Expanding your business in line with your faith

Whether to expand a business is a big decision. Many factors must be taken into account before deciding that it is the right course of action. For Muslim businessmen and women, this process can be complicated further by their wish for any financial support to be in line with the values of Islam.

Mahmoud is a businessman from Bradford.  He is very successful and is a highly respected member of the community.  His business owns several large commercial properties across Bradford and Leeds, which he leases primarily as manufacturing units.

Due to planned infrastructure improvements to a business park site where Mahmoud owns two units, demand for space on the site appears to be increasing.  Mahmoud, eager to take advantage of what he sees as a good business opportunity, wants to increase the number of units he owns on the site from two to four. 

To finance the purchase, he plans to sell a less profitable unit which he owns on another site and expects this sale to provide around 40% of the capital he requires.  Mahmoud wants the remaining 60% of the capital to come from a 10 year agreement with a finance provider.   The rent he will receive from the new units will comfortably cover the expected finance payment.

As a practising Muslim with a position of responsibility within the community, Mahmoud has sometimes felt uneasy borrowing money from conventional banks, due to the fact that these loans must be repaid with interest.  However, he is a pragmatist and understands that in the past he had very little choice but to do this if he wanted to expand his business.   

Mahmoud is aware that banking has changed in recent years and that nowadays he may have more options, so he has been reading Al Rayan Bank's, formerly Islamic Bank of Britain (IBB's) website to find out more on the Sharia compliant business banking services it provides.  As a Sharia compliant commercial finance provider, Al Rayan Bank’s products enable Muslims to buy commercial property in the UK in a way that is permitted in Islam, without interest.

Mahmoud meets with a knowledgeable and helpful business banking advisor from Al Rayan Bank and they agree a deal that they are both pleased with.  Al Rayan Bank will provide the finance he requires to purchase the two units and payments will be made over the next 10 years.  They will do this using the Islamic finance principle of Diminishing Musharaka and Ijara (diminishing partnership and leasing).  They could have structured the partnership using the principle of Murabaha (contract for purchase and resale) but the former was more appropriate for Mahmoud.

Mahmoud was particularly pleased to learn about the flexibility of the partnership.  Although he’s agreed to a payment plan over ten years, he hopes to be able to settle the finance much sooner than this.  With Al Rayan Bank he’s able to do this as there are no early settlement charges.

Mahmoud is a fictional character, but his situation is one that is shared by many of Al Rayan Bank’s business customers. Al Rayan Bank not only offers a range of features that provide customers with flexibility and value, but their business accounts are also fully Sharia compliant, meaning that a customer can run their businesses banking requirements without compromising the principles of their faith.