Interview: Humayon Dar Islamic economist developing Sharia-compliant products

In recent years, numerous financial apostles have urged charities to liberate themselves from a dependence on grants and donations and consider other forms of financing, such as loans. But one part of the sector has remained impervious to these appeals - Muslim charities.

There is a good reason. Sharia law means Islamic charities cannot normally take on loans because it says financing must be interest-free. But this aversion to financial products could change thanks to the work of Dr Humayon Dar.

Dar, an Islamic economist, is working with Charity Bank to develop 'Sharia-compliant' financial products for Muslim charities or charities run by Muslims. "The idea is to come up with something that would include Muslim charities in the financial mainstream," says Dar. "The money is there and Muslims can use that money without compromising their beliefs."

Muslim charities in the UK have traditionally relied on grants and donations, but that dependence is becoming untenable, says Dar. "The dynamics of Muslim charities have changed," he says. "After the 2001 terrorist attacks on the US, a number of Muslim charities no longer have access to donations coming from the Middle East or other parts of the Muslim world. Donors have increased their due diligence."

Dar, a former non-executive director of Charity Bank, is working with it to develop Sharia-compliant, interest-free financing for charities to meet what he believes will be growing demand. Up to a quarter of the UK's 1,000-plus Muslim charities could be interested.

One product idea is similar to hire purchase. If a charity wants to buy office space, Charity Bank could buy the property then rent it out to the charity. The charity pays rent plus the cost of the property in instalments. At the end of the agreement, the property is sold to the charity for a nominal fee.

Another is based on 'mark-up' finance. Charity Bank buys something, maybe a vehicle, for £50,000, say, and sells it to a charity client for £55,000. The sum is paid back in instalments.

The products mean Charity Bank could still get a return on its investments. "I'm helping Charity Bank to come up with at least two such products," Dar says.

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