ISLAMIC banking has traditionally offered Muslims financial products that are consistent with Sharia principles; the rules that underpin the Islamic faith.

However, over the last few years the presence of Islamic banking in non-Islamic countries has increased significantly and now represents one of the fastest-growing areas of the financial services sector globally.

This growth in popularity is particularly true in the UK, with 22 banks now offering Islamic financial products, more than any other Western country. This has been achieved through the establishment of dedicated Islamic banks, such as Al Rayan Bank, as well as more conventional banks, such as HSBC, opening specialist departments dedicated to offering Sharia compliant products.

There are a variety of reasons behind the increasing prevalence of Islamic banking in the UK, which go far beyond the simplistic assumption that Islamic banking is for those who follow the Islamic faith.

The evolving economic partnerships between the UK and other countries from across the world has generated a need for greater choice in how we carry out our financial dealings.

There are now a variety of Islamic financial products, which include savings accounts, investments, mortgages and insurance policies.

This increased choice in turn promotes wider societal participation, which extends beyond the Islamic community to non-Muslims who are looking for an alternative approach to banking.

So how does Islamic banking work?

Essentially the Islamic banking system is founded on Sharia principles.

According to Islam, money does not have an intrinsic value and cannot, therefore, be sold at a profit.

In other words, there must not be any interest associated with the financial product.

How is a return on money invested achieved then?

Well, this is done by engaging in Sharia compliant and ethical trading activities that are expected to produce a profit.

It is critical that any investment activity is consistent with the values of Islam, which means that investment in areas associated with alcohol, gambling, armaments, pornography, tobacco, or any speculative activity, is strictly prohibited.

Instead, money is invested in asset-based and traditionally lower risk commodities, for example property and metals.

The profit generated is then shared among savers and it is this expected profit rate that is quoted by Islamic banks in their advertisements.

It is important to understand the quoted profit rate is not guaranteed in the same way as conventional interest rates.

This could be perceived as a potential risk for Islamic banking savers as they could receive a lower profit rate than forecast.

Islamic banking products such as savings accounts do, however, offer competitive returns.

Indeed, if you use a comparison websites you will find that Islamic banking products regularly make it on to the 'best buy' shortlists, identified as offering some of the most competitive savings accounts on the markets.