The development also comes at a time of reports of the UK’s first corporate sukuk issuance by International Innovative Technologies (IIT), a company specializing in developing green technology and based in Gateshead in northeast England. The 4-year Musharaka Sukuk is modest by the market standard with a total issue size of only $10 million. It was placed privately with Millennium Private Equity, a wholly owned subsidiary of DIFC-based Millennium Finance Corporation, which is the sole subscriber to the sukuk.

While the IIT sukuk development is encouraging news and an important psychological step, albeit very small, for a market seeking leadership and certainty from a long overdue UK sovereign issuance, the development at IBB is a different story reflecting more the underbelly of the difficulties of setting up an under-capitalized and ill-thought out Islamic commercial bank in the UK, probably with the unlikeliest group of promoters.

Whether the capital injection deals with the medium-to-long-term challenges of IBB, especially its future sustainability as a bank, in an ongoing difficult and uncertain financial and economic environment in the UK, only time will tell.

Shareholders, especially those representing the Concert Party, the core shareholding group comprising QIIB, Qatar Islamic Insurance Company (QIIC), Sheikh Thani Bin Abdulla Al Thani and Mohsen Moustafa, approved all four resolutions at the General Meeting. The Concert Party now owns 88.20 percent of the enlarged share capital of IBB, of which QIIB alone owns 80.95 percent.

The additional 2,000,000,000 new ordinary shares were admitted for trading on the Alternative Investment Market (AIM) of the London Stock Exchange (LSE) on Aug. 18 2010. According to the LSE, following admission of the new ordinary shares, the total number of ordinary shares in issue on admission will be 2,546,470,000 with each carrying the right to one vote.

The additional capital, according to a statement from IBB, will allow it to realize product development plans including the growth of its Islamic mortgage alternative, the Home Purchase Plan.

In fact, the Bank released details of two new products to be launched as a result of the capital injection. These include a 3.99 percent fixed rental rate product until January 2012 and a variable rental rate product at 4.99 percent. For IBB’s Home Purchase Plan, each monthly payment consists of two elements — a rent element, which is the amount that the customer pays to the Bank as rent on the Bank’s share of the property in accordance with an Ijara (Lease) agreement; and an acquisition element, which is the amount that the customer pays to purchase a part of the Bank’s share in the property in accordance with a diminishing Musharaka (partnership) agreement.

The rent element decreases as the Bank’s share in the property decreases with each acquisition payment. Correspondingly, the customer’s equity in the property increases, with every payment

However, in terms of stimulating mortgage book business, a £20 million capital injection is not going to have a dramatic effect. Its ability to fund expanded mortgage business is constrained by its ability to attract enough customer deposits; to raise money from any semblance of an Islamic money market; and its commitment to the new regulatory capital and reserve requirements for all banks of the Financial Services Authority (FSA). The Bank reported customer deposits of over £186 million, customer financing at £46 million and nearly 50,000 customers in its 2009 financial statements.

In March earlier this year, IBB, which started operations in September 2004, announced a pre and post-tax loss for the year ended Dec. 31 2009 of £9.5 million compared with a loss of £5.9 million in 2008. The loss, according to IBB, resulted from a difficult and challenging market in which the impact of the UK recession on the housing market, unemployment, disposable incomes and market yields adversely affected the Bank’s revenues.

A recent IBB statement however maintained that “the (IBB) Board is conscious of its responsibilities to ensure that Islamic Bank of Britain has sufficient regulatory capital to manage and grow the business. The Board closely monitors the Company’s capital position to ensure compliance with the FSA’s capital requirements through the Internal Capital Adequacy Assessment Process (ICAAP). New capital is required to support the future growth in customer assets, and ensure that an appropriate buffer is maintained over the minimum regulatory requirement. The new funding raised from the Placing will significantly alleviate the current constraints on the IBB’s capital and will allow renewed growth in the company’s asset base and assist it in moving toward profitability over the medium term.”

Sultan Choudhury, Commercial Director, IBB, put on a brave face when he maintained in the aftermath of the General Meeting “IBB already offers the largest range of Shariah-compliant products and services in the UK. With a fresh injection of capital we are well placed to grow the business through our Home Purchase Plan products. The products will offer peace of mind for customers, both financially and spiritually, which is especially important in the holy month of Ramadan.”

Such blatant optimism and gratuitous exploitation of religiosity disguised as marketing to British Muslims is yet another part of the problem of IBB’s misplaced corporate mix.