ISLAMIC FINANCE

The most significant Islamic financial product to be launched for the Muslim community in the United Kingdom was the Manzil home purchase plan. Manzil can be translated as home, or in spiritual terms as the house or dwelling of the soul. The original scheme, which was introduced in 1997, provides for murabaha financing through a trading mark-up contract. The Islamic Investment Banking Unit that runs the scheme is a part of the United Bank of Kuwait, which was established in London in 1966 to serve Kuwaiti overseas financial and commercial interests. In August 2000 it was taken over by the Al-Ahli Commercial Bank, which formed a new institution, the Ahli United Bank. This has been registered as an offshore banking unit in Bahrain with its shares listed on the stock exchange in Manama.

Once the client has chosen a suitable property and agreed a price he approaches the bank for Manzil financing. An application form is completed together with a direct debit mandate for the monthly payments if the request for financing is approved by the bank’s credit committee. The client must pay 0.1 per cent of the purchase price of the property, or a minimum of £176.25 including VAT, so that the bank can commission an independent valuation of the property. The IIBU will also seek references regarding the client’s financial position, usually from an employer or accountant and current bank. The client’s solicitor will be expected to lease with the IIBU’s solicitor who will seek assurances regarding the legal title of the property, which may involve legal searches.

For murabaha to be legitimate under Islamic law the bank, as financier of the property, must be the first owner. It is therefore the bank, and not the client, who con tracts with the vendor and pays the deposit required when contracts are exchanged. The sale price from the IIBU to the client has to allow for administrative expense a return to the bank’s investors and a profit margin. The client pays the purchase price through fixed monthly payments over a period of up to 15 years.