Dubai-Luxembourg Firm Launches Islamic Factoring For SMEs

An investment group based in Dubai and Luxembourg has launched an Islamic trade receivables financing platform catering to the Gulf region’s small businesses, with plans to tap the capital markets to fund the venture, its chief executive told Reuters.

Tawreeq Holdings developed the concept over the past year and a half, aiming to give smaller firms a funding alternative to bank loans, which can be cumbersome and costly for most, said chief executive Haitham Al Refaie.

Besides start-up capital from regional investors, the firm plans to raise additional funds, he added without giving monetary figures.

“We are in the process of launching our investment funds and sukuk to attract liquidity from international investors.”

In conventional factoring, a bank takes over a firm’s receivables and collects payments on them, while charging interest on a loan extended to the firm.

Interest is banned in Islamic finance so other structures must be used. Sharia-compliant factoring is rare in the Gulf, although it is offered in Malaysia under a format that involves the sale of debt for cash, with Islamic banks serving as intermediaries. Many scholars outside Malaysia view the format, known as bai al dayn, as impermissible.

Tawreeq’s platform provides sharia-compliant factoring by connecting corporates, suppliers and investors to securitise trade receivables, said Al Refaie, a former head of the business banking group at National Bank of Abu Dhabi.

The system provides financing across the entire supply chain by allowing buyers and suppliers to transact directly with each other, he said. He declined to give more details, saying it was a proprietary system.

“Conventional factoring is more a form of discounting bills, while our model is about the collaboration of buyers and suppliers to offer complete cash-flow solutions.”

Fewer than a third of banks in the Gulf offer sharia-compliant factoring services, a study commissioned by the International Finance Corp said last June.