CAIRO — British Islamic banks continue to grow steadily despite the worst financial crisis in almost 80 years amid growing demand for financial products that avoided paying interest.
"What is important is that we are not leveraged and have not invested in toxic assets, unlike many of our mainstream competitors," John Weguelin, chief executive of the European Islamic Investment Bank, told the Financial Times on Monday, November 10.

"This means Islamic banks are in a relatively strong position."

The European Islamic Investment Bank was launched only in January of 2008.

A global financial crisis swept the US and the world in September and knocked down British markets.

The financial woes have prompted the British central bank policymakers to decide to cut interest rates unexpectedly amid fears of recession.

Toxic assets and derivatives have seen losses mount above $650bn (£415bn) at the latest count among the conventional banks.

"We have not been affected to the same extent that the conventional banks have, although we have been indirectly impacted by the general lack of liquidity," insists Humphrey Percy, chief executive of the Bank of London and Middle East.

The bank opened for business in July last year, a month before the August credit crunch surfaced.

Britain is the only country in Europe that has established Islamic banks, while London has 21 conventional banks offering Islamic banking products.

Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Expanding

The recent months also saw two British Islamic banks, the European Islamic Investment Bank and the Islamic Bank of Britain, expanding their services.

The IBB launched its first Shari`ah-compliant residential mortgage in September, just as Lehman Brothers, one of Wall Street’s most renowned banks, collapsed under the weight of its credit exposure.

"We are still growing, not contracting," said Sultan Choudhary, commercial director of the IBB, Britain’s only retail Islamic bank.

"We never had the asset exposure in terms of the toxic assets that other banks have."

Principal Insurance, Britain and Europe's first Islamic insurance company, was launched in May.

It provides the country's more than two million Muslims the opportunity of insuring their cars or houses in a Shari`ah-compliant way.

With the Islamic finance sending positive signals through London's economic gloom, the government remains committed to launching sovereign Shari`ah-compliant bonds, sukuk.

Officials at the Treasury Department affirmed there is a "powerful momentum" behind the plan, first unveiled in April 2007, to issue sukuk.

Despite the current economic troubles, both government officials and bankers are convinced that the political and financial benefits of issuing sukuk would outweigh worries about its cost.

They also believe the bonds would cement London’s position as the leading western center for Islamic finance.

Sukuk, which conform to Islam's prohibition of receiving or paying interest, typically work as profit-sharing vehicles.

Companies that issue Islamic bonds make payments to investors using profits from the underlying business, instead of paying interest.

Bankers note that conventional companies and non-Muslim individuals are turning to Islamic finance as an alternative because it offers an increasingly competitive way to raise money.

"I firmly believe that, in spite of the credit crisis, the prospects for Islamic finance remain positive," says a confident Weguelin.