ethical alternativeS AN INSIDE LOOK AT THE GROWING ISLAMIC FINANCE MARKET by Jessica O’Connor
The market for Islamic property
finance has grown significantly over the past few decades. With the 2021 Census citing Islam as now the second largest religion in the country, the UK’s growing Muslim population has certainly been a key driver for the increasing number of Shariah-complaint products coming to the market. This has prompted both specialist Islamic and conventional financial institutions to expand their offerings, catering for the unique needs of the Muslim community, while also offering an alternative path for property finance. As a result, the existing landscape for Islamic finance has undergone a huge transformation, from what many regarded as a niche corner of the sector, to a more accepted, viable option for Muslim and non-Muslim borrowers alike.
Ethical investment As the property market continues to grapple with persistent economic challenges, such as rising interest rates, fluctuating inflation, and affordability issues, Islamic finance has continued to grow despite all odds – becoming
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The Intermediary | June 2024
increasingly accessible for struggling borrowers, offering an alternative model based on ethical investment and risk-sharing. Characterised by the prohibition of ‘riba’, the term for interest, and speculative activities, also known as ‘gharar’, Islamic finance revolves around asset-backed financing. This means that instead of borrowing money to buy a home and then making repayments with interest as one would with a standard mortgage, buyers enter a co-ownership partnership with the bank. Known as a Home Purchase Plan (HPP), the product stands as an ethical mortgage alternative, in which homeowners pay rent back to the bank as a means of buying back their shares of the property, achieving full ownership over time. This option not only positively reinforces the key ethical pillars of Islam, as it allows homeowners to avoid accruing interest, but also provides borrowers with increased support and flexibility when buying their own home. Delving further into this increased demand for Shariah-compliant products, many professionals within the Islamic finance space have pointed