Founder & CEO | 360WiSE® Media
Robert Alexander is a credentialed Senior Correspondent recognized by the United States Press Agency (USPA) and German Daily News.
UK Islamic finance lender StrideUp is marketing its debut RMBS this week, and in doing so is showcasing the sort of lending that securitization should be used to fund.
The deal, Meridian Funding 2025-1, is a rarity in the market. But this could be about to change as both investors come to understand the product more, and issuers find a viable route to funding these loans.
ESG investors should be gobbling up these certificates as not only does the deal look structurally sound, but it also supports a community that has been frozen out of the conventional UK mortgage market.
Without these lenders Muslims in the UK essentially have three choices if they want to buy a house: to compromise their faith and get a conventional mortgage; sacrifice years of home ownership while they build up the funds to purchase a house outright; or face the uncertainty of borrowing informally, if such large sums are even available to them.
StrideUp’s lending model enables Muslims to avoid all three — allowing them the same access to the market as most other people in the UK.
Interest payments are forbidden in Islam, so StrideUp simply lends to borrowers without charging interest.
StrideUp makes money by jointly owning the property with the borrower, who pays them monthly rent, slowly acquiring greater equity in the property until they own it outright, without having to pay any interest along the way.
While this may sound the same as a conventional mortgage, the meaningful difference is that every payment made to StrideUp increases the buyer’s ownership of the property, whereas in a conventional mortgage borrowers pay principal and interest to a lender, with the property serving as security.
The cashflows are, of course, similar to traditional mortgages, which is where securitization comes into use, allowing companies like StrideUp to build their business and reach more customers by packaging up their loans and off-loading them to the capital markets where there is a mature investor base for mortgage-backed paper.
Non-bank lenders such as StrideUp are already at a funding disadvantage to banks which have the ability to get funding through deposits. Securitization offers them a vital capital raising lifeline.
And so for ESG investors interested in making a difference, putting cash towards Islamic finance ABS contributes to taking people locked out of conventional finance away from the insecurity of renting and into their own homes.