LONDON // In a brightly lit and typically English period building on the outskirts of Birmingham lies the centre for much of Britain’s Islamic finance activity.
On the top floor of these quaint headquarters is the roomy corner office of Sultan Choudhury, the fresh-faced chief executive of Al Rayan, the UK’s first fully Sharia-compliant retail bank.
“Before we came along, a whole generation of Muslims used to stuff their cash under their mattresses,” he says. “There wasn’t anywhere for people to bank that allowed them to act in line with their beliefs. So they just didn’t.”
The global market for Islamic finance is growing apace. In 2014 the sector climbed 12 per cent to US$2 trillion, according to financial industry advocacy group TheCityUK. The size of the market has more than tripled since the onset of the financial crisis in 2007 and shows little sign of abating. The Islamic financial services sector could be worth as much as $3tn over the next decade, according to Standard & Poor’s.
There are a number of factors catalysing this growth. In October 2013, the then UK prime minister David Cameron announced that London would assume a position of significance in the Islamic finance market. Mr Cameron said he wanted “London to stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world”.
These efforts have already borne fruit. Today the number of institutions in the United Kingdom offering Islamic finance is double that of similar institutions located in the United States, and far outstrips other western countries.
“Islamic finance has become systemically important in the UK, more so than continental Europe,” says Imam Qazi, a partner at the UK’s Foot Anstey law firm. “There are currently six Islamic banks in Britain, while another 20 lenders currently offer Islamic financial and wealth products and services, more than any other western country,” he tells Citywealth.com.
The UK’s sizeable Muslim population has also played a role in helping to establish London as the focal point of Islamic financial services in the West. About 4.5 per cent of the UK population is Muslim, according to the 2011 census. More than a million of the UK’s 2.8 million Muslims live in London.
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What: The Sharia-compliant lender Al Rayan is expanding along with the Islamic banking sector across the UK.
Why: Its better-yielding products appeal to Muslims and non-Muslims alike.
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Today Mr Choudhury finds himself at the fulcrum of these trends. With 70,000 customers and 13 offices and branches, six in the UK capital, Al Rayan is Britain’s largest Sharia-compliant bank. Since being established in 2004 the bank (then known as Islamic Bank of Britain) has offered a range of Sharia-compliant savings accounts, Islamic savings accounts (ISA) and home-purchase plans (HPP).
A Bangladeshi Briton, Mr Choudhury has been at the bank since it was founded by a small but savvy group of Middle East investors with a start-up fund of £14 million (Dh64.3m). The UK’s financial services authority granted the licence, Mr Choudhury says, partly on the grounds of enabling financial inclusion for the thousands of Muslims who remained unbanked.
Al Rayan Bank underwent a major overhaul in 2014 when it was acquired by its Qatari parent, Masraf Al Rayan, the country’s second-largest bank and the fifth-largest Islamic bank in the world. “That’s when we changed our image,” says Mr Choudhury. “We deliberately made our brand more accessible. Our imagery is no longer just Arabic; it’s about inclusiveness. We use British imagery because we’re targeting all Brits. If you track the moment we changed our brand, which was the culmination of all the work we’ve done, you’ll see that we’ve made profits ever since.”
The chief executive says about 25 per cent of the bank’s customers are non-Muslim. They bank with lenders such as Al Rayan Bank for better growth rates and, in some cases, because the Islamic model is viewed as more ethical than conventional banks. Sharia-compliant lenders typically offer some of the highest rates of savings returns in the UK. Every month since December 2012, Al Rayan has consistently offered at least one savings account with the UK’s highest rate of return, according to the independent financial data firm Moneyfact.
“In the last two years, our most popular savings products have been our fixed term deposits, our notice savings accounts and our cash ISAs,” Mr Choudhury says. “This is because these products have consistently offered some of the highest rates of return in the UK.”
He successfully steered the company over the £1 billion asset mark in late 2016 and says he does not plan to stop there. “We are very ambitious and we’ve only touched the surface of our potential. I expect that we could at least double in size over a five-year period. The market is big enough and we certainly haven’t hit any ceilings yet. But I want to manage it carefully. This is controlled growth, within our budget and plans.
“For the business areas that we’re in, we probably could do more. In commercial real estate, for example, we’re only taking a very small percentage of the market.”
Mr Choudhury also has his eyes fixed on the potential of the wider international market. In particular, he highlights the GCC national and ex-pat market as underserved by British banking and HPPs (mortgages with an interest-free and Sharia-compliant structure).“Our ambition is to be the number one go to bank for HPPs for GCC nationals and ex pats.
He says the bank’s expat HPP offering has largely been taken up by non-Muslims. “One of the first things we did with our link to our Qatari parent was to open our branch in Knightsbridge to serve our customers from the GCC, including the UAE. We started to develop a competency and core skills in assessing clients from the [Arabian] Gulf who wanted to buy property in the UAE. We soon saw that it wasn’t just people in the Gulf who want to buy property.
“Brits who work in the region want to buy property in the UK for when they come home eventually, or as an investment. They were struggling to get mortgages. We’ve developed a competency in assessing customers’ incomes abroad. We can work out whether it’s a stable employer; we can understand payments whether it’s in riyals or dirhams, and we know what the risks are. Local building societies don’t know enough about it, we do – we’re experts in that market.
“And if GCC expats have good qualifications, what’s to say that they won’t get a great job when they come back? Most of them will.”
Al Rayan Bank has recently experienced a pick up in overseas HPPs as both nationals and expats seek to bag a Brexit bargain. “Their income, which is dollar-linked, is going a lot further. Many people decided to take up the opportunity as it’s approximately 10 per cent cheaper for them.”
Mr Choudhury says his bank has seen its expat property finance business more than double since the 2016 EU referendum. “We believe that this is due to the bank’s … improved distribution channels – particularly in the GCC – and the current favourable exchange rate for British expats looking to buy property in the UK.”
As Al Rayan’s longest-serving employee and the brains behind its inclusive vision, Mr Choudhury says he is planning to stay put.
“I love what I do. I’ve love the pioneering aspect of what we do. People come up to me and say ‘you changed my life, you enabled me to buy a house when I couldn’t before’ – so that’s very refreshing.”
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