Lloyds TSB expands Islamic finance scheme

Lloyds TSB today continued the expansion of its pilot scheme to offer Islamic financial products, with the introduction of sharia-compliant products to its Southampton branch.

The branch will offer current accounts and home finance products, equivalent to mortgages, which comply fully with sharia law, forbidding the paying and receiving of interest, known as riba.

Lloyds TSB unveiled its sharia-compliant home finance product last month, and the current account was launched in February this year. The products were first piloted in London, Birmingham and Luton, and last week the pilot was extended to Dewsbury.

A spokesman for Lloyds TSB said that the scheme had so far been a success. "We are concentrating on branches in areas with strong Muslim populations," he said. "We expect demand to grow, and the pilot will be expanding further across the UK later this year."

Lloyd TSB's Islamic current account doesn't offer interest or an overdraft facility and has no fee or minimum opening balance. It comes with a debit card, and all charges on the account are the same as the bank's Classic account.

The bank said the funds held in its Islamic current accounts will be held in accordance with Islamic law. This means that investment will be restricted to ethical industries, so the bank will not be able to invest the money in certain companies, for example, tobacco, alcohol or pornography businesses.

The bank's home finance product will be based on the principles of ijara and diminishing musharakah. Under this arrangement, the bank and customer jointly buy and own a property. The bank purchases up to 90% and the customer buys the remaining percentage with an initial payment. To begin with, the bank is the legal owner of the property, but through monthly payments, over an agreed period, the customer buys the bank's share, until the property is transferred to the customer's name.

Britain has an estimated 1.8 million Muslims, but until recent years, the range of finance services which comply with Islamic law has been limited. HSBC began offering Islamic products in 2003, and last September, the Islamic Bank of Britain became the first UK bank to operate solely in line with Islamic law.

Lloyds TSB is the latest mainstream bank to enter into the Islamic finance market, suggesting that competition in this area is increasing.

Gordon Rankin, current accounts director at Lloyds TSB, said: "We want to offer Muslim customers banking services that meet the needs of their faith, while providing them with all the benefits that they have come to expect from a high street bank.

"They will be able to manage their money in accordance with Islamic law, but still have access to around 2,000 branches across the UK and the ability to bank online, over the phone or using a cashpoint."

The bank has consulted with a board of Islamic scholars to ensure that its products are fully compliant with Islamic law.