Britain’s first fully Sharia-compliant retail bank Al Rayan is gaining momentum. It has undergone a major revamp following the acquisition by Qatar’s Masraf Al Rayan (MAR) QSC in 2014. Franchesca Hashemi asks Tim Sinclair, senior head of sales and marketing at Al Rayan, about the bank’s transformation and table topping products

Al Rayan, founded in 2004 under the name Islamic Bank of Britain, has reinvented itself as a digitally-apt financial institution. It boasts nine bases in England, a robust parent company and posted its first annual profit since inception for the twelve months preceding December 2014 of £1.2m. It is a modest yet impressive figure, up from a £5.5m loss in the previous year. Yet the financial institution owes a large part of its success to a £75m investment from MAR in early 2014.

Tim Sinclair is senior head of sales and marketing at Al Rayan. He believes the acquisition has been emblematic of MAR’s desire to expand its global reach: "[…] they are looking to help individuals from the Gulf Corporation Council, Qatar in particular, invest in London but farther afield as well."

The bank anticipates a 35/ 65 split in commercial/ retail assets in the short term, with both areas expected to see further growth going forward, according to Sinclair.

Al Rayan’s flagship Knightsbridge branch will cater to this commercial property goal and, specifically, Private GCC clients.

He says: "[…] Knightsbridge is tailored around the individual’s personal and financial needs.

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"Staff at this branch can help with property searches, as well as helping customers understand how to identify property and the UK process."

Sinclair explains Al Rayan has three client-based propositions: standard, Premier and Private. While the exact eligibility categories are still a work in progress, Premier will require high net worth individuals have £75,000 or more worth of Al Rayan deposited savings or investments, a joint or sole income over £100,000 or home finance in excess of £500,000. Interestingly, Private clients will deal almost exclusively with GCC citizens however Sinclair reasons "crossovers" may occur.

Interest versus Profit-Sharing Agreements
The crux of Islamic banking lists transparent and ethical standards while interest, in any shape or form, is forbidden. Funds are instead generated on the Islamic finance principle of Mudaraba, meaning the bank and customer share an agreed percentage on the deposit. This calculation, according to Sinclair, is set by the profit allocation committee every month.

Presently the customer’s expected profit rate (Gross P.A) stands at 0.15% for a Direct Savings account, 0.05% for On Demand Savings and 0.10% for Young Person’s Instant Access Saving (YPSA). While the accounts shown are subject to T&C, Al Rayan’s expected profit share is 40% for Direct Savings Account, 50% for On Demand Savings, and 50% for YPSA.

Customer deposits are invested in line with UK regulatory requirements, as Sinclair explains: "The bank does not offer a product which enables the customer to choose only to invest in the London property market. Instead, it invests savers’ deposits in Sharia compliant assets, such as property via Al Rayan’s own Home Purchase Plan, Buy to Let Purchase and products and metals."

Yet in terms of the difference between a Sharia compliant business account and that of any one of the UK Big Four business accounts, Al Rayan’s senior head of marketing and sales explains that in principle both are very similar: "The arrangement we have is that your capital is always protected. In any case it is protected under the Financial Services Compensation Scheme. If we were ever – and to emphasis we never have – unable to pay the expected profit, a customer would still retain their capital and profit earned up to that point, or exit the deal entirely."

In both April and May of 2015, Al Rayan paid more than double its expected profit rate to its On Demand and YPSA customers, while Direct Savings account holders were paid 73% more than expected in May.

Digital and Products
The most striking aspect of Al Rayan is its super-smooth web design. This includes a presence on practically every social media platform. It even has a YouTube channel, with a selection of slick animations as well as pieces-to-cameras with bank executives. It is all very Generation Y, but what about the substance of the matter?

Sinclair, as the individual brought in to oversee Al Rayan’s transition, says: "[3 – 4 years ago] our online strategy was frankly appalling.

"We rebranded all our digital assets in 2014, and that has supported us a lot."

