When the Islamic Bank of Britain (IBB) opens the doors of its first branch next month, it will be at the vanguard of a new breed of institutions aiming to cash in on the need for religiously approved finance.
The bank was granted formal approval to operate by the Financial Services Authority on Monday, and is the first bank in Europe to specifically address the needs of Muslims, of whom there are 1.8 million in Britain alone.
Islam's Sharia law imposes a series of restrictions on the activities of banks, including a ban on charging interest for loans and prohibiting clients' money from being invested in companies linked with areas such as alcohol, tobacco and pornography.
To deal with the no-interest rule, the IBB will itself buy the assets sought by clients and then sell them back at a fixed price, via monthly payments.
Previously, Muslim customers wishing to bank in accordance with Sharia law could turn only to specialist arms of traditional providers, such as HSBC's Amanah Global Equity Fund, or to smaller online banks.
The market in Europe was potentially significant, said Warren Edwardes, head of Delphi Risk Management, a financial services consultancy which has been advising on Islamic finance since 1985.
"The retail Islamic banking market in the European Union of about 10 million (people) is too substantial a market to ignore," he said.
"To date there has been minimal supply of Islamic banking products on a retail level, and the products offered have been uncompetitive with conventional alternatives."
The IBB is being supported by a group of investors based both in the Middle East and Britain, including some major financial institutions.
Its president is Abdul Rahman Abdul Malik, formerly head of the Abu Dhabi Islamic Bank, while other top managers come from institutions including Jordan International Bank and British-based Barclays.
The notion of Sharia-approved finance first emerged in Egypt at the start of the 1960s, and was developed in Saudi Arabia and United Arab Emirates, growing ever bigger.
"Islamic banking today is an industry that is still evolving," said Iqbal Khan, head of Global Islamic Finance at HSBC Amanah Finance, part of Anglo-Hong Kong banking giant HSBC.
"The industry manages approximately 180 billion dollars (145 billion euros) today, growing at approximately 15 percent per annum," he said.
Around 150 Islamic financial institutions operate in 40 countries, but their unconventional financing arrangements make them tricky to set up in the West.
Approving the IBB had proved to be "a lot of work for some time", a Financial Services Authority spokesman said.
The IBB plans to open its first branch in London in September, followed a month later by outlets in Birmingham and Leicester, cities in central England with large Muslim populations.
It has already been warmly welcomed by Islamic groups, with Iqbal Asaria, president of the Muslim Council of Great Britain's economic committee, hailing the IBB's arrival as "a watershed event in the history of Islamic finance in the UK".
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