UK government pushes Islamic finance in the country, introduces a Shariah compliant mortgage aid scheme

UK government pushes Islamic finance in the country, introduces a Shariah compliant mortgage aid scheme

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UK: Following the announcement made by prime minister David Cameron last year of a sovereign Sukuk issuance and the aim to become one of the leading Islamic finance centers globally, the UK government has successfully rolled out a Shariah compliant mortgage aid scheme yesterday (refer to Vol.11 Issue 6). The new product – ‘Help to Buy: Home Purchase Plan’ (HPP), was presented under the umbrella of the government’s ‘Help to Buy’ program which was introduced in October 2013. The move seeks to enable Shariah compliant banks to offer UK Muslims affordable home finance. In an emailed statement to Islamic Finance news, Islamic Bank of Britain (IBB), who has been working with the UK government on the development of the guarantee scheme, illustrates the mechanics of the new product. HPPs are Shariah compliant and ethical mortgage alternatives which are made available to consumers of all faiths and beliefs. As opposed to a conventional mortgage plan where the customer borrows money from a lender which is later repaid with interest, the HPP incorporates a combination of the principles of diminishing Musharakah (co-ownership) with Ijarah (leasing). As a result, the fusion allows the buyer and the Shariah compliant financier to purchase the property as partners. The customer will subsequently pay rent on the financier’s share in the said property. At the end of the stipulated term, when all acquisition payments have been made and the finance has been settled, ownership of the property will fully transfer to the customer. According to IBB’s estimations, there are approximately one million UK Muslims adults that are inclined towards Shariah compliant finance, with a need for its savings and home finance products. Commenting on the scheme, Samir Alamad, IBB’s head of Shariah compliance and product development, said: “The launch of the Help to Buy: HPP guarantee scheme represents an important step for the UK Islamic finance industry. By adapting the original mortgage guarantee scheme, HPP providers and customers can benefit from the same government support that mortgage lenders and borrowers have enjoyed. It has also introduced a level playing field for Islamic banks and consumers alike.”