Shariah-compliant home finance provider StrideUp plans to become a regular issuer in the UK’s RMBS market, as the firm looks to grow access to the Islamic finance market for the country’s four-million Muslim population.

Last month, the company issued Meridian Funding 2025-1, its debut public securitisation backed by home purchase plans (HPP).

Meridian is intended to be a “backbone funding programme” for StrideUp, Co-Founder and Chief Executive Officer Sakeeb Zaman told Debtwire. The deal was co-arranged by StrideUp shareholder and residential investment manager Venn Partners.

“A lot of thought went into the structuring for us to make it something we can really replicate efficiently over time,” Zaman said, adding that the company’s current run rate will allow at least one transaction per year. The company has also extended its private warehouse line, allowing StrideUp to fund a future GBP 300m of originations.

Founded in 2017, StrideUp aims to grow the offering of Shariah-compliant mortgages to the UK’s Muslim population. Islamic finance companies currently have a relatively small footprint in the UK, and most providers are subsidiaries of larger GCC banks serving a wealthy clientele.

Around 70% of Muslims in the country would prefer a Shariah-compliant product, StrideUp’s research shows.

Priced in mid-October, the GBP 313m deal was backed by a pool of over 900 home purchase plans at launch. As charging interest is forbidden under Islamic law, StrideUp’s HPPs involve the company buying the property in partnership with customers. The customer then purchases StrideUp’s share in the property over time, paying rent on the portion they are yet to own.

The last HPP RMBS to be issued in Europe was Al Rayan’s GBP 250m Tolkien Funding Sukuk No.1, which priced in 2018.

Although Islamic finance RMBS are rare in the UK market, Zaman likened the pool’s risk profile to that of UK prime mortgages.

“The manual underwriting allows StrideUp’s underwriters, StrideUp’s management and Venn Partners to learn a lot about the targeted cohort of customers and specificities of the Muslim demographic,” said Charles-Edouard Pouyet, managing director at Venn Partners.

Rather than marketing the Meridian deal solely to Shariah-compliant investors, the team instead tapped the UK’s large existing RMBS buyer-base, drawing orders from investment managers, bank treasuries and trading desks. Affiliates of StrideUp and Venn retained the equity and residual certificates in the deal on closing.

“There’s a dearth of Shariah-compliant fixed income notes [in the UK], but ultimately, we took the approach that there are UK buyers of RMBS paper, so let’s just get them comfortable that home purchase plan products are very similar to a conventional mortgage product from an investment risk perspective,” Zaman said.

Given the novel nature of the underlying assets and the structure’s Shariah-compliant features, pre-sounding investors helped drum up interest in advance. As reported, the seniors priced at 85bps over Sonia while the mezzanine tranches of the deal went subject earlier in the bookbuild.

Meridian Funding incorporated a range of Shariah-compliant features into a conventional RMBS structure. For example, it uses a profit-rate swap with BNP Paribas, in place of a conventional swap, and a Murabaha agreement with Standard Chartered Bank. StrideUp also sought the opinion of an Islamic scholar on the deal’s structure.

These “are standard products in the Shariah world but required a lot of work to be ported to the RMBS world,” said Pouyet.

Unusually for a debut issuer, the transaction included around GBP 50m of prefunding.

“We did quite a lot of work to get all of this into our first deal with the view that we’ll set up a really good template that we can use for deals going forward,” Zaman said.