Around two million people in the UK are hesitating to get a mortgage from conventional banks or building societies because of religious obligations. Most of them are Muslims and like to obey the rules of Islam. Conventional banking systems offer the customers to pay interest against their loan or mortgage. According to Islam interest is called "riba", which is forbidden by the rules of the Holy Quran. So how can the Muslims buy a home or get a loan where they cannot pay the interest. Most of Muslims are confused from where they can borrow money. Go with the conventional banks or newly established Islamic banks, who are not so much experienced in the UK mortgage market.
According to Usmani (2005) the main drawback in interest based system is financier has no concern with money when he gives an interest bearing loan to a client. But in Islamic financial contract cash money is not given to client, first of all they purchase the commodity and transfer to client then all profit and loss will be distributed between parties according to agreed terms and conditions (Usmani, 2005). As the Islamic Sharia is not permitting to pay or receive any interest from conventional nor even from any person or agency, so especially any Muslim is not allowed to use conventional mortgage for religious faith. It is experienced that home or property purchase is too expensive by using the cash on hand. To solve this problem the financial organisation or the bank buy the property or house with their name act as a landlord and the client pay the rent plus some money for the contribution for the property. At the end of the term determined by the lender and the client the property is transferred to the client that means the client absolutely buy the property.
According to Harding (2009) the Sharia serves mostly as a guide to personal conduct, though some rules are drafted into the legal codes of majority-Muslim states. It's founded, we're always told, on revealed truth from the Qur'an and exemplary stories from the Hadith, the sayings and doings of the Prophet. But the real influence of the Sharia lies in the way this material is constantly read and recast by modern Islamic scholars, reinventing old traditions or asserting new ones. Whatever they take it to be, growing numbers of Muslims are keen to stay on the path when it comes to banking and finance. The global Muslim population is upwards of 1.3 billion - roughly one in every five people on earth - and, with a religious revival of twenty or thirty years' standing, the way of Islam is now a crowded thoroughfare. It is plied by a great diversity of travellers from different parts of the world; some have money to burn, others next to none, but anybody with a modicum of wealth is nowadays a potential opportunity for banks offering Sharia-compliant retail services: current accounts, straightforward financing schemes and home-ownership plans (Harding, 2008). In some countries in the World like Iran, Pakistan and Sudan all banks are currently operating through Islamic financial law but other Muslim major countries like Indonesia, Bangladesh, Malaysia, GCC countries and North African countries operating both conventional and non-conventional banks. Islamic banking services run by Islamic bank and some conventional banks. In the UK some high street banks like HSBC Amanah, Bank of London and the Middle East are the main two conventional banks that offer Islamic banking to the customers from all background.
According to UN-HABITAT (2005) Islamic financial systems are located within the larger context of Islamic religious, ethical and economic systems. Islamic finance has seen annual growth rates of over 15% and the Islamic capital invested in global financial institutions is currently estimated at US$1.3 trillion. A key growth area is in the provision of Islamic mortgages, both within the Arab world and in Europe and North America (UN-HABITAT, 2005). Over the last few years some of the UK conventional high street banks like Lloyds TSB, HSBC have introduced Islamic products in several of their branches. In the year 2005 Lloyds TSB bank plc introduced Islamic products to some of its branches. A panel of Islamic scholars look after and guide the bank according to Sharia i.e. the Islamic rules for the Islamic products offered by the bank. Another high street bank HSBC has introduced Islamic products on the brand name Amanah. These two conventional banks are offering wide range of services with different windows on the basis of the Islam, like home insurance, mortgage, current accounts, pension etc.
The Islamic Bank of Britain is the first Islamic bank in the UK started its operation in the year 2004 which welcomes Muslim and non-Muslims alike as customers. It is operating with a few branches mainly in London, Birmingham, Leicester and Manchester where Muslim people are majority. All of their financial products are approved by a committee of Islamic scholar, called the Sharia Supervisory Committee. All of the committee members are expert of the Islamic rules and finance as well. They introduced the banking system, mortgage and other related products as Halal, which may be accepted by the Muslim and non-Muslim customers.
The Prime Minister of the UK Gordon Brown has pledged support for the growth of Islamic finance (BBC news, 13 June 2006). The UK is acting as "a gateway" for the growing industry. In another report of BBC news (17 October 2008) in the midst of turmoil in the global financial system, there is one branch of finance that aims to operate within strict moral and ethical boundaries - Islamic finance. One expert on Islamic finance, Durham University professor Rodney Wilson, points out that no Islamic financial institution has yet failed in the current crisis. He contrasts "excessive risk-taking" in the mainstream financial sector with "a fairly classical banking model" still followed by Islamic institutions. (BBC news, 17 October 2008)
According to FSA (2007) The Islamic financial market as well as the Islamic mortgage market has become exceptionally complicated as well as increasingly competitive. Today, practically most of the financial institutions in the western countries are attracting the customers through Islamic finance whether by Islamic Sharia complaint, "Islamic windows" or some other Islamic financial product, like the Islamic mortgage marketing. Most of the expansion of Islamic finance in the UK has taken place in the last five years, but the continuation of Sharia-compliant transactions in the London financial markets goes back to the 1980s (FSA, 2007). .
Aim
The aim of this paper is to provide a through outline of the main principles of Islamic finance and practice of Islamic Finance especially in the field of home finance in the UK. The paper emphasises the core principle of Islamic finance i.e. Sharia and Sharia complaint practices in the field of Islamic mortgage market, providing an insight view to understand and find out the effectiveness throughout the Muslim population as well as non-Muslim communities in the UK. By the end of the paper the readers should have a greater appreciation of the various types of ways to find the right mortgage products to be within the Sharia complaint environment as well as get an understanding of the effectiveness with .these kind of products. Through a mixture of different types of graphical presentations of some factors involving in the Islamic financial environment, the UK government policies, difference and comparison between the Islamic mortgage and the conventional mortgage, some examples of different types Islamic halal financial products effective in other developing countries in the world will be presented to get an overview the wide range of factors involved in evaluating and analysing the Islamic mortgage market.
Objectives
Understand the core principles of Islamic finance
Relate the principles to the Islamic mortgage
The key features of Islamic mortgage
Different types of Islamic contract relating to mortgage
Analyse Islamic mortgage prospect in UK from the various point of views
Dissertation formation
Chapter 1 - Introduction of the objectives & subjects and discuss limitations.
Chapter 2 - Literature review: This chapter will consist of the academic review of the literature on Islamic finance, types of contracts involved in Islamic mortgage and overall review of Islamic mortgage market in the UK.
Chapter 3 - Research Methodology: This chapter will outline the research methodology adopted as well as its possible ways of application by the primary and the secondary data collection.
Chapter 4 - Data and Analysis: In this important chapter various data will be presented through table, chart and different opinions and findings derived from primary research and secondary research to examine the effectiveness of Islamic mortgage market in the UK.
Chapter 5 - Conclusion: This chapter will present the overall conclusion of the study.
Chapter 6 - Recommendation: This chapter will make recommendations, some of which will be general while others will be specific to what will need to be done in the future by the Islamic financial institutions in the UK.
