Archive for UK

Islamic finance accelerates into motor policies

February 15, 2009 at 5:42 am · Filed under BIIH, Islamic Insurance, Principle Insurance, Takaful, UK ·Tagged ,

Islamic finance accelerates into motor policies

Muslim insurance could prove popular with other drivers too, says Chiara Cavaglieri

Sunday, 15 February 2009

First it was Islamic current accounts, then mortgages and investment funds, and now we have a motor insurance product that conforms to Islamic law, or sharia.

This move will be welcomed by many of the two million British Muslims looking to buy insurance cover aligned with their faith. But it could also prove popular for non-Muslims who find the notion of an ethical or co-operative insurance product appealing.

Unlike conventional insurance, where risk is transferred from the policyholder to the insurance company, halal [permissable] insurance, or takaful (“guaranteeing each other”), requires all participants to share risk equally. Instead of premiums, participants pay contributions which, as with ordinary insurance, are calculated on the presumed risk of the individual and how likely they are to claim. These contributions are then pooled in a takaful fund which is invested in strictly halal activities. There is also a Shariah Supervisory Committee, made up of sharia scholars, to oversee all activities and to ensure that the whole process is consistent with Islamic principles.

Interestingly, once the fund has been used to pay for any valid claims, any surplus money is redistributed to participants at the end of the year in the form of discounted premiums, which come in addition to any no-claims bonuses.

“What is unique is the ethical nature of what we do,” says Bradley Brandon-Cross, the chief executive of Salaam Halal Insurance. “It’s a transparent process and the opportunity to get something back is attractive to customers, both Muslims and non-Muslims alike.”

But there is no guarantee that there will be any surplus money to share out. Motor insurance firms have been making underwriting losses in recent years: there was a recorded deficit of £267m in 2007 and £204m in 2006.

At Salaam Halal, if claims outweigh contributions, shareholders advance the money to pay for any excess claims. Shareholders then recover that cash in times of profit. This could mean that even in years in which there are surplus funds, there will be little or no money left to share out among participants after the retrieval of shareholders’ contributions.

Sharia prohibits usury – the receiving of interest – as well as the undertaking of haram activities (those that are forbidden to Muslims, such as gambling and dealing in alcohol or arms). This leaves many financial products, including conventional insurance, in opposition to sharia, and so many Muslims have few options when shopping for products that conform to their faith. Standard insurance falls down because it involves the taking of a financial risk that the policyholder will make a loss if a claim does not occur, which to many Muslim scholars constitutes a gamble.

Insurance is just the latest of Islamic financial products to become available in the UK. In comparison with mortgages, the insurance sector has been slow on the uptake. Islamic mortgages have grown from having a 0.3 per cent market share in 2003, to 0.8 per cent in 2009 with a value of £429m, according to the research company Datamonitor.

Salaam Halal’s motor insurance has just become available through price- comparison site Moneysupermarket. com and the indications are that it’s both popular and competitive. “There has been a lot of interest,” says Kaye Pimblett, motor insurance manager at the site. “During its first seven days on Moneysupermarket.com, Salaam Hall returned more than 37,000 quotes. And when they returned a quote, they appeared in the top three positions on over a third of occasions,” she adds. Already, the insurer has plans to take its co-operative model of doing business into the home insurance sector.

Lloyds Banking, which has pioneered Islamic finance products in the UK, is not surprised at the popularity of any sharia-compliant launch. “Although as a market, UK Islamic finance is in its infancy, it’s still set to become big business,” says Emile Abu-Shakra, a spokesman for the bank. “We offer Islamic current and business accounts, mortgages and investment funds.”

Mr Abu-Shakra adds: “We piloted these in just five branches in 2005 but that quickly expanded to all 2,000 the following year.”

Source: http://www.independent.co.uk/money/insurance/islamic-finance-accelerates-into-motor-policies-1622160.html

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First Sharia-compliant capital savings plan launched in the UK

June 16, 2008 at 11:17 am · Filed under Al Buraq, Islamic Finance, UK, United Kingdom ·Tagged ,

First Sharia-compliant capital savings plan launched in the UK

By Richard Harris | 16:12:15 | 13 June 2008

Alburaq, the London arm of Bahrain-based Arab Banking Corporation (ABC) today launched what it says is the UK’s first shariah-compliant capital protected savings plan.

