First Islamic bank set for the UK

21 November 2003
Gulf investors are to establish a fully Islamic bank in the UK, pending approval by the local regulator, the Financial Services Authority (FSA). To be called Islamic Bank of Britain (IBB), the planned bank already has a team established in London and is confident of being granted a licence. If given the go-ahead, IBB will be the first wholly-Islamic retail bank in Europe.

KPMG hasprepared a feasibility study for presentation to the FSA and the application was submitted in its final form in mid-September, following extensive discussions between IBB and the regulator. 'The FSA made comments on our proposal but the message was that there are no showstoppers,' says IBB managing director Michael Hanlon. 'Its timetable obliges them to make a decision within six months but we expect one considerably sooner. I hope we will be in a position to launch operations by the second quarter of 2004.'

Bahrain-based Islamic Joint Venture Partners (IJVP)raised the seed capital to finance establishment of the bank, and will remain a minority shareholder. A number of Islamic financial institutions in the Gulf have agreed to take a stake. Abu Dhabi Islamic Bank (ADIB)has extensive involvement in the project: the two banks will share a Sharia board and ADIB chief executive Abdul Rahman Abdulmalik will serve as IBB chairman.

Paid-up capital will start at £14 million ($23.5 million), with the intention of an initial public offering (IPO) on the London Stock Exchange three-six months after the start of operations to boost capital to £50 million ($83.9 million). 'We had to close subscription in April to enable the licence application but we need to raise our capital considerably to finance our plans,' says Hanlon.

IBB will launch with a head office and three branches, to be followed by the opening of about 10-12 branches in the UK's main Muslim population centres. About half the branches will be in London. 'While we will offer branch services, IBB aims to be technology-driven,' says Hanlon. 'Customers will have the option of telephone, internet and possibly mobile phone banking.'

Two years after beginning operations, the bank's timetable calls for expansion into Europe. 'Under EU rules, a bank licensed by the regulator of one EU country can obtain a licence to operate in another after two years,' says Hanlon. 'France and Germany would be obvious candidates for our next steps.'

IBB's Sharia-compliant products will be aimed primarily at the UK's large Muslim community but IBB also hopes to appeal to conventional banking customers through the competitiveness of its products.

'The IBB idea was stimulated by two broad developments,' says Hanlon. 'First, the market for Islamic finance is growing very rapidly. Even conventional institutions are recognising that they need to offer Islamic products, and conventional customers often feel that the principles behind Islamic finance are more ethical. Second, the regulator is much more amenable to the concept of Islamic banking now than would have been the case four or five years ago, because of both the growth in the market and greater government efforts at cultural inclusiveness.'

Hanlon has extensive experience in the retail banking world. Following a long stint as head of retail banking at Barclays, he joined Austria's Raffeisenbankand was posted to Poland to set up a retail banking network.

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