Whether you're looking for a place to save or invest, want to buy a property or simply open your first bank account, here's how to find a Sharia compliant solution.
It covers types of personal finance that adhere to Islamic religious laws. Some of these core principles include:
Not charging interest (Riba) to borrow money or paying interest to savers
Not benefiting from restricted practices like gambling, pornography, alcohol or tobacco
Not speculating in high risk investments or in deals with extreme uncertainty
Sharing profit and risk between banks and consumers
To ensure their products follow these teachings, Islamic banks usually appoint a Supervisory Board to scrutinise any new products before they are offered to customers to ensure they're up to scratch.
It can also be called... Sharia, Shariah, Shar-iah, Islamic banking, Islamic finance
Anyone. You don't need to be a Muslim or actively practicing Islam to choose a Sharia account.
While Sharia banking accounts are available to anyone of any religion, normal restrictions will still apply, for example you need to be over 18 to borrow money.
Sharia banking follows ethical guidelines set down by Islam, but many of these rules will appeal to non Muslims as well.
If you are looking for ethical banking, then a Sharia account could be an option worth investigating if their principles align with your own.
However, there are other ethical banking products on the market that aren't Sharia compliant so make sure you shop around to find the right account for you.
The main difference between a sharia compliant savings account and a normal savings account is they will not pay interest.
You will not earn any interest from a Sharia savings account. Instead it will usually pay a share of the account's profits, which may not be guaranteed.
Accounts that work in this way usually advertise an expected profit rate, which tells you the percentage return the bank expects to pay you each year.
This rate isn't guaranteed because it is based on the estimated profits the bank could make from investing your money in a Sharia compliant way.
Yes, funds up to £85,000 in a sole account are protected, or up to £170,000 in a joint account.
There are several different types of Islamic savings accounts you can choose from, including:
Fixed term deposit accounts which last for a set period of time, normally between 6 months and 5 years.
Instant access savings accounts which allow you to deposit and withdraw money instantly.
Notice savings accounts which require you to give notice before withdrawing your savings, normally between 30 - 90 days.
Yes, some banks do offer ISAs so you can utilise your annual ISA allowance.
The following UK banks offer Sharia compliant savings accounts:
|Bank||Fixed term deposit accounts||Instant access savings accounts||Notice savings accounts|
|Al Rayan Bank||Yes||Yes||Yes|
Al Rayan Bank offer the following types of Sharia ISAs:
Instant Access ISA
12 months fixed
24 months fixed
To comply with Islamic finance guidelines any investment must not benefit from restricted practices, including investing in accounts that pay or make money by charging interest.
This means that investment managers have to screen potential investment opportunities to make sure they follow the requirements of Islam.
To get help finding a sharia compliant investment that's right for you speak to a qualified financial adviser.
You can still borrow money to help you buy a property and be sharia compliant.
Unlike a traditional mortgage, where you pay interest on the money you borrow, you instead buy the property in partnership with the bank or building society.
You then pay rent on their stake in your new home for the duration of your mortgage.
These are based on joint ownership with the bank. Your monthly repayments cover both:
Increasing your share of the property
Rent for the part of your home still owned by the bank
There are two main types of home purchase plans:
Ijara or Ijarah, where the monthly payments you make are kept by the bank or building society until the end of your agreement. It's only at this point that this money is used to pay off your balance and the lender's stake is removed.
Diminishing Musharaka, where your payments buy out a little bit of the bank or building society's stake every month. As your stake grows you have to pay less in rent to pay for the bank's stake.
To qualify for a home purchase plan you need:
A deposit of 20% or more
To show you can afford the repayments
You can find out more about home purchase plans on the Money Advice website.
As well as normal residential home purchase plans, some lenders also offer sharia compliant buy to let products.
These products let you borrow money to buy a property to rent out and work in a similar way to standard buy to let mortgages.
The following companies currently offer either home purchase plans or Islamic buy to let loans:
Sharia bank accounts work similarly to normal bank accounts and allow you to manage your account much like any other banks - you should be able to:
Use a debit card
Use online banking
Set up standing orders
Set up Direct Debits
Use a chequebook
Transfer money to other accounts
Islamic bank accounts work on the principle of Qard, an ethical interest-free loan. Any money in your account is lent to the bank interest free until you withdraw it.
