UK firm set to roll out Islamic liquidity solutions, eyes SME sukuk origination

LONDON - A UK-based boutique fixed income structuring house is set to launch next month Islamic liquidity management products to boost the shortage of solutions to the sector, particularly in non-Islamic jurisdictions. 

“Currently there are few options for Islamic liquidity management solutions in British pounds or in Euros,’” said Scott Levy, CEO of Bedford Row Capital (BRC).

Islamic banks and Shariah-compliant investors are unable to invest in conventional bonds like UK Government bonds (gilts).

“If you look at the yields on gilts and other similar asset classes, they are at almost zero or negative which would be against Shariah principles,” said Levy.

“We will start off initially by offering the product via a murabahah contract but we would also be able to offer other structures like wakalah, mudarabah and diminishing musharakah,” said Levy.

SHORT-TERM AND MEDIUM-TERM SOLUTIONS

BRC will start with two solutions: a 90-day and an 18-month.

The 90-day product has a fixed rate and fixed date.

The 18-month product is inflation-linked and consists of 6x90 days underlying Insured Money Market Certificates (IMMC). The IMMC is based on strict investment guidelines, incorporates insurance and credit enhancement, while providing heightened risk mitigation. The transaction parameters of IMMC are based on a fixed price, fixed term and fixed return.

Levy said the two products will be primarily available in GBP, USD, EUR and CHF.

The issuer of the products is Al Waseelah, a company incorporated in the UK. BRC is the Servicer and Calculating Agent for Al Waseelah.  Khalij Islamic is acting as the Shariah advisors to BRC.

The minimum ticket size will be £100,000 but BRC aims to have an average of £2.5 million.

Unlike the alternative liquidity facility that the Bank of England plans to launch this month, BRC will look to target smaller financial institutions, private wealth as well as awqaaf looking for short-to-medium term liquidity management, according to Levy.

He said BRC is looking to target clients in the UK and Europe as well as the GCC.

 “Like other jurisdictions, UK-based Islamic financial institutions are finding it difficult to invest in enough liquid assets,” explained Levy. “We are looking to connect different parts of capital together from different areas of the Islamic and non-Islamic world.” 

SME SUKUK OPPORTUNITIES

 In addition to liquidity management, Levy said that BRC is keen to originate sukuk for SMEs in the UK and Europe.

The company has a track record in this. Most recently, in October last year BRC launched an 18-month inflation-linked sukuk. The Islamic debt is denominated in Euros, Swiss Francs, U.S. dollars and British pounds, and are Insured Money Market Certificates.

In September 2020, BRC was involved in the structuring of a three-year $50 million sukuk by P1 Capital Ltd, a UK-based boutique asset management group. 

In 2019, it was involved in the Al Waseelah $50 million 10% 2026 sukuk to finance expansion of mining operations for NQ Minerals, a UK-listed company.

Since the UK sovereign’s debut sukuk in 2014, there has been little activity in the country’s sukuk market. In February 2018, Al Rayan Bank issued a debut £250 million sukuk, which followed a Shariah-compliant equivalent to a residential mortgage-backed security (RMBS).

(Reporting by Hassan Jivraj; Editing by Emmy Abdul Alim [email protected])

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