Feb 4 (Reuters) – London-based Umex Securities has launched an Islamic trade finance service targeting firms in the halal sector, addressing their limited access to sharia-compliant working capital and financing.
Umex aims to tackle a longstanding industry dilemma: halal companies, which produce consumer goods according to Islamic principles, rely mostly on financing from conventional banks despite Islam’s ban on interest payments.
While some banks do offer Islamic trade financing, this tends to focus on large commodity-related deals while neglecting smaller firms, said Mahesh Jayanarayan, chief executive of Umex Capital Markets Group, the parent company of Umex Securities.
“Islamic banks, like conventional banks, are paying attention to provide trade finance for big business, but less to SMEs (small and medium-sized enterprises). We can safely say that Islamic banks have failed their own backyard.”
Last July, for example, the Saudi Arabia-based Islamic Trade Finance Corp extended $358 million of financing to Jordan for energy and petroleum products. Similar finance has been offered to Egypt, Mali, Tajikistan and Tunisia. Such deals are prompting Islamic and Western banks to ramp up their efforts in Islamic trade finance involving rich Gulf economies.
But deals specifically designed for halal firms are rare, causing those firms to resort to short-term money lenders to bridge their working capital needs, said Jayanarayan.
“The halal sector is way down the list of priorities for both Islamic and conventional banks in the UK and Europe.”
While halal is most often associated with food, the market for such products extends into other consumer goods such as travel, clothing and cosmetics.
Umex will offer its Islamic trade finance service, called Umex Trade Bridge, first in Britain followed by other European markets such as France, Germany, Belgium and Italy.
“We will consider other countries where the legal structures are in place to provide such financing. We can safely say that outside of Europe our next destination will be the UAE (United Arab Emirates).”
Further expansion would be through partnerships or franchise models, Jayanarayan added.
Umex Trade Bridge provides Islamic financing facilities for terms of 15 to 120 days, with amounts ranging from 50,000 pounds ($81,500) to a maximum of 250,000 pounds.
The principal financing models used are murabaha and wakala contracts, both common Islamic structures, which have been vetted by sharia scholars including Bahrain-based Sheikh Nizam Yaquby and UAE-based Mufti Aziz Ur Rehman.
“For plain vanilla transactions we use traditional Islamic models. Where transactions require complex structures, we will resort to hybrids of Islamic models.”