What Islamic sharia-compliant business finance is available in the UK?

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Hilton Smythe explores the landscape for Islamic business finance in the UK, from challenger banks like Al Rayan through to P2P and equity crowdfunding disruptors like Qardus and Nester.

What Islamic Sharia-compliant business finance is available in the UK?

Islamic finance is on the rise: globally, there are 526 Sharia-compliant banks and nearly 1,500 Islamic finance institutions. According to S&P Global, the industry continued to expand in 2023 with assets increasing by 8%.

Appetite also looks set to grow further: new research from SaaS cloud banking platform Mambu found that 85% of Gen Z Muslims want to try Sharia-compliant financial products, as people increasingly look to align their finances with their beliefs.

As of fairly recently, it was slim pickings for the UK’s Muslim business community. However, the range of riba-free commercial finance options is slowly growing, from challenger banks like Al Rayan through to new Fintechs such as Qardus.

Financing for every Tom, Dick and Hassan

Asset-backed financing is a natural fit for Sharia-compliant financial products, because Islamic law emphasises wealth creation through trade and ownership of real assets and forbids making money from money.

Ijarah, for example, is a Sharia-compliant leasing arrangement that can either take the form of an operating lease, where the asset returns to the lessor at the end of the rental period, or a finance lease, where the asset may pass to the lessee at the end of the rental period.

There are many providers of asset finance and leasing in the UK including HSBC, Investec, Funding Bay, Time Finance, and many more.

Unfortunately, the UK’s Islamic SME funding landscape remains somewhat patchy. However, there are still some options.

A new player on the scene, Qardus is an equity crowdfunding platform where you can invest in unlisted companies and own shares in return. They offer Sharia-compliant financing options (secured and unsecured) to small and medium-sized businesses (SMEs) across the UK, with typical loan sizes up to £100,000 and terms up to 24 months. They also plan to offer longer-term asset financing in the future.

Investments in companies on Qardus represent shares in a Special Purpose Vehicle (SPV) designed to comply with Sharia principles through a Commodity Murabaha structure.

Funding generalist SME Loans also champions financial inclusion by offering Sharia-compliant financing through a Murabaha structure. The lender provides interest-free loans ranging from £1k through £500k.

Financing options for Muslim-owned SMEs, of course, are more diverse overseas, with a wider range of providers like Funding Souq, Erad, Lendo, and others catering to this market.

Commodity Murabahah is the purchase of certain commodities on a cost plus profit basis (Murabahah) agreed upon by both the buyer and seller. The commodity is then sold on to a third party.

Islamic property debt investing is primarily upheld by the UK’s leading Sharia-compliant challenger banks, Al Rayan and Gatehouse.

Al Rayan offers finance for investment properties, with loan amounts ranging from £2.5 million to £32 million. They provide two loan term options: 5-year profit-only finance or 7-year partial amortisation. Longer terms are considered on a case-by-case basis.

Gatehouse provides similar options, offering buy-to-let property finance solutions on terms of 2 or 5 years. They provide ‘Acquisition and Rent’ products (the Sharia-compliant alternative to a conventional repayment mortgage) and ‘Rent Only’ products (the Sharia-compliant alternative to a conventional interest-only mortgage).

The digital-first Islamic alternative to Revolut, Nomo, also offers property finance for buy-to-let properties on terms of 2 or 5 years, using Commodity Murabahah. Finance amounts range from a minimum of £100,000 to a maximum of £2.5 million.

QIB UK offers Sharia-compliant financing and investment products for both Muslim and non-Muslim clients, including asset finance, project finance, working capital finance and contracting finance, enabled through a range of Sharia-compliant investment and funding techniques, including Murabaha, Mudaraba, Ijarah, Istisnah and Musharaka.

A lot of crowdfunding models are inherently halal, being based on profit-and-loss sharing and ethical responsibility, rather than interest repayments.

There are many international players in this space, including Maydan Capital, Ethis in Malaysia and Falcon Network in the UAE.

In the UK, Nester is the country’s first Sharia-compliant, peer-to-peer, and property-backed investment platform. It provides commercial buy-to-let, refurbishment and bridge financing for corporates, offering investors returns of up to nine per cent, secured on UK property.

While the number of Sharia-compliant commercial finance providers is growing, navigating the options can still be a challenge, especially with no universal online comparison tools available. However, a specialist Sharia-compliant finance broker like Hilton Smythe can simplify the process.

Struggling to secure finance that aligns with your beliefs?

Hilton Smythe can help. Get in touch today.

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