Plugging a gap, UK fintech to launch Islamic solution for inventory monetisation
LONDON - A London Stock Exchange-listed company is set to launch an Islamic solution to help firms monetise their inventories, filling a gap in the market.
Supply@ME Capital (SYME) is one of very few companies that will offer Shariah-compliant solutions in inventory monetisation, which its CEO says there is a growing demand for.
“With the COVID situation, there are companies in several sectors in the Shariah space which have significant working capital shortfalls and needs,” said SYME CEO Alessandro Zamboni.
SYME’s competitors include Falcon Group, and Tawreeq that also offers supply chain and Shariah-compliant working capital solutions to SMEs. Newer players like Malaysia’s TFX Islamic, which launched in November, have also entered the sector.
“There are few competitors in our field in the MENA region,” said Zamboni. “Our closest competitor, Falcon Group, has a different business model.”
SYME has partnered with iMass Investment, where the UAE-based firm will work with the London company to offer Shariah-compliant funding.
iMASS will be responsible for inventory funders origination, client companies’ origination as well as SYME corporate development by supporting the operations in the UAE.
SYME’s Shariah-compliant solution was given the go-ahead by scholars Mohammed Elgari and Sheikh Yusuf Talal DeLorenzo last month, the company said in a disclosure to the LSE.
HOW IT WORKS
The Shariah solution can support companies in halal sectors with physical inventory including metal, capital goods, retail and pharmaceuticals.
The platform connects “client” companies to investors where they can sell their unused inventory for capital. The client companies keep the stock in their warehouses.
Investors fund the inventory via a Shariah-compliant securitisation scheme.
SYME’s investors are institutions as well as professionals including funds, banks and family offices. The platform is not open to retail investors.
CRITERIA
Client companies must not be distressed, produce or trade in non-ethical sectors, or be involved in non Shariah-compliant industries like gambling or firearms.
Companies are then assessed through a series of processes, methodologies, systems and legal contracts which allow them to get the derecognition of sales under IFRS 15.
Zamboni explained the platform relies on three important factors:
- The size of the inventory to be monetised (now the range is nearly 10 million to 15 million Euros)
- Marketability of the asset/inventory that the client company generated (and will generate) a margin for each sale (“margin test”)
- Credit risk: the rating/proxy of rating cannot be below CCC
Once a client company is eligible it is included into a portfolio of corporates to monetise via the Shariah framework.
Zamboni said the standard contract for client companies is three years.
SYME earns revenue by charging a due diligence fee to potential client companies that are assessed on their credit worthiness and the marketability of the inventory.
Once the company monetises its inventory via the platform, SYME charges an annual monetisation fee, that is offset by the proceeds of the monetisation.
| Before monetisation (due diligence fee) | Year 1 monetisation fee (off-set by the monetisation proceeds) | Year 2 monetisation fee | Year 3 monetisation |
| 0.2-0.5% | 6-8% | 6-8% | 6-8% |
After Year 1, in Years 2 and 3, the platform charges the rest of the monetisation fee.
At the end of Year 3, the company can buy the inventory or allow the platform to pick up the unsold units and sell on to third parties.
Zamboni explained that from the investor’s perspective, the platform issues a sukuk (also potentially packaged via a Shariah fund) with a three-year expected maturity date (and four years as legal maturity date), with underlying inventories across several sectors.
A GROWING MARKET
SYME is targeting small to medium sized enterprises. It is aiming for an average ticket size for client companies of £10 million but it can accommodate inventory of up to £100 million.
Zamboni said there are opportunities for client companies in emerging markets in the Middle East as well as in Indonesia, North Africa and South America.
The company’s existing conventional offering is operational in several markets including Italy, Europe, UAE and USA.
“We are open to working with different stakeholders as well as Islamic financial practitioners to enhance our offering,” said the CEO.
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