| Banking on a heavenly return |
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| 20 June 2008 | |||||||||||||||||||||||||||||||||||||||||
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“Thou shalt not give him thy money upon usury, nor lend him thy
victuals for increase,” says the Bible in Leviticus. “Those that live
in usury shall rise up before God like men whom Satan has demented by
his touch; for they claim that trading is no different from usury,”
says the Koran.
Most religions attempt to make rules about man’s relationship with money. Christians are told they cannot serve God and Mammon, and many religions require adherents to give a proportion of their wealth to the poor. Usury – the lending of money for excess profit – is an offence in most religions. Even the Ancient Greeks were advised by Aristotle: “The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve.” Yet people wanting to live according to their religions principles have their work cut out in a society where the ebb and flow of commerce is governed by interest rates. Help is nevertheless at hand, as financial services providers have begun to devise products and ways of investing that don’t offend specific religious sensibilities. Britain’s 1.8 million Muslims are among those best catered for outside mainstream financial services. Surveys show that about three-quarters of Muslim Britons are interested in running their savings and investments in keeping with the principles laid out in the Koran, and “Shariah compliant” services are available on nearly every high street, or by picking up the phone. These range from Lloyd’s TSB’s Shariah student bank account to Shariah mortgages, investments and savings accounts from a range of organisations. Mortgages are a tricky area for Muslims, whose religious rules proscribe the payment or receipt of interest (riba). Special mortgages have to be devised which are either based on a type of lease (ijara) or the sale and repurchase of the property (murabaha.) To win the label “Shariah compliant” schemes have to be certified by Shariah scholars who have the expertise interpret Islamic law. Shariah loans can work out expensive too, compared with conventional mortgages, so it is little surprise that, according to the Financial Services Authority, the size of the Islamic mortgage market remains small, at around £500 million and only a few thousand borrowers. But pressure to cater for the Muslim market is intense and even the Government has got itself involved. In 2003 stamp duty was modified for murabaha home financing arrangements, so that house buyers did not have to pay twice on the sale and repurchase of the property that the deal involved. Also, the last Budget started the ball rolling for the issue of an Islamic bond known as a sukuk, and measures have been put in place to ensure that they are given the same tax treatment as conventional bonds. The Government is even trying to find a way for Muslims to get involved in Premium Bonds. And it is not only Muslims who have been catered for by the Government. Fundamentalist Christians have also seen the law changed to accommodate their sensibilities. When pension reforms were introduced in 2006, the Alternatively Secured Pension was devised to cater for members of groups such as Plymouth Brethren, who are unable to take out an annuity – the usual form of securing an income for life with pension savings – because they believe that the pricing of an annuity is a form of gambling, which is proscribed,. This is because the price of an annuity involves the insurance company that issues it taking a bet on how long you will live – a judgment that in the Brethren’s view can only be made by God. Financial products that cater for devout Muslims must not only charge and receive no interest themselves; they must also steer clear of investing in forbidden activities and goods. These include alcohol, gambling, pork products, pornography, abortion, human cloning, arms, conventional banks or insurers because they operate on an interest basis, and most forms of entertainment. The irony of the development of these financial products for one specific group is that the ethical principles behind them may also appeal to many other religions, and people with no religious affiliation who like to take an ethical stance. In fact one leading Islamic expert has claimed that the appeal of products developed for Muslims will grow, and that within five years Islamic products will simply be marketed as ethical rather than religious products. Junaid Abbas Bhatti, director of Islamic finance consultancy Ballencrieff House, who helped to set up the Islamic Bank of Britain in 2004, says that that the nature of Shariah financial products offers peace of mind to investors who are worried about what their money will be used for when they invest. Sultan Choudhury, director of sales for the Islamic Bank, agrees: “One in five applicants for some of our products is non-Muslim. They are attracted to the different philosophy behind our services,” he says. Meanwhile Bhatti says: “Customers have peace of mind that their money will never be involved with any kind of usury – that is, interest-bearing loans – and that their money will never be used to support business activity that encourages unethical activity. “Within five years time I can foresee Islamic finance within Europe being marketed almost exclusively on its ethical merits.” If you are a Christian, or the thought of familiarising yourself with terms such as halal (permitted) haram (forbidden) and qard (interest-free loan) seems a step too far for you, you might feel more confident in dealing with an avowedly Christian financial adviser. For example, Kingsworld Walder of Bournemouth helps Christians to be “good stewards” and offers financial, investment, pensions and tax advice; schemes to Christians and Christian organisations, while www.mortgagesforchristians.co.uk and www.northantsmortgages.co.uk will be able to offer you home loan advice from a Christian perspective. You can find a list of Christian financial companies at www.oscar.org.uk/service/finance/advisors.htm One of the leading Christian advisers is Graham Cleveland, who founded Trinity Wealth Management in 2001 after a career in mainstream financial services. “God has a lot to say about setting goals, making plans and directing our steps,” he says. “This fundamental truth is in all our financial planning. God is not just interested in our goals, but also our dreams.” The firm is a full service fee-based adviser that emphasises full service financial planning. About 60% of Trinity’s clients are Christian and the firm is a member of the Association of Christian Financial Advisers. All members of this association must sign a statement of faith and use biblical financial planning principles. Cleveland, who is a member of the Church of England despite being brought up a Baptist, says: “We strongly believe that successful stewardship is the continued achievement of God-given goals using God-given resources.” He “tithes” part of his income to good causes, and has set up a charitable trust to channel money from his firm’s profits to aid projects. At present the St Albans-based firm is helping to fund the building of a school and provide running water for a village in the Dominican Republic. It also supports a project working with homeless