In a first of its kind for Ireland, the findings of The Philip Lee Islamic Finance Survey highlight an overwhelming desire from the Muslim community in Ireland for Islamic mortgages and other financial products. Based on the responses, leading expert Simon O’Neill, Partner, Banking and Finance Group at Dublin based member law firm Philip Lee (www.philiplee.ie
) estimates that there is an investment opportunity/gap in the market worth over €30million - and that’s just initially.
Simon O’Neill said: “We see that the lack of availability in the market in Ireland is creating financial exclusion in the Muslim community which numbers 63,500 (according to Census 2016). The survey shows that 98% of respondents would take up a compliant finance option if it was available in the market.
In the context of Brexit, established institutions in the UK will potentially lose the ability to carry on business in the EU. Therefore, Ireland offers a similar stable market and legal system, with an untapped demand for Islamic finance, allowing these institutions to continue to have access to the markets of the other EU27.”
Islamic Finance is a type of financing that must comply with the principles of Islamic Law (Sharia).
The main difference between conventional finance and Islamic finance is that some of the practices and principles used in conventional finance are strictly prohibited under Sharia laws. Not allowed are: Paying or Charging Interest
(Islam considers lending with interest payments as an exploitative practice that favours the lender at the expense of the borrower. According to Sharia law, interest is usury (riba), which is strictly prohibited), Any form of Speculation or Gambling (maisir), Participating in Contracts with excessive Risk and/or uncertainly (gharar) or Investing in businesses involved in prohibited activities
(Some activities, such as producing and selling alcohol or pork, are prohibited in Islam. The activities are considered haram
or forbidden. Therefore, investing in such activities is likewise forbidden).
Carried out between mid-December 2018 and the start of February 2019, The Philip Lee Islamic Finance Survey was circulated to the Muslim community in Ireland. It was completed by over 400 individuals.
The findings of the report show:
◊ 81% of respondents were living in rented accommodation notwithstanding that 50% of respondents had individual incomes in excess of €50,000 p.a.
◊ 98% cited the lack of a compliant alternative product as the reason for not purchasing a home or investment property. 95% of respondents had an indicative budget of between €250,000 to €500,000 for a home with the average mortgage finance required being approximately €274,500
◊ 86% of respondents expressed a desire to purchase a home or investment property.
◊ Amongst the respondents, only 15% had used financial products compliant with Islamic finance principles before.
◊ 33% had used conventional financial products.
◊ 98% would use an alternative financial product compliant with Islamic finance principles in preference to a conventional loan if available.
At present, there are no Islamic financial institutions operating or established in Ireland. As a result, there are no Islamic finance compliant financial products available to the 63,500 strong Muslim community either in the form of deposit, mortgage, SME or other products. Therefore, the community in Ireland has no option but to either accept conventional loan products (interest bearing amongst other criteria) or be excluded from availing of financial accommodation.
It’s also worth noting that Islamic finance is not restricted to the Muslim community.
In the UK many Islamic financial products have been taken up by non-Muslims seeking ethical alternative products. Most notably, deposit accounts offered by Islamic banks have been particularly popular due to the competitive profit rates offered on deposits.
Ireland’s First Islamic Financing Product: The First of Many
Simon O’Neill, Partner, Banking and Finance Group at Dublin law firm Philip Lee (www.philiplee.ie) has been working closely with Community Finance Ireland to introduce Ireland’s first Shariah compliant financing product. (see Editor’s Note for further information)
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EDITORS NOTE - Ireland’s First Islamic Financing Product
Community Finance Ireland (CFI) is an Irish charity dedicated to providing loans to community groups and has now extended in excess of EUR90 million (US$105.41 million) to over 500 organizations.
It has now added a Shariah compliant financing facility to its mix of products, effectively introducing the Republic’s first generally available Islamic financing instrument. It is structured as a Murabahah-based financing product to fund the acquisition of properties by Muslim community groups or social enterprises.
“There are currently a number of initial applications being reviewed from a credit perspective,”
according to Simon O’Neill, Partner, Banking and Finance Group at Dublin law firm Philip Lee (www.philiplee.ie) who worked closely with Community Finance Ireland to introduce Ireland’s first Shariah compliant financing product towards the end of 2018.
Through the non-interest bearing structure, social enterprises would be able to secure up to EUR500,000 (US$585,630) in financing to purchase real estate, provided the acquisition would facilitate projects benefiting the community.
Although a popular Sukuk listing destination, Ireland has seen little Islamic financing activities domestically despite amending its tax code back in 2010 to facilitate Shariah compliant transactions. None of the banks in Ireland offer Islamic alternatives. That’s a stark contrast to the UK which houses six fully-fledged Islamic banks and over 20 financial institutions offering Shariah compliant products.
CFI’s Murabahah property financing, which has been in development since 2017, would serve as a proof of concept underscoring the demand and viability of Muslim-sensitive financial products in Ireland.
However, this is but a first step for the Republic in introducing Islamic financial products for its third-largest religious group.