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Sharia Banking Growing Fast

Islamic bank accounts used to be very niche products, offered by specialist banks. These days, however, sharia banking is becoming more mainstream and many high street banks now offer Islamic current accounts and savings accounts.

In fact, Islamic finance is growing faster than any other subset of world banking. The IMF says the number of sharia-compliant financial institutions worldwide has risen from one institution in one country in 1975 to more than 300 institutions operating in more than 75 countries in 2008.

Sharia-compliant, or Islamic, banking follows rules that aim to promote prudent lending, risk reduction, profit sharing and an absolute ban on speculation and the short-selling of stocks.

Perhaps the most unusual feature of Islamic banking is the fact that savings accounts do not pay any interest, nor do loans incur any interest. This is because interest is classed as making money out of money.

Sultan Choudhury, commercial director at the Islamic Bank of Britain, the UK's only stand-alone, sharia-compliant retail bank, said: "The relationship between us and the customer is based on sharing risk and sharing the rewards from the financing and investments we make on their behalf."

Sharia-compliant mortgages are usually structured so that the bank leases the property to the homeowner, who essentially pays rent until ownership is transferred - a system which critics say is suspiciously similar to charging interest.