A UK-based digital provider of business cash advance (BCA) will be launching a trial phase for a Shariah compliant version of its product, the outcome of which will assist the government-backed financier in deciding whether to take the Islamic fintech route or otherwise.
For the last decade, Liberis has been providing a finance solution based on customer card payments, a technology allowing SMEs to access GBP2,500-300,000 (US$3,251.36-390,163) at a fixed cost of finance agreed upfront, with no interest charged nor late fees; a percentage from the borrower’s customer card transactions will serve as repayment to the advance. But it was only about a year ago that the firm started considering engineering its product to suit Muslim financing requirements.
“Shariah business finance was born out of an idea that because our product does not charge interest rates, it could be Shariah compliant – but as we found out, it is not as simple as that as we were still charging money on money basically,” Frederico Tavares de Carvalho, Liberis’s business development analyst who is leading this project, tells IFN Fintech.
Extensive internal research and consultation with Islamic finance specialist lawyers in the UK led the firm to discover that its product could indeed be transformed to be in compliance with Shariah principles using commodity Murabahah. The firm has also engaged Eiger Trading Advisors, a Shariah compliant financial intermediary, to facilitate with the commodity Murabahah transactions.
The next question is: is there a market for it?
“We conducted [a] test online with a one-page website. We pushed out some adverts via Adwords so interested customers could fill in their details. We ran the test for just under 20 days and found that there was far more interest than we thought. We found that [from] a good portion of visitors who left us their details, 70% we could serve with a BCA,” de Carvalho explains.
The firm then proceeded to a minimum viable product stage and will be launching the trial phase over the next couple of weeks, after which it will decide if there is indeed a real commercial opportunity behind Shariah compliance.
“If we pass this trial stage – which I think we will because I believe the demand is quite strong – the next step is to definitely go for the compliance certificates,” de Carvalho shares.