put control in the hands of the customer, they are appointed as a ‘service agent’ for the Bank’s share in the property. If instead the Bank had to act as a landlord, dealing with property servicing matters, this would necessitate a new department to facilitate maintenance and insurance, and the significant cost created by this would have to be passed on to the customer.

A question was raised about whether Al Rayan Bank had considered Murabaha (resale and profit) as a structure for home finance. The audience was advised that the Bank looked at all options when it developed the HPP but found that it would be very difficult to use a Murabaha contract over the long term. Murabaha contracts are more suitable for short term finance or commercial property finance because, over a number of years, the risk for the customer and the Bank is increased.

Another question from the audience was related to why the Bank does not pay capital gains tax when properties it finances are sold. It was explained that the UK Government has done a lot to level the playing field for Islamic banks in the UK, and an example of this is the way Islamic home finance is treated in the same way as a conventional mortgage, removing any additional taxation obligations that the Bank would otherwise incur.

The final question of the evening was related to the varying opinions on Islamic finance. A customer asked whether differing opinion in fact cast doubt over Islamic finance itself and whether it could therefore be considered ‘haram’. The panel reassured the customer that there was an overwhelming consensus regarding Islamic finance practices and norms amongst individual experts around the world, with the appropriate knowledge and training in Islamic finance, as well as within global Islamic finance institutions such as AAOFI (Accounting and Auditing Organisation for Islamic Financial Institutions). Naturally some individuals, often not fully qualified, will express their own views, but the expert consensus is clear.

This was the first Question Time event that the Bank had held since its acquisition by Masraf Al Rayan, QSC (MAR) in February 2014. Since that time, the Bank has undergone a number of significant changes, including a successful rebrand, the opening of a flagship private banking branch in Knightsbridge and rapid growth in its savings and property finance portfolio which has necessitated greater numbers of staff and new operational headquarters.

The Bank has seen the continued growth in the number of non-Muslim customers it attracts during this time. As an example, the Bank estimates that 86% of new fixed term deposit (FTD) customers who joined in 2015 are non-Muslim. The Bank believes that this increase has been driven both by the overall reputation Islamic banking enjoys as an ethical alternative to conventional banking, as well as its consistent, market-leading expected profit rates and high levels of customer service.

Al Rayan Bank has been recognised as an ethical alternative to conventional banks by the Move Your Money campaign, and Ethical Consumer magazine, which rated it in the top ten ethical current account providers. Last year Al Rayan Bank was named by Global Finance magazine as one of the best Islamic banks in the world, in its annual list of the World’s Best Islamic Financial Institutions, and by Trade Finance Global as the Best Islamic Finance Services in Western Europe.

As an independent UK bank, Al Rayan Bank is authorised by the Prudential Regulation Authority, regulated by the Financial Conduct Authority and the Prudential Regulation Authority and is a member of Financial Services Compensation Scheme.

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