LONDON, 30 October 2004 — Newly-established Islamic Bank of Britain (IBB), encouraged by a successful equity private placement in the GCC and a limited initial public offering (IPO) in the UK, is reporting a “better than expected” response from customers in the first fortnight of business. In fact, IBB shares are now trading on London’s Alternative Investment Market (AIM), to which the bank was admitted on Oct. 12.
According to IBB Managing Director Michael Hanlon “the market response to the establishment of IBB has been extremely good. During the launch period, the bank received an overwhelming number of inquiries, which resulted in accounts being opened beyond the our initial expectations, even though in relative terms they were small and things are now balancing out.”
IBB soft launched its Edgware Road branch in London’s Marble Arch, which is popular with visitors and residents from the Gulf states, on Sept. 20; and formally launched its headquarters branch in Birmingham’s Hagley Road on Oct.7. There are plans to launch further branches in Birmingham and Leicester in November, and a further eight branches during 2005.
IBB has launched with three core products - savings accounts; term deposit savings accounts; and treasury deposit accounts, based on the Islamic contract of Mudaraba (trust financing), which according to Shariah law do not offer interest-based returns but a profit (or loss) return based on the investments made by the bank either in commodities finance or other short-term liquidity mechanisms. The depositors, in essence, appoint the bank as a Mudarib (manager) to invest their funds. They share the profit (or loss) with the Mudarib (the bank).
The No Notice Savings Accounts requires a minimum balance of just one UK pound and customers can make withdrawals without penalty at anytime.
The Term Deposits Savings Account requires a minimum deposit of 5,000 UK pounds, and customers deposit their savings for a fixed term - one month, three months, six months, and they can only withdraw funds at the end of each term. Profits rates are higher than the no notice account, but very according to the length of the term.
The Treasury Deposit Account offers flexible options and larger profit rates for customers who have 100,000 UK pounds or more on deposit.
IBB has an agreement with UK high street bank, Lloyds TSB, whereby any of its customers can make deposits into their accounts through any branch of Lloyds TSB. Hanlon confirms that the bank is “coming up with a broader proposition in November. On a month-by-month basis we will be introducing new products and services. Current accounts and finance products (loans) will be available in November, with mortgages, credit/charge cards, and small business banking accounts available in 2005.”
“We will be offering a broad range of Shariah-compliant banking products and services and will be using the latest technology systems to ensure that we provide customers with a reliable and quality service.”
The bank has already signed an agreement with Misys, the global banking technology giant, which is supplying the core banking IT infrastructure, Misys Equation; and with NOMAD which is supplying its direct debit and debit card software solutions.
The private placement and offering, adds Hanlon, provided “an investment opportunity, not only for those who follow the Islamic faith, but also to anyone who is interested in an ethical yet modern and efficient banking service.”
Indeed, according to Hanlon, the IPO and private placement offering IBB launched on Sept.1 was “heavily oversubscribed”, to the tune of 70 percent. The offering comprised 160 million new ordinary shares at an asking price of 25 UK pence per share, and raised 40 million sterling pounds gross. This translates to 38.5 million pounds net of expenses, and increases the share capital of IBB to a more respectable 52.5 million pounds.
The proceeds will be used to fund the growth of the branch network; development of new products; and the introduction of Internet banking by April 2005.
However, most of the new share offering was taken up by founding shareholders exercising existing pre-emptive rights, with a heavy bias toward GCC investors. In fact, the main placement agent for the Middle East was Qatar International Islamic Bank, one of IBB’s founding shareholders. Other IBB shareholders include the Emir of Qatar; the Bahrain-based Albaraka Banking Group, part of the Jeddah-based Dallah Al-Baraka group, headed by Sheikh Saleh Kamel; and DCD Partners, a UK-based South African financial services group.