Shariah-compliant platforms carve out P2P niche
More Islamic finance peer-to-peer lending platforms are launching, with one even looking to introduce an Innovative Finance ISA (IFISA), as Shariah-compliant platforms carve out a new niche in the P2P sector.
Islamic finance is a way of managing money that keeps within the moral principles of Islam, but these products are not limited to practicing Muslims. In fact, many non-Muslims have been investing in Shariah-compliant funds for years either for ethical reasons, or as a way of offsetting market volatility.
Islamic finance is based on the belief that money shouldn’t have a value in itself, so people should not seek to earn interest by money lending. It is also based on the idea that money should not cause harm, so Shariah-complaint financial services should not invest in things like alcohol, tobacco, and gambling.
Islamic finance also encourages partnership, meaning where possible, both profit and risks should be shared. They can be shared between two individuals, or an individual and a business for example. This goes to show how well suited the Islamic finance model can be to P2P.
In fact, global consultancy firm Capco has previously said that there is a place for Shariah-compliant P2P lending opportunities in the UK market.
And this place looks to be expanding, with a range of new Islamic finance platforms set to launch or grow in the coming year.
Qardus, which provides unsecured Shariah compliant finance up to £200,000 to small- and medium-sized enterprises (SMEs), launched in July 2020 as an appointed representative (AR) of ShareIn.
Loans are offered in the form of a commodity murabahah – an Islamic financing structure in which the seller and buyer agree to the cost and mark-up of an asset.
Now the first directly authorised (DA) Islamic finance platform Nester is preparing for its ‘hard’ launch at the end of this quarter, after a soft launch to borrowers and investors last year.
The platform, which provides buy-to-let, refurbishment and bridge financing for corporates, has also lobbied HMRC to change its tax rules to allow it to launch a Shariah-compliant IFISA.
Furthermore, Peer2Peer Finance News understands that another Shariah-complaint platform is working on launching to market as an AR.
Youness Abidou, founder and chief executive of Nester, said he is not sure if there is a trend of Shariah-complaint P2P platforms, but noted that the Islamic finance sector is still under-represented, and he wants to change this.
“There’s huge investment on our side to get us over the line, a massive commitment,” he said.
“I think the Islamic finance sector is significantly under-represented at the moment with real products and I think as a Islamic finance business we need to continue driving that growth and innovation.”
Whether there is a huge trend of growth in the sector or not, it is undeniable that Shariah-compliant P2P platforms have a place in P2P, by filling a very particular need and offering more choice to investors, regardless of their religious background.
