HSBC is widening its Islamic homeloans to intermediaries with West Bromwich Building Society to help offer Islamic home finance to the Muslim communities in the UK.
The HSBC Amanah scheme is headed by Noaman Hasan, who has been with the bank since 1997.
The bank has linked up with West Bromwich following a pilot in May, which will start referring potential customers to HSBC's Amanah Finance scheme.
The bank expects to sign up 50 IFAs and brokers to the scheme after receiving what Hasan describes as “a steady stream of requests”.
HSBC is meeting with intermediaries who have been in contact over the last 12 months and is hoping to achieve a geographical spread across key Muslim areas.
The bank will pay commission to intermediaries based on a percentage of the drawdown for any leads generated.
Hasan says there is a limited supply of Islamic homeloans in the UK, leaving the Muslim population without broad options. There are around two million Muslims in the UK and 411,000 Muslim households. Hasan says: “We think that more providers will be coming into the market in the near future. However, specific skills are needed – understanding of Islamic finance and the structure of our proposition. Over time, we hope that intermediaries will develop skills to understand the core of Islamic banking.”
Islamic finance is now becoming a more recognisable feature in Britain. In September, the Islamic Bank of Britain announced plans to list on the Alternative Investment Market. At the beginning of September, the Arab Banking Corporation, which is owned by the governments of Kuwait, Abu Dhabi and Libya, teamed up with Bristol & West to offer Shariah-compliant home finance under the name Alburaq.
HSBC became the first bank in July 2003 to offer Islamic-specific home finance and current accounts in the UK. Since the launch of the Amanah scheme, it has generated over 10,000 enquiries and expanded to over 27 areas including Nottingham, Mid-dlesbrough, Newcastle, Edg-ware and Coventry.
Hasan says the Amanah home finance scheme is suitable for clients who do not want to compromise their beliefs in order to own a home.
Under the scheme, the bank buys the property and then leases it back to the customer over an agreed term, usually a 25-year term. The customer makes monthly rental payments to HSBC towards the price of the purchase. HSBC effectively owns the property until the customer has made the final payment.
In Islamic terms, the rent has nothing to do with paying interest and is seen as a fair payment for the use of the property rather than a charge for borrowing money so it does not break Shariah laws.
The Ammanah home finance monthly payment is based on its finance rate which currently stands at 5.99 per cent. Payments are reviewed on January 1 and July 1 of each calendar year during the financing term. HSBC guarantees the finance rate will never be more than 2.5 per cent above the base rate at the time of recalculation.
The HSBC Amanah is guided and supervised by an independent Shariah Supervisory Committee. The committee regularly reviews and appraises the products and transactions structured by Amanah.
Six West Brom branches in the West Midlands are taking part in the initiative. The sales and application process will be undertaken by HSBC's team and it will pay commission to West Brom for every lead generated.
Although part of the HSBC initiative is to educate the IFA community on the options for Islamic finance, it has no plans yet to offer training for intermediaries.
London businessman Mousa Loonat says: “There needs to be more information out there. Not many financial advisers know about Islamic finance. Muslims who want to know about it often have to seek out information for themselves.”
Norton Rose associate Mohammed Paracha says: “Education is needed at all levels. There needs to be education on the intermediary side, the banks, the Muslim Council of Britain and Muslim scholars. Britain needs to find a unified approach in this area.”
Paracha says issues surrounding stamp duty and Islamic mortgages' treatment under adverse capital adequacy are now being resolved with the help of the British Banking Association. The Law Society has set up a working party on legal costs as to whether a single solicitor can advise both the financier and the purchaser in the case of an Islamic product because of the ownership role of the financier.
Hasan says: “We hope to generate a large number of new customers a year through IFAs. Their deep links with the community means they will be vital to spreading the word about Shariah-compliant products and introducing customers who might not have had previous experience with the bank.”