UK Bank Offers New Islamic Lease Products

Al Rayan Bank, a Shariah compliant lender, recently announced the first transactions of its kind in the UK regarding Islamic leasing by setting out a mandate for other financial
institutions to raise GBP250 million (US$346.79 million) through Islamic bonds via residential mortgages that rely heavily on Islamic leasing. It’s another example of Islamic leasing
branching out and finding new applications beyond the home lending market.

Apart from Al Rayan, the Bank of London and the Middle East and Gatehouse Bank are among 20-plus UK companies offering Shariah compliant financial products. The UK will also issue sovereign Sukuk next year.

Finterra, a fintech company based in Singapore, has developed a crowdfunding tool that takes advantage of block chain or digital ledger technology. Its goal is to develop innovative contracts to raise the money needed to transfer the ownership of Waqf. These Islamic charitable endowments are oft en used in tandem with Islamic leasing products for schools, mosques and other welfare
schemes.

In fact, Finterra’s initiative has paved the way to use digital ledger technology in other areas. It’s good to think this might be the first step in actually using block chain for Islamic leasing directly.
At any rate, this announcement shows a mounting interest and an expanding number of fintech companies that are growing in core finance markets that are Shariah compliant in Southeast Asia and the Middle East. Kuwait-based ALAFCO announced late last month that it was considering issuing an Islamic bond, among others, into the Islamic leasing market. ALAFCO currently owns almost 70 aircraft worth a total of US$3 billion and another 127 aircraft on order. The company is still in the initial stages of the process although they have raised US$300 million through an Islamic facility last year.

A research by PwC on Islamic leasing products reveals that digital technology usage for bank transactions is much cheaper. The American Federal Deposit Insurance Corporation reported that
Bank of America closed 243 branches between 2012 and 2016, replacing them with technology. This positive trend is all the more reason for Shariah compliant financial institutions to keep an eye on innovation and technology like block chain for their Islamic leasing products.

Shoeb M Sharieff is the president and CEO of Ijara Community Development Corp. He can be contacted at shoeb@ijaracdc.com