Britain's first independent 'Shariah-compliant bank', Islamic Bank of Britain, plans a move into insurance after £2.7 million interim losses.

Backed by the ruling family of Qatar, Birmingham-headquartered Islamic Bank (IBB), opened its first branch in London's Edgeware Road a year ago, a month before raising £8.5 million at 25p through an AIM float handled by broker Keith Bayley Rogers. In the first half of this year, customer deposits rose from £2.1 million to £33.9 million and have since then risen further – although £14 million represents one deposit from a single Middle Eastern investor.

Run by managing director Michael Hanlon, a Barclays veteran with subsequent banking experience in Eastern Europe and elsewhere, IBB now has 8,000 clients. Hanlon says he intends to drive IBB, which lost £3.2 million in the year to July 2004 and £3.98 million in the five months to last December, into profitability during 2007, with a full year of profit in 2008.

Hanlon, finance director Ashraf Piranie and director of financial operations Azhar Khan are working to build up the bank's client base – helped by recommendations from imams in mosques – and geographical presence. Branches have been opened in areas with high Muslim populations, including Whitechapel in London and another in Birmingham's Small Heath (which was unsuccessfully raided this morning by armed robbers).

Home finance, debit cards and consumer finance products are being developed and IBB is targeting internet banking, leasing, investment services, credit cards and expansion into continental Europe. Hanlon argues insurance could be a winner.

To conform with Shariah principles, IBB may not charge interest, but draws the equivalent in 'profits' on back-to-back commodity sales and purchases which accompany the transactions it arranges. The customer apparently need not know the difference.

Installing these practices sometimes requires persuading the Inland Revenue and Parliament to amend rules on VAT and other imposts and can involve heavy paperwork. These bodies have, it seems, been ready to co-operate and, as long as the planned insurance operation is run as a mutual, the Islamic 'scholars' who vet the bank, will approve, maintains Hanlon.

At 33.5p, up 1.5p today, IBB is a speculation and not for the risk-averse, but it has niche appeal.

Islamic Bank of Britain	AIM	£26.19m	6.25p	0.00p
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Islamic Bank eyes insurance			14/09/2005