Peer-to-peer lender Beehive gets Sharia accreditation

Beehive, the Dubai-based peer-to-peer lending marketplace, has been accredited as Sharia-compliant.

The company which was formed by Craig Moore, a software entrepreneur, and is chaired by former Emirates NBD chief executive Rick Pudner, has been certified as Shariah compliant by the Shariyah Review Bureau, a Bahrain-licensed consultancy and auditor.

It is forbidden under Sharia to earn money from the lending of cash alone. Peer-to-peer lending matches investors with spare cash with small businesses in need of it.

"There is a big mismatch between liquidity, or the supply of financing looking for Sharia-compliant investments, and the places for that financing to actually go," said Mr Moore. "There is an opportunity to divert some of that into the engines of the economy – SMEs, which are important for job creation and economic growth.

"SMEs aren't always understood by some of the larger financial institutions. It's easier for banks to finance large corporates … than a business that has 10 people and is fast-growing but needs cash to fuel that growth." Beehive uses commodity Murabaha contracts to underpin loans. This involves the purchase and resale of a traded commodity on the Dubai Multi Commodities Centre at specified prices. The economic effect is equivalent to that of a loan.

For a company that exclusively uses commodity Murabaha to underpin transactions, earning Sharia-compliance should be relatively straightforward, said Bashar Al Natoor, global head of Islamic finance at Fitch.

“For online peer-to-peer lending, which is more of a platform, earning Sharia-compliance shouldn’t be particularly difficult,” he said. “In its easiest form, a Murabaha contract for asset-based transactions between parties – that would be relatively easy to structure.

“As long as there is a Sharia-compliant structure that accommodates the kind of lending the company does, that can be easily implemented.”

Beehive, which does not directly issue loans, has so far connected 32 businesses with US$4 million in Sharia-compliant loans from investors.

“The SME market is underserved by conventional banks, but even more underserved by Islamic banks. So it’s a good development from that point of view,” said Mr Al Natoor.

Data from the Khalifa Fund for Enterprise Development suggests that about 70 per cent of SMEs have their applications for funding from conventional banks rejected. Loans to SMEs account for just 4 per cent of outstanding bank credit in the UAE, according to the IMF.

In its recent annual check-up on the UAE’s economy, the IMF said that the government needed to play a bigger role in encouraging new funding sources for SMEs.

“[This] would include developing venture capital and business angel financing networks … and the Islamic banking model may play a greater role to provide equity financing,” the IMF report said.

Mr Al Natoor said: “Will this really be significant? If peer-to-peer lending takes off for SMEs in the conventional sector, then that would create an opportunity in Islamic banking. The need will be dependent on the general need for SME lending – whether it’s Islamic or conventional.”

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