Islamic Finances

Summary: If you're Muslim and are concerned about financial products that comply with Sharia Law, there are more and more options available to you today. The first Islamic bank in the UK, the Islamic Bank of Britain, opened its headquarters in Birmingham in 2004, offering a range of products and services such as pensions, mortgages and loans. The main requirement for financial products and services under Sharia Law is that they neither charge interest nor pay it out, as making mone...

If you're Muslim and are concerned about financial products that comply with Sharia Law, there are more and more options available to you today. The first Islamic bank in the UK, the Islamic Bank of Britain, opened its headquarters in Birmingham in 2004, offering a range of products and services such as pensions, mortgages and loans. The main requirement for financial products and services under Sharia Law is that they neither charge interest nor pay it out, as making money from money is considered usury, and that they do not invest in companies that are deemed unethical, such as those connected with alcohol, tobacco, pornography or gambling. What often happens when providing loans is that the bank will purchase an item for the customer at a set price and rent it or sell it to them, with repayments made in instalments. The bank makes its money by levying a charge on the customer's payments. With investments, Islamic finance works on the basis of sharing the risk as well as the reward. Both the customer and the bank agree on terms for sharing the risk of any investment and split any profits equally between them. The four main modes of Islamic banking are known as murabaha, where a purchase is made by the bank and re-sold to the customer without any interest payments; musharaka, a partnership in which the rewards and risks - i.e. the profits and losses - are shared by both the bank and the customer in an investment; mudaraba, where someone places their investment in the hands of an expert who invests for them and shares the profit but doesn't bear the risk of any losses; and ijarah, a rental agreement made in order for the customer to obtain goods, in which rental payments are made over a specified period and the bank reclaims the goods at the end of it. Many of the high street banks offer Islamic products, and there are some Middle Eastern banks with branches in the UK that provide financial products and services suitable for muslims. Trust funds The government introduced child trust funds in 2005 to help new parents to start saving for their child's future. Upon the birth of a child, they are given