Feb 4 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
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."