The choice is more limited than it used to be but there are Sharia compliant bank accounts available in the UK. Some banks that currently offer them include:
None of the Sharia current accounts in the UK currently offer overdrafts.
Normal loans aren't Sharia compliant because they charge interest - so if you want to follow Islamic principles but need to borrow money you'll need to find an alternative.
While there aren't any high-street options on the market in the UK currently, you may have more luck speaking to a broker.
Again normal student loans charge interest so are not Sharia compliant - however a solution may soon be available to Muslim students.
The UK government is working on offering a Sharia compliant student loan where students pay charitable contributions as payment rather than interest on what they borrow.
In the meantime, if you are looking to apply for university try speaking to their admissions team to see what support they could offer.
Traditional car finance, including PCPs usually charge interest which is against Sharia rules.
However, if you can find a 0% hire purchase agreement then this may be a suitable option.
There are also some specialist second hand car companies offer Sharia compliant vehicle finance options, including Interest Free 4 Cars.
You can save for your retirement using a Sharia compliant pension, but there will be significantly fewer options to choose from.
To be Sharia compliant, investment fund managers can't grow their funds by investing in any accounts that pay interest, or that make a profit from restricted practices.
Another option is to take matters into your own hands and choose a Self Invested Personal Pension (SIPP), where you control where your money is invested.
This allows you to manage your own fund and choose investments that comply with Sharia guidelines.
Workplace pensions are managed by your employer who chooses which firm will manage and invest employee contributions.
You may be automatically enrolled onto your workplace pension, but that doesn't mean you will be given a Sharia option.
If you have a workplace pension you will need to speak with your employer to see if they offer a sharia compliant fund that you can choose.
If this isn't available you can opt out of automatic enrolment and choose to invest in a private pension or SIPP (Self Invested Personal Pension) where you can control where your money is invested.
All investments carry a degree of risk, but some argue fund managers are restricted by Sharia guidelines and that this makes them riskier - because they can't spread the investment risk as widely.
This fund is likely to be riskier than some of the other ways of saving with NEST. This is because it doesn't spread the risk in the same way that most of our other funds do, as it can only invest in shares that are Sharia compliant.
Source: Nest describing their Sharia Fund.
However, all pensions are still protected by either the FCA or the Pension Protection Fund if the provider were to go bust, depending on the type you choose.
At the moment there are no UK banks or building societies that offer a Sharia compliant credit card.
These have been available in the past but the lenders offering them have now withdrawn them from the market.
Hala insurance is called Takaful and is based on a co-operative system.
Takaful works by policyholders paying into a fund which is then used to compensate members who need to make a claim.
The main difference between Takaful and standard insurance is that the insurer doesn't keep the policy payments, instead they are paid a fixed portion as a fee (Wakala) and the rest is deposited in the shared fund.
At the moment Insurer Halal is the only active insurer that offers Takaful in the UK, they offer:
Static caravan insurance
Salaam Halal Insurance used to offer Takaful car insurance but ceased trading in 2010.
If you run your own business then there are Sharia compliant banking options available in the UK, including:
The following UK banks offer Sharia compliant business products:
|Bank||Bank accounts||Savings & investing||Property finance|
|Al Rayan Bank||Yes||Yes||Yes|
Zakat is an obligation to give money to worthwhile causes as set out by the Quran - they include:
The poor (Fuqara')
The needy (Al-Maskin)
Zakat collectors (Aamileen)
The poor and newly converted to Islam (Muallafatul Quloob)
Slaves to purchase their freedom (Ar-Riqaab)
Stranded travellers (Ibnus-Sabeel)
A debtor (Al Ghaarimeen)
In the service of Allah (Fi Sabeelillah)
Zakat donations are not usually automatically deducted from Sharia accounts, so it is down to you to work out how much you owe and to arrange the payment.
Some banks also offer a service to businesses to help them work out and pay the required amount of Zakat from their profits.
2.5% of your wealth annually is payable on investments and savings above a set threshold called the Nisab.
Maximise the value of your savings by hunting down the best rates available.