Islamic banking new demanded in the Republic

Patsy McGarry , Religious Affairs Correspondent, explains how Islamic teaching prevents Muslims from paying interest to financial…

Patsy McGarry, Religious Affairs Correspondent, explains how Islamic teaching prevents Muslims from paying interest to financial institutions.

Usury, or the charging of interest on loans, was once condemned as a grave sin and even beyond religion by philosophers/writers such as Plato, Aristotle, Cato, Cicero, Seneca, Plutarch, Aquinas, as well as Moses, Muhammad, and the Buddha.

In his Divine Comedy, Dante put usurers in the inner circles of the seventh circle of hell, below suicides and alongside blasphemers and sodomites.

Thomas Aquinas argued that to charge interest amounted to double charging - for both the loan itself and for its use. He said this was as morally wrong as if in selling a bottle of wine you charged for the bottle of wine and also charged a person to drink it.

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With the introduction of moderate interest rates in the Middle Ages there arose concepts of acceptable/just banking and just interest. The major vehicle for a change in attitudes to interest in the English-speaking world came with the granting by Henry VIII of permission to charge interest on money loaned, particularly in his 1545 Act "In restraint of Usury".

Then came the Reformation followed by the nurturing of that Protestant work ethic which in 1904 Max Weber proposed had such a major role in the growth of modern capitalism. In his essay "The Protestant Ethic and the Spirit of Capitalism" he argued that the aims of certain ascetic Protestant denominations, notably Calvinism, interpreted economic gain as an indication that they had been blessed by God. Over time this religious component in nascent capitalism was discarded, he said.

Meanwhile, in Catholicism there had also been a shift in the understanding of usury. In 1745, Pope Benedict XIV, in his encyclical Vix Pervenit, which strictly forbade charging interest on loans, added that "entirely just and legitimate reasons arise to demand something over and above the amount due on the contract" through separate, parallel contracts (ie, interest.)

But if tolerance of moderate interest charges grew in the West, this was not the case elsewhere. Islam remained implacably opposed.

According to the Koran: "Those who charge usury are in the same position as those controlled by the devil's influence. This is because they claim that usury is the same as commerce. However, God permits commerce, and prohibits usury. Thus, whoever heeds this commandment from his Lord and refrains from usury, he may keep his past earnings, and his judgment rests with God. As for those who persist in usury they incur Hell, wherein they abide forever."

Which means Muslims can have problems when it comes to dealing with banks. There are officially 32,000 Muslims living in Ireland, though the real figure is believed to be higher, and for them this is particularly problematic in relation to taking out mortgages or borrowing capital to fund business ventures.

It is why Ali Selim, secretary general of the Irish Council of Imams, called recently on banks to extend "Islamic mortgages" provided in the UK to Ireland.

He told The Irish Times that as many as 400 families associated with the Islamic Cultural Centre in Clonskeagh, Dublin, where he is based, wished to avail of Islamic mortgage products. Under an Islamic mortgage a Muslim pays a deposit and effectively goes into partnership with the bank on ownership of the house.

The rest of the amount owed - including the interest accrued, which is considered part of the total cost of the house - is paid off in rental-type instalments over a period of 20 to 30 years. No such product is available to Muslims in Ireland, which is why many of them rent rather than buy their homes. In the UK also, Muslim business people can enter into similar partnership arrangements with banks to avoid interest repayments.

In particular, Mr Selim has asked the Bank of Ireland to extend to this jurisdiction the special Islamic mortgage product it provides for Muslims in the UK.

A spokeswoman for the Bank of Ireland said that, currently, they had no plans to do so. She pointed out that the Muslim population in the UK was approximately two million and demand there justified the provision of such a service. "Market scale and demand [ in the UK] justify the high level of investment required to deliver such a product," she said.

She added: "We will continue to keep mortgages for the Muslim community under review and are committed to delivering products and services where market scale requires it."

She explained that Bank of Ireland Personal Lending UK launched its first Islamic product - the Islamic Home Finance Proposition or "Alburaq" - in August 2004 and was now also supplying residential, self-certification and buy-to-let schemes.

She said that "over the last decade, it has become increasingly common for the West to develop products that are structured in a Sharia [ Muslim law] compliant way".

Such products supplied by the bank in the UK "is based on the Islamic principles of 'diminishing musharaka', which in essence translates to diminishing ownership. This is where the customer and the bank jointly acquire a property.

"The customer's share is usually similar to the normal deposit, the bank's being the remainder," she said.

"The actual property is bought in the bank's name only. During the term of the agreement, say 25 years, the customer agrees to make contributions towards buying the property from the bank. These payments are known as acquisition payments. Month on month the customer's share in the property increases as the bank's diminishes."

In addition, the customer pays the bank to use the bank's share of the property - rent payment. The structure has received Islamic approval.

Bank of Ireland provides these products in the UK in association with the UK-registered Arab Bank - ABC International Bank. In December 2004 Bank of Ireland launched a property investment facility to meet the needs of its Muslim customers in the UK.

Branded "Amaar Property Finance" it is fully compliant with Shariabut structured differently from the Alburaq product.

It is designed for residential and commercial investment property. A fixed-term facility, with a minimum financing amount of £250,000, it is open to a broad range of investors including individuals, limited companies, corporations, educational or religious institutions and trusts.

It is not for use to fund property development and it is not a personal mortgage. The product is designed for specialist property companies and high net worth individuals seeking flexible funding for either development or investment projects across all property sectors.

However, many Muslims in Ireland, particularly those in business, have adopted a "when in Rome" attitude to dealing with the banks here.

Shaheen Ahmad has been in business in Ireland since the early 1980s. This not being an Islamic country, he said that many of the Muslim businessmen he knew in Ireland, were "not really bothered" about dealing with banks in the usual way.

"If you want to do business, you have to get money," he said, but if such could be in accordance with Sharia "we would love it".