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.
