A new firm is targeting Muslims

One of Britain's fastest-growing companies, 1st Ethical, is hard at work opening up the market for financial services aimed exclusively at the UK's two million Muslims.

1st Ethical, commended in the Shell LiveWIRE Young Entrepreneur of the Year Awards this year, was set up in November 2001 to help Muslims to raise finance for house purchases or businesses using methods that comply with Islamic law.

Since opening their doors in Bolton two years ago the chief executive, Sufyan Ismail, and the deputy chief executive, Bashir Timol, have seen their business grow and staff numbers increase from two to 18 advisers. They raise finance for clients through ethical investments and structure home financing around leases rather than interest payments. The company plans to open two more offices by the end of the year.

This pacey growth, says Timol, is down simply to the great need in Britain for non-conventional financing. 70% of Muslim-owned homes are reckoned to be financed through conventional mortgages, involving their owners in a compromise of faith. Their options have been either to buy outright or to rent.

Last week 1st Ethical brought together the Islamic and financial communities at a two-day conference in London to offer guidance on Islamic financial models. Mohammed Taqi Usmani was one of 20 Islamic scholars who attended. Representatives from banks included HSBC and Standard Life. Timol says that the meeting aimed to bridge the communications gap between the Muslim world and the financial community.

Applying centuries-old principles to modern economic conditions is complex, he says, yet it is an issue that must be faced if banks are to offer a level playing field. On the high street there are positive signs that the market is opening up. HSBC became the first of the large high-street banks to offer a Sharia-compliant alternative to mortgages in July, although United National Bank launched its UNB Islamic Mortgage just ahead of HSBC. A spokesman said the bank has seen promising level of inquiries and applications through UK branches.

Both banks offer home finance through the Ijara model. The bank takes the property title and immediately leases it back to the customer over 25 years. The customer pays rent plus payments towards the purchase price. HSBC has received more than 8,000 enquiries and offers the service from across the country.

Noaman Hasan, the UK head of HSBC Amanah Finance, says that options other than conventional mortgages were just the start. HSBC will launch further financial products that meet the requirements of Islamic law. He adds "Home finance is only one area of people's lives."

Hasan says there is also demand for inestment products with mass-market appeal - an Isa wrapper structured around an ethical fund, for instance. But though the ideas seem simple enough, product development is necessarily a step-by-step process. Schemes need to earn the approval of the HSBC Sharia Board - experts at bodies such as the Muslim Council of Britain - and to accord with UK regulation.

Other UK banks tend to stay firmly on the side of business-to-business deals. Nationwide, for instance, says it receives few inquiries about Islamic mortgages through its branch network. The cost of structuring finance to the satisfaction of Islamic law rules out all except larger commercial deals.

But experts point to the growing affluence of the Muslim community in the UK. The market research firm Datamonitor suggests that the size of the Islamic mortgage market could rise from £40 million to £4.5 billion by 2006.