The online offering comes in three parts: part one is mobile enabled, where the corporate website informs the audience about products. At the same time, an online acquisition platform has been developed through a sales force- all of which is coupled with a broader investment in digital marketing.

Al Rayan has created a fluid one-stop shop for customer’s internet-banking needs. But how far this will be taken remains to be seen.
Could there be fist-flashing payment tools on the horizon? Sinclair gives nothing away: "Last year we were the first people to launch a Sharia-compliant notice-cash ISA, this year we launched a fixed term ISA and an instant access ISA. Two of which are notice ISAs, while our fixed ISA is top of the tables."

Al Rayan’s 120 Day Notice Cash ISA has a 2% return and requires a minimum £250 deposit. This product is making waves on online comparison sites, with BT Money writing in April 2015: "The top deal from Al Rayan Bank pays … a third more than the top easy access account open to all."

When asked if saving accounts are a central focus in product innovation, Sinclair replies: "Absolutely. Prior to 2011, direct non-branch sales were about 10% of our total. Now they are 70% of our total, and by sales I refer to savings and investment.

"There is a stream of asset and liability product development – we’ve launched four already this year we could well launch up to four more by the end of 2015.

Sinclair concludes: "Sometimes there is a perception that we are investing in all sorts of unusual activities that may or may not make profit. The reality is that we only really invest in very secure commodities. Typically, property, and non-precious metals or standard metal. Between those investments and our longer term property investments, they will produce a return."

Where to find Al Rayan
There are 9 locations in total: a flagship branch in Knightsbridge, then Whitechapel Road and Edgware Road in London, Birmingham, Leicester, and Manchester. The bank also has three agencies in Luton, Tooting and Blackburn. The latter are more so elements of spaces within someone else facility, according to Sinclair, and focus on the growth of Home Purchase Plans (HPP).

Al Rayan looks to open another three branches in 2015, with Ilford and Slough key contenders. Yet other territories such as Leeds and Bradford are under consideration.

Sinclair explains areas with ‘relatively high Muslim population density’ and ‘satellite hubs’ are strategically important. He says: "We are also looking into a model where we have a HPP advisor that can do transactional banking services on a smaller scale than a regular branch."

Potential ‘satellite hubs’ include Birmingham, Midlands and different parts of the North with Manchester as the focal point.

Sharia Compliant Debit and Credit Cards
Al Rayan’s website states that transactions around gambling, tobacco, arms, pornography or any other speculative activity that is prohibited by Islamic teachings are not allowed. So what would happen if an Al Rayan customer used their debit card to pay for one of these products, because technically it should be declined?

Sinclair answers: "A condition of the account is that cards are not used to carry out transactions prohibited by Sharia, but cards are not declined for this reason.

"Our principle focus is to be Sharia compliant from a financial perspective. What that in practice means, and this is a 100% requirement, is that we structure our organisation; we review our decisions, create products and look after our staff and customers in a way that is compliant with Sharia standards.

Adaptation and Ethics
There are 2,706,066 Muslims living in the UK, according to the nation’s 2011 Census. This makes up 4.5% of the total population. Yet Islamic banking is not exclusive. Al Rayan found 87% of applications for its Fixed Term Deposit accounts from December 2012 to 2013 were non-Muslims.

Moreover, Al Rayan’s figures show 81% of its Muslim and non-Muslim customers will use Sharia finance in future.

Ethical standards and competitive products speak to an international audience and as support from all demographics increase, including its target, Al Rayan’s future looks promising.

Sinclair says: "We have an external ethics committee [which is] the Sharia supervisory committee. It is made up from three external and independent eminent scholars in Sharia compliant finance. They regularly audit us, much like the external auditors KPMG."

"We also have the head of Sharia compliance. That individual is like an internal ethics officer so again they review the teams and decisions on a routine basis, and sit on various committees – just to make sure all the right things are done for the customer and society as a whole."