LONDON, 23 September 2004 — The first bank in Britain to operate on Islamic principles, including interest-free loans, opened its doors yesterday in Edgware Road, the heart of London’s Arab quarter. Plates of dates and Arabic pastries were set out on a counter, with a friendly employee stood out front to welcome the first-timers in Arabic.

On its first day of business, the Islamic Bank of Britain (IBB) saw a steady stream of local customers, among them Siza Qais, a coffee shop owner originally from Baghdad. Qais said he had come to investigate “because this Islamic bank is in the street, in our neighborhood”.

“It’s a new bank, I would like to try a new one, Islamic especially. And more important there’s no interest,” he added. Islam’s Shariah law imposes a series of restrictions on banks, including a ban on charging interest for loans and prohibiting clients’ money from being invested in activities linked to alcohol, tobacco and pornography.

To deal with the no-interest rule, the IBB will itself buy the assets sought by clients and then sell them back at a fixed price, via monthly payments. “We charge a profit for the services which we provide, we do not charge interest,” said the bank’s director of operations, Michael Hanlon. “We do not trade money for money. We are actually involved in the physical supply of goods and services to customers,” he said.

As many as 15 people yesterday opened a savings account, so far the only product available, according to a staff member, who said that many others had expressed interest but had forgotten to bring a proof of address. Online banking will be offered from next year, according to the bank, which has posted Arabic-language details of its products in the windows to attract potential customers.

Opening hours are identical to a conventional bank, with the exception of Fridays, when the bank closes between 1:00 and 3:00 p.m. to allow its employees to attend prayers at the mosque. AFP interviewed several customers, who all said they held a current account in a British bank, but no other financial product because of the Islamic ban on interest.

“The biggest issue obviously is the issue interest rate,” said one Moroccan customer on condition of anonymity. “We’ve always been waiting for these opportunities to have an account in a bank where you can get profits which are allowed in our religion,” he said.

The IBB was granted formal approval to operate by the Financial Services Authority last month, and is the first bank in Europe to specifically address the needs of Muslims, of whom there are 1.8 million in Britain alone.

Its president is Abdul Rahman Abdul Malik, formerly head of the Abu Dhabi Islamic Bank, while other top managers come from institutions including Jordan International Bank and British-based Barclays. The notion of Shariah-approved finance first emerged in Egypt at the start of the 1960s, and was developed in Saudi Arabia and United Arab Emirates, growing ever bigger.

Around 150 Islamic financial institutions operate in 40 countries, but their unconventional financing arrangements make them tricky to set up in the West.

Meanwhile, Malaysia is not threatened by Singapore’s ambition to become an international hub for Islamic financial services, and has proposed an Islamic universal bond to help Muslim nations get cheaper funding, a report said in Kuala Lumpur yesterday.

The central Bank Negara Governor Zeti Akhtar Aziz was quoted by the New Straits Times as saying that Singapore’s plan to send a team to the Middle East early next year to explore Islamic banking would help hasten global development of Islamic banking and finance. “We welcome it, the market out there is very large,” she said.

While Malaysia, which has fast-tracked reforms in a bid to become a key Islamic financial hub in Asia, has an edge over Singapore, the service-oriented republic may be able to catch up in a short time, industry observers said.