The product, which is being offered in partnership with the Bank of Ireland, allows savers to deposit between £500 and £1 million in a five year account, as an alternative to a guaranteed equity bond.

Keith Leach, head of Alburaq at ABC, said despite growing availability of Islamic home finance products there had previously been a dearth of options for Muslims wishing to save money in accordance with their religious beliefs. The new account was an easy way for Muslims to gain exposure to equity markets in a secure way, he added.

‘There are restrictions on the type of companies that are considered allowable,’ he said. ‘The companies must not be over reliant on debt nor must they be engaged in activities that conflict with the principles of shariah.’

‘Many of these principles will be similar to those required by ethical investors.’

The core principle of Islamic finance is that interest is forbidden, though according to Shariah law investment in companies which profit from the sale of alcohol, pork or pornography, for example, is also forbidden, or ‘haram’. Alburaq has a committee of independent scholars to ensure shariah compliance.

At maturity on 5 September 2012 savers will receive their initial capital plus 100% of any gain in the performance of 20 shares selected from the global Dow Jones Islamic Titans 100 Index.

Source: http://www.citywire.co.uk/personal/-/news/money-property-and-tax/content.aspx?ID=305719

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First British takaful firm approved

May 17, 2008 at 8:23 am · Filed under Life Takaful, News, Principle Insurance, Takaful, UK, United Kingdom ·Tagged ,

First British takaful firm approved
by Daniel Stanton on Thursday, 01 May 2008

Britain’s first independent Islamic insurance company has received regulatory approval from the Financial Services Authority (FSA), it was announced on Thursday.

Principle Insurance, formerly known as British Islamic Insurance Holdings, will offer Shariah compliant home and car insurance from later this year.

Abdulaziz Hamad Aljomaih, chairman of Principle, said in a statement: “I believe Principle will go some way in altering the perception of Islamic finance in the UK by showing that progressive, sensible and profitable businesses can be established in accordance with Islamic law.

“Achieving FSA authorisation is a clear vindication of my belief that Shariah compliant financial products are not only equitable and profitable but also conform to the modern day principles of international finance, especially from a regulatory standpoint.”

All of Principle Insurance’s products and services will be approved by the company’s Shariah supervisory committee. This comprises Shaikh Nizam Yaquby of Bahrain; Dr Mohammad Elgari of Saudi Arabia; and Mufti Abdul Kader Barkatulla, who is based in Britain.

Principle will have around US$120 million in capital from institutional and private investors in the Gulf and Asia. Saudi Arabian investors account for 45.7% of the capital.

It aims to focus first on the UK, before looking at entering other European countries and the GCC.

Source: http://www.arabianbusiness.com/518184-first-british-takaful-firm-approved

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The UK’s Development as a Major Marketplace for Islamic Finance

April 23, 2008 at 3:41 pm · Filed under Analysis, Islamic Finance, Islamic Investment, Shariah, UK, United Kingdom ·Tagged , , ,

The UK’s Development as a Major Marketplace for Islamic Finance
Anouar Hassoune, Standard & Poor’s – Emmanuel Volland, Standard & Poor’s – 23 Jul 2007

The UK is set to become the first non-Muslim country to be a major financial centre of Islamic finance. This article looks at the conditions that have allowed Islamic finance to grow in the UK, and how it may move forward.

Competition is heating up among the world’s financial centres to attract Islamic issuers and investors. So far, Dubai, Kuala Lumpur, Bahrain and, to a lesser extent, Riyadh and Singapore, are all well placed to capture part of the booming Islamic finance industry. The latest entrant is London, the only financial centre actively involved in Sharia-compliant market intermediation that is not in a Muslim country. London, as a financial centre, has a number of competitive advantages compared with its emerging-market counterparts, including:

* Large size and international reach.
* Deep, efficient markets, where investors can switch from one asset class to another (including in and out of sukuk).
* Liquidity in the secondary market.
* Tremendous human resources and expertise (including research, analysis, operations, and structuring capabilities).

In addition, the legal environment is robust. The tax regime applicable to sukuk coupons will make them deductible – no longer viewing them as rental payments but equivalent to interest. Announced 21 March 2007, among other initiatives pertaining to Islamic finance, this sukuk-friendly amendment to tax law in the UK stands to make London more attractive for issuing and trading sukuk, although Dubai has been so far the most active trading centre for sukuk notes. The largest sukuk to date were those issued by Dubai-based Nakheel Group for US$3.52bn early in the first quarter of 2007. These notes were listed in both Dubai and London.

