Why non-Muslims are converting to sharia finance

The Halal restaurants established by Muslim migrants in Britain quickly inspired an almost religious following among non-believers. Now a similar conversion may be under way in banking. Al Rayan Bank, Britain’s biggest sharia-compliant retail bank by assets, says around one in three of its customers is non-Muslim, up from one in eight in 2010. The […]

The Halal restaurants established by Muslim migrants in Britain quickly inspired an almost religious following among non-believers. Now a similar conversion may be under way in banking. Al Rayan Bank, Britain’s biggest sharia-compliant retail bank by assets, says around one in three of its customers is non-Muslim, up from one in eight in 2010. The Bank of London and the Middle East (BLME), another halal outfit, also has a following outside the faithful: the “vast majority” of customers are not Muslims.

A bank prohibited from paying interest might seem an unlikely choice for savers. The practice is banned under sharia. Instead, Islamic banks invest deposits and return a cut of the profits, which amounts to much the same thing as far as many savers are concerned.

Some non-Muslims may be drawn to pious banks for ethical reasons. Sharia forbids investments in sin stocks like arms, alcohol and tobacco. Simon Walker, head of retail sales at Al Rayan, compares his firm to Charity Bank and Ecology Building Society, which market themselves as ethical alternatives.

But more are probably persuaded by competitive rates. Funds deposited for two years at Al Rayan return 2.32%, the best deal on the market according to Moneyfacts, a data firm. Price-comparison websites bring in clients who might not otherwise have considered Islamic banking. Some 90% of savers who opened fixed-term deposit accounts with Al Rayan last year were non-Muslims.

How do sharia upstarts beat the market? Returns on ordinary savings accounts are steered by the Bank of England’s base interest rate, which has been at rock bottom since 2009. Sharia accounts do not follow the base rate so closely. Nor do Islamic banks benefit directly from quantitative easing (in which the Bank of England creates money to buy assets from financial institutions), since no sharia-compliant facility exists. (The Economist)