About Al Rayan Bank's products and services

Find out more about Al Rayan Bank's's banking products, how they work and why they are a compelling alternative to conventional banking products.

How do Islamic finance products work?

Islamic banks pay profits rather than interest on savings products, and charge rental not interest on their home finance products.

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If Islamic banks don’t pay interest why advertise % rates?

Islamic banks advertise % rates for products so that customers can compare their profit or finance rates and charges to those charged by conventional banks, but this does not mean that interest is charged or paid.  A percentage simply means a proportion.

How do Islamic savings accounts work?

The Bank invests its customers’ deposits in Sharia compliant activities in order to generate a target profit.  It does this either by becoming an agent of the customers and receiving an agreed fee, or by entering into a partnership with the customer and sharing the risk and reward.

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What does Al Rayan Bank invest its savers’ money in?

Al Rayan Bank only invests its customers’ deposits in relatively low risk commodities. Currently investments take place metals and property, through the Bank’s Home Purchase Plans.

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How does expected profit work?

Savings products offer an expected profit rate, not a fixed rate, because with investment there is always an element of risk.  This is highly managed by the Bank so that the risks of not achieving the expected profit rate are extremely low.  

In the 10 years that Al Rayan Bank has operated in the UK, booth under its existing name and its previous name of Al Rayan Bank, it has always paid its expected (or target) profit rates, and in some cases, has paid more to its customers.

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Are savings products with expected profits rates less secure for savers?

Al Rayan Bank has never failed to achieve an expected profit rate; on occasions we have even paid more.  As with all UK banks, Al Rayan Bank’s depositors are covered by the Financial Services Compensation Scheme (FSCS), the UK government backed initiative which protects all UK savers’ eligible deposits up to £75,000.

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How can you offer such high rates for savings products?

The profits that Al Rayan Bank’s savings account customers receive are a combination of the rents received from the Bank’s HPP customers and the returns from the investment activities the Bank has undertaken.  Profits are paid to customers after the Bank has deducted its share.

What are my savings being invested in?

Currently investments take place in trades of low risk commodities (metals) and in the Bank’s property investments.  Savings are never invested in activities such as gambling, pornography, speculation, arms, tobacco or other commodities prohibited under Sharia.

 

How do Sharia compliant Home Purchase Plans work?

Home Purchase Plans are Sharia compliant mortgage alternatives.  Unlike conventional mortgage products, Home Purchase Plans are based on the Islamic finance principles of co-ownership (Diminishing Musharaka) and leasing (Ijara), rather than the lending/borrowing relationship.  Therefore HPP customers are not charged interest, which is prohibited in Islam.

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How do Al Rayan Bank HPPs work?

The customer and Bank buy the property together as partners. The customer’s monthly payment increases their share in the property and includes rent on the share that the Bank owns.  At the end of the term the customer owns the property outright.

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How is a HPP different to a mortgage?

Al Rayan Bank and the customer buy the property as partners.  The customer pays rent on the share of the property that they do not own over the duration of the term until they have acquired Al Rayan Bank’s share.  At this point the title transfers from Al Rayan Bank to the customer and the customer has purchased their property without ever having paid interest.

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Does the customer own the property with a HPP?

At the onset, the customer and the bank jointly own the property.  With every HPP payment the customer’s equity in the property increases and the rental element decreases, reducing the Bank’s share on a diminishing basis.  At the end of the term, ownership of the property transfers to the customer outright.

Why are Sharia compliant finance products benchmarked to conventional indices such as LIBOR and the Bank of England Base Rate (BBR)?

Islamic banks use these benchmarks as a tool to ensure that the prices for their products are consistent with the prices of the local market.  The use of such benchmarks is Sharia compliant and does not introduce interest into the arrangement.

 

Is it permissible under the Sharia to quote a profit rate for Fixed Term Deposit savings accounts?

These Sharia compliant savings products are ‘fixed term’ rather than ‘fixed return’. The ‘fixed’ element relates to the length of time the bank will undertake the investment activity for the customer.  Under Sharia, an Islamic bank cannot guarantee a rate of return, because with investment there is always an element of risk, but fixing its time period is permitted.

Aren’t HPPs more expensive compared to conventional mortgages?

Rental rates for HPPs are often found in the mid-range of comparison website tables and offer customers a great overall package with other attractive features.  The fees associated with them tend to be much lower than conventional mortgages and reflect the actual work done by the bank in processing the application.  In addition, unlike conventional mortgages, Al Rayan Bank’s customers can settle their HPPs in full at any time with no penalty, even during a fixed rental-rate period.

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Why don’t Islamic banks use the local rental market rates for Home Purchase Plan products?

The rental market varies across the country, from region to region.  Even within the same city or town, rental values can vary significantly. 

If an Islamic bank attempted to use local rental markets, there would be too much variation across the country and they would not be able to offer a fair and consistent rental rate for its products. Not only is this against the Sharia but it would also be more costly for the customer.

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Can a customer sell the property under a HPP at any time?

Al Rayan Bank customers have the right to sell their property at any time, with no penalties, even if they are in a Fixed Rate agreement.

If I sell my property and make a profit, do I share this with Al Rayan Bank as joint purchaser?

If a customer decides to sell the property which has increased in value, the Bank forgoes its rights to a share of the profits and they are paid entirely to the customer.

What happens in a negative equity situation?

If a customer is in negative equity, Sharia permits Al Rayan Bank to refuse the sale. However, the customer can buy the Bank’s share for the initial price and then sell if they choose.

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If a customer of the HPP wishes to sell a property during a negative equity situation, can they do so and are there any conditions surrounding this?

In a negative equity situation, the customer can purchase the Bank’s share for the same initial purchase price. They may then sell the property to a third party at any price they are willing to take. This, however, may result in a loss for the customer.

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Is it true that Sharia does not permit contracts to be interdependent or to have ‘two contracts in one’, as is the case with the HPP?

Sharia does not allow clauses in two contracts which make them interdependent on each other with a complicated outcome that is not Sharia compliant. This is not the basis for an Al Rayan Bank HPP which is based on two independent contracts, the outcome of which is straightforward for both the customer and the Bank. 

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Under a HPP contract why does the customer have to pay the Stamp Duty?

In order to be able to offer the HPP with a competitive monthly rental rate, it is more practical if the customer pays the Stamp Duty when the property is initially purchased as they will become the ultimate owner after they have bought the Bank’s share over a period of time.

Does Al Rayan Bank keep the electrical/gas certificates in order and who 'insures' the building?

Responsibility for maintenance and insurance rests with the customer, who will ultimately own the property after they have bought the Bank’s share over a period of time.

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Could you clarify what you mean by diminishing Musharaka?

As the customer buys our share in the property, their ownership increases, and their rental contributions therefore decrease.

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