The overall size of the sukuk market worldwide is estimated at nearly US$70bn,including issuance from Malaysia, Pakistan and, of course, the Middle East. However, the bulk of sukuk are over-the-counter instruments. Listed sukuk account for only 20-25% of outstanding sukuk issued worldwide, that is, US$10-15bn so far. There are more sukuk listed in Dubai than anywhere else, but the secondary market is virtually non-existent. Second is London, where the secondary market for sukuk totalled less than US$5bn at 21 March 2007. Among listed sukuk, Standard & Poor’s Ratings Services rates close to US$6bn or roughly 50% of sukuk outstanding that is listed globally. New sukuk issuance is expected to accelerate, and could reach US$20-25bn in the next five years, according to the most reasonable forecasts.

We believe that the global Islamic financial industry will benefit from the UK’s development as an attractive marketplace for Sharia-compliant financing and investment instruments – on both the wholesale and retail side. We estimate that up to 300,000 retail customers in the UK would be ready customers for Sharia-compliant banking services. The establishment of these services in the UK would extend the reach of the Islamic financial model – so far still concentrated in a few countries in the Middle East and Muslim parts of Asia. As for wholesale banking, London has the capacity to become a hub for Sharia-compliant financial flows that seek recycling in Europe. For example, Islamic investment banks such as the Bahrain-based Arcapita Bank B.S.C. and Gulf Finance House, both have offices in London where vast amounts of liquidity from the Gulf meet attractive Sharia-compliant asset classes packaged in private equity, real estate, and infrastructure funds domiciled in the more mature and stable European economies.

The UK intends to become a key player in market intermediation for sukuk. Competition from western financial centres is low, as limited appetite for Islamic finance is coming from New York, more interested in facilitating the trading of Sharia-compliant stocks, especially through the Dow Jones Islamic Index and, more recently, through the newly created family of Standard & Poor’s Sharia indices. London, on the contrary, has a wider approach to Islamic finance, encompassing a broader range of financial instruments and asset classes. For example, the Financial Services Authority (FSA) has recently licensed the European Islamic Investment Bank, a wholesale financial institution created expressly to recycle the massive amounts of institutional and private liquidity in the Gulf into Sharia-compliant asset classes originated in mature, stable, and transparent western markets.

The FSA has taken on an Islamic retail strategy in keeping with its mission that aims for inclusion. This principle aims at combating financial exclusion, that is, the incapacity or unwillingness of households to access banking services because of distance, poverty or religion.

Some UK citizens do not actively deal with banks simply because banking in the UK is based on interest, called ‘riba’ in Arabic, considered unlawful according to Sharia, or Islamic law. To prevent Muslim customers being excluded from the banking market because of their beliefs, the FSA has given its green light to established conventional banks to offer Sharia-compliant services. Both HSBC, through its Amanah brand, and Lloyds TSB already offer Islamic banking services.

The FSA has also recently licensed a fully-fledged Islamic financial institution, the Islamic Bank of Britain, to serve the UK retail market with Sharia-compliant products. For Sharia-compliant services to become more comprehensive in the UK, the country needs to offer takaful (or Islamic mutual insurance). Licensing a takaful company or allowing conventional insurers to offer takaful products could be the next step in the UK’s strategy to further enhance its position as a leading Islamic financial centre.

The UK itself might be interested in issuing sukuk notes. Such issuance would be of high interest for investors who adhere to or favour Islamic finance. If the country did so, its issuance would be the second to carry an AAA rating, after sukuk issued by the Islamic Development Bank in 2005 for US$1bn. In addition, the UK would be the third sovereign outside the Middle East to issue Sharia-compliant paper, after Malaysia in 2002 through a US$600m structure called Malaysia Global Sukuk Inc. Japan has also expressed its intention to tap liquidity in the Gulf through the issuance of Sharia-compliant notes. The German State of Saxony-Anhalt has also issued sukuk, through a vehicle called Stichting Sachsen-Anhalt Trust for €100m in 2004.

http://www.gtnews.com/article/6846.cfm

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