Saudi British Bank (SABB) has completed its first sharia-compliant inventory finance transaction, as it works to further develop its offering for importers and re-exporters in the Kingdom of Saudi Arabia (KSA).

As part of a deal signed in March, SABB is providing finance to Saudi Arabian dairy company, Al Safi Dairy, with funding supporting the company’s import of feedstock and exports to other countries within the region.

Al Safi Dairy is a joint venture between a major group in the kingdom and a European multinational, supplying products to over 30,000 retailers in a dozen countries across the Middle East.

The new off-balance sheet solution aims to help clients leverage their inventory assets and boost their working capital, with companies able to procure goods and lock in pricing without carrying the stock on their balance sheet.

“This is mainly for larger Saudi Arabian importers who are buying on international letters of credit [LCs] and then sitting on sizeable commodity inventories as part of their business cycle which ties up their cash,” says David Leslie, general manager for global trade and receivables finance at SABB.

“After our dairy sector client retires the LC, they can then leverage this structure to optimise working capital for their feedstock inventory. Rising commodity prices and the trend of just-in-case inventories, as opposed to the just-in-time inventory management seen in previous years, puts this product in high demand,” he tells GTR.

He says the new sharia-compliant product will support businesses procuring seasonal commodities, such as agricultural goods, who often grapple with a fluctuation in raw material prices or rising import costs.

“We can go beyond commodities even into things like automotives, and high value goods like that, provided they meet our requirements,” Leslie adds.

This is SABB’s first foray into the inventory finance space. Catering to the KSA market, SABB’s new solution is based on a murabaha structure.

The move follows SABB’s launch of a new sharia-compliant supply chain finance (SCF) product in the latter months of 2021, with the bank providing payables finance to domestic suppliers of Saudi Arabian food company Almunajem.

While the product was initially deployed domestically, Leslie told GTR in December the bank’s buyer clients could roll out the solution to international suppliers, for instance in countries where demand for Islamic finance is strong, such as the UAE, Malaysia or Pakistan.

He tells GTR there are now a “number of clients” live with the solution, including several large Saudi corporates.