LONDON, March 22, 2005 (IslamOnline.net & News Agencies) - Lloyds TSB, Britain's fifth-largest bank, has become the third bank in the country to offer mortgage services compatible with Shari`ah (Muslim law).

Lloyds TSB said Monday, March 21, it would cater to the needs of Britain's approximately 1.8 million Muslims, reported Agence France-Presse (AFP).

The service differed from conventional British mortgages because it was “based on completely different principles,” said bank official Emile Abu-Shakra.

“What we are doing is buying the property on behalf of the customer and then leasing it back to them in a way which allows them to legally own it at the same time, to get ownership.”

Islam prohibits depositing one’s wealth and taking specified increase without the risk of either loss or profit making.

Therefore, the type of investment allowed is where a person deposits money in an account and shares both the risk of making profit or losing.

Shari`ah further forbids Muslims from receiving or paying interest on loans.

Under the new mortgage, the amount paid over the 25-year term would be broadly similar to a conventional mortgage.

The British bank would fund up to 90 percent of a house purchase and the customer would then repay that sum over a fixed period, alongside a rent payment for use of the property.

“It's a form of rental, but it’s completely compliant with Islamic law and avoids the interest system so it looks the same,” Abu-Shakra added.

The mortgage offered a solution to Muslim customers who wanted to buy a property but would not enter into a traditional mortgage agreement.

“Finding the money for a new home can be tough at the best of times, but Britain’s Muslims face an even more difficult dilemma,” said Mark Austin, of Lloyds TSB Islamic Financial Services.

“With traditional, interest-based mortgages out of the question for many, the choice has tended to be between going against the faith or avoiding a mortgage altogether.”

The mortgage and current account were being piloted in branches across heavily-Muslim populated areas of Britain, including Edgware Road in central London, Luton, north of the capital and the country's second city Birmingham.

Both services can be operated through any of the bank’s 2000 branches across Britain.

The bank said that it will derive much benefit from the market for Muslim-orientated financial products.

“The Muslim population in the UK is one of the fastest growing communities,” Abu-Shakra said.

“There are around two million Muslims in the UK at the moment, they haven't had access to this type of product in this way before so, it's going to be attractive to them. There is definitely a market for it.”

In 2003, HSBC banking group became the fist high street bank in Britain to offer mortgages and current accounts in accordance with Shari`ah.

A year later, the Islamic Bank of Britain (IBB) became the first Islamic bank to open its doors in the country.