Peer2Peer Finance News
The UK's first peer-to-peer finance magazine for investors and the industry
  • Home
  • News
    • Personal Finance News
    • Industry News
    • SME News
    • Global News
  • Property
  • IFISA
    • IFISA Guide
  • Video
  • Open Banking
  • Cryptocurrency
  • Features
    • Joint Ventures and Promoted Content
  • Comment & Analysis
  • What is P2P?
  • Partners
  • Events
    • Past Events
  • P2P Power 50
    • Power 50 2020
    • Power 50 2019
    • Power 50 2018
    • Power 50 2017
  • Sign up to our e-newsletters
  • Magazine
  • Directory
  • Jobs
  • My Account
    • Manage Account
    • Change Password
    • Log In
    • Log Out
Zakat concept: Quran and tasbih with jar full of coins
December 22 2020

Capco sees UK opportunity for Shariah-compliant P2P lending

Kathryn Gaw Industry News, News, Top 3 Capco, islamic finance, Rahul Rajagopalan, Shariah-compliant P2P

There is a place for Shariah-compliant peer-to-peer lending opportunities in the UK market, according to global consultancy firm Capco.

In a series of white papers released over the past year, Capco has explored the viability of P2P lending within an Islamic finance framework.

The firm concluded that Shariah-compliant P2P lending is possible in the UK market, as long as all loans are secured against assets.

Under the principle of Riba, interest earned on loans is prohibited in Islamic finance. However, P2P lending is still possible if both parties sign a ‘murabahah’ contract at the beginning of each transaction. This contract is sometimes referred to as cost-plus financing, where the seller and buyer agree to the cost and mark-up of an asset before any money changes hands.

Rahul Rajagopalan, is a management consultant and Islamic finance lead for P2P lending at Capco. He advises on how to make P2P lending Shariah-compliant.

“There is a convergence between Shariah-compliant finance and P2P lending,” Rajagopalan said.

Read more: New pawnbroker P2P platform to launch next year

“The only way we could see it being done is by using an asset-backed lending process as opposed to debt because debt is fundamentally prohibited in Shariah-compliant instruments because of the concept of Riba. So the only way this would be possible is through a concept known as murabahah, which is cost-plus financing where the borrower and lender pre agree on the kind of mark-up on that transaction.

“By using the murabahah master agreement, the lender essentially protects themselves against any issues that they might have and the borrower is able to elicit funding for his project. But this can only be done if it’s for an asset-backed project.

“Another hypothetical solution to protect investors in the event of a default would be to present the investor at the time of joining the platform the option to enrol in a ‘takaful’ or group insurance that the platform maintains for investors and pays out in the event of a default,” he added.

“This would be very similar to a provision fund which many conventional firms use today to pay out investors in the event of defaults, however due to the interest bearing nature of many of the assets held in these provision funds it would be more appropriate to use a ‘takaful’ for a Shariah-compliant P2P firm.”

Shariah-compliant P2P lending is still a relatively new concept in the UK market. Earlier this year, Qardus launched an Islamic crowdfunding platform providing Shariah-compliant finance to small- and medium-sized enterprises. Qardus provides unsecured loans of up to £100,000 in the form of a commodity murabahah.

Read more: Mintos predicts “booming” fintech growth in 2021

Brickowner hires ex-Barclays adviser as head of compliance Robocash Group launches buy now pay later service in the Philippines

Related Posts

Andrew Bailey

Cryptocurrency, Industry News, News, Top 3

Andrew Bailey says cryptocurrencies will not last in their current state

invest fee calculator

Industry News, News, Top 3

Assetz Capital to remove lender fee by June

fintech sector

Industry News, News, Top 3

UK fintech ‘under threat’ without more research and innovation

Popular posts:

  • Everything we know about the CBILS successor scheme (so far)
  • Investors ready to put more money into P2P lending
  • RateSetter outlines benefits of debt consolidation loans
  • Banks begin freezing accounts suspected of bounce…
  • LendInvest bond value lost £5.8m during pandemic
  • Peering into the crystal ball: Industry predictions for 2021
Back To Top
  • Home
  • Contact
  • About
  • Team
  • Advertising
  • Subscribe
  • Privacy
  • T&Cs
  • Disclaimer

Follow Us on Social Media

© Peer2Peer Finance News 2020
• Additional design by