people in Watford, and a scheme to encourage sex workers in Leeds to leave the industry. Cleveland has certainly taken no vow of poverty, but he believes that all money belongs to God and should be used for a good purpose. The firm’s principles quote passages from Proverbs, such as “Go to the ant you sluggard; consider its ways and be wise! It stores its provisions in summer and gathers its food at harvest”, to encourage saving and self-reliance, and “Dishonest money dwindles away, but he who gathers money little by little makes it grow” to encourage careful husbandry of wealth. Nor does the firm recommend only so-called “ethical investments”. Mr Cleveland’s business partner, Jon Cobb, says: “Socially responsible investing is admirable, but we feel our responsibility lies with how the individual client stewards his resources, rather than the world as a whole.” Ethical and socially responsible investment has been popular in the UK for many years among those wanting to do their bit for society and the planet. The UK’s first ethical investment fund was launched by Friends Provident in 1984, and now there are almost 100 green and ethical funds, with a combined value of just under £9bn and 750,000 account holders. Greg McCrave, director of Preston-based financial adviser Profit with Principle, which is influenced by Roman Catholic teaching, specialises in SRI (socially responsible investment) funds and bonds. Mr McCrave says: “Surveys suggest that the vast majority of investors do not want their financial gain to be at the expense of other people, animals or the environment. A ‘decent’ return in both senses of the word is what most people are looking for. “Unfortunately, unless we have deliberately chosen an ethical option for our money, we are likely to be investing in companies whose products and services we may disagree with.” Faith-based funds have soared in popularity in the US, with £8.5bn under management compared with just £250m a decade ago, but they have yet to take off in the UK. The main one focused on British investors is Capita’s Banner Real Life Fund, which invests in “companies which publicly profess their commitment to pro-life values, which supply the basic necessities of life, which provide products and services of long term benefit to the community and the environment and those who avoid any significant involvement in armaments, alcohol, tobacco or gambling.” US faith-based funds are more prolific, and include the Ave Maria Catholic Values Fund, which excludes companies that fail to “take a pro-family approach to investing” and it eschews “firms connected with abortion or pornography, or that offer their employees non-marital partner benefits”. Centurion Funds’ LKCM Aquinas Funds champion “core Christian values”, while Timothy Plan funds, founded in 1994, reject investment in any company that contributes to the “moral decline of our culture, through their involvement in abortion, pornography or active promotion of the homosexual agenda”. It also eschews alcohol, tobacco and gambling. But the question investors want answering is: Will sticking to your principles cost you money? Investors in the Timothy range of funds have done remarkably well. However, analysts put their success down to the fact that they are heavily invested in energy stocks, such as ExxonMobil, ConocoPhillips and Marathon Oil, which have been a big factor in their outperformance. Ethical funds will often lag their across-the-board counterparts. Eiris, the Ethical Investment Research Service, says: “Not all ethical funds are top financial performers. There has been quite a large variation in the past performance of ethical funds.” Analysts say this is because ethical funds tend to be more volatile because of their restricted range of investments – meaning they can do a lot better, but also a lot worse, than more broadly-based investments. Figures for the year to last July show that, over one year, the average ethical return was 18.36%, compared to 13.73% for “non-ethical” funds and 13.28% for the FTSE 100. Over three years, the figures were 57.23% for ethical funds, 52.39% for other actively managed funds and 48.02% for the index. However, in the 12 months to May this year, ethical funds lost an average of 9.1%, while mainstream UK investment funds were down 6.8% and the FTSE All-Share Index fell by 3.8%. But not all clients who are interested in ethical investment will put financial return above everything else. Many are more interested in the value of the social return of their investment. Brigid Benson, of the Manchester-based independent financial advisers Global & Ethical Investment Advice (Gaeia), says that many of her clients “want a respectable performance”. She says: “Members of the public are making connections between money and values. Surveys suggest that the majority of people do care about society, the wider community and the quality of life.” Research by investment house F&C earlier this year found that some 88% of respondents felt that it was either “fairly” or “very” important for companies to take environmental, social and governance issues seriously. The most cited area of ethical concern for potential investors was avoiding companies operating in countries with poor human rights records (25%), followed by avoiding companies whose activities damage the environment (21%). In contrast, certain traditional ethical exclusions were relatively low down the list of concerns, such as tobacco (10%), gambling (3%) and nuclear power (4%). What sort of religious and ethical products are available?Shariah products include: HSBC’s Amanah range includes mortgages, a current account and takaful insurance products. It also offers a pension savings investment fund. Other Islamic mortgage lenders include Alburaq, Ahli United Bank and United National Bank. Islamic Bank of Britain also offers Islamic home finance and a range of other Islamic products. Lloyds TSB offers mortgages, savings and bank accounts including a student bank account. Alburaq and Bank of Ireland now offer the UK’s first Shariah compliant capital-protected investment alternative to a guaranteed equity bond. The Children’s Mutual offers a Shariah compliant Baby Bond. More information on halal mortgages can be found at www.halalfinancialservices.com. While information on Islamic funds can be found at www.sukuk.com. Ethical Ethical funds information can be obtained from Eiris (www.eiris.org). Eco-friendly mortgages are available from the Co-operative Bank, Norwich & Peterborough Building Society, the Ecology Building Society, Hanley Economic Building Society, and Giraffe Money. Many banks and building societies support charitable causes. Yorkshire Building Society operates the “Small Change, Big Difference”, whereby savers can opt to donate automatically the odd pennies from the annual interest their savings accrue to charity. Triodos Bank offers a range of savings and investment products including ISAs and children’s accounts. Christian Banks Kingdom Bank offers savings accounts and mortgages to people wanting to build churches. Reliance Bank provides a full range of banking services, including a current account with debit card, mortgages and personal loans. Profits are donated to the Salvation Army. +++++++++++ How the religious and ethical products compare:
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