Overwhelming desire for Islamic mortgages, lending products in Ireland

Lack of availability in the market in Ireland is creating financial exclusion in the community, says a survey conducted by a law firm


There is an “overwhelming desire” from the Muslim community in Ireland for Islamic mortgages and other lending products, according to a recent survey.

Based on the responses from 400 individuals who took part in the initiative, it was estimated there was an investment opportunity and a gap in the market worth over €30 million (RM139 million) initially.

“We see that the lack of availability in the market in Ireland is creating financial exclusion in the community. The survey shows that 98% of the respondents would take up a compliant finance option if it was available in the market,” according to the Philip Lee Islamic Finance Survey.

Philip Lee, an Irish commercial law firm, carried out the survey between December 2018 and February 2019.

Ireland has about 63,500 Muslims, according to a 2016 census. At present, the report said there were no Islamic financial institutions operating or established in Ireland.

Last year, O’Neill advised CFI on NIB property finance structure for Muslim community organisations

Simon O’Neill, the firm’s banking and finance partner, had last year advised Community Finance Ireland (CFI) on the launch of a maiden non-interest-bearing (NIB) property finance structure designed for Muslim community organisations.

CFI, formerly UCIT (Ireland), is a charity organisation which provides loans exclusively to other third-sector organisations such as community groups, charities, sports clubs and social enterprises. Since 2001, as part of the wider UCIT group, it had committed in excess of €90 million to over 500 organisations across the island of Ireland.

CFI was established in response to the decreasing grant support from the government and the difficulties experienced by community organisations in accessing commercial loan facilities.

UK Islamic Banks

In the UK, the scene is much more developed on the Islamic finance front. It has five fully-fledged Islamic banks operating — including two retail banks, with total reported assets of £4.1 billion as at June 30, 2018 — and more than 15 other banks offering Islamic financial services.

The UK has also raised the bar for Islamic mortgages. In February 2018, the UK saw the successful floating of its first deal tied to Islamic-style home purchase plans. The move opened up a new space in the structured finance markets.

Al Rayan Bank plc issued the Tolkien Funding Sukuk No 1 plc — the UK-based bank’s inaugural securitisation of residential finance-backed security, a Shariah-compliant alternative to a conventional residential mortgage-backed securitisation (RMBS).

The £250 million (RM1.36 billion) deal opened up potentials in the Shariah-compliant RMBS space, allowing conventional investors to tap the new investment stream.

Untapped Demand

In the context of Brexit, the survey report said established institutions in the UK will potentially lose the ability to carry on businesses in the European Union (EU).

“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 EU member states.

“It is also worth emphasising that Islamic finance is not restricted to the Muslim community. In the UK, many Islamic financial products have been taken up by the 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,” it said.

The survey results claimed financial exclusion that exists within the Muslim community in Ireland was due to their faith.

The report noted that the absence of savings accounts, mortgages and pension products means increased reliance on the rental market within the Muslim community, leading to a lack of integration, inability to set down roots in the wider community and difficulties for members of the community to plan financially for the future.

“Against the wider housing crisis and lack of capacity in the rental market, the offering of mortgages and other financial products that comply with the principles of Islamic finance shows a significant opportunity for the Irish market on many levels,” it said.

Aside from the demand for mortgages, the survey also demonstrated significant opportunities for investors or institutions in the area of deposits and savings products to be offered within the community from either a bank or credit union.