Kuwait-based Asiya Investments is tapping into the surging regional demand for Sharia-compliant investment options, with a product that harks back to the 'silk and spice routes'.

The company has launched a trade finance fund with $20 million in seed capital, aiming to fill a gap left by conventional banks.

The firm's Cayman-domiciled fund, soft-launched in December, offers short-term financing through murabaha contracts, where the fund buys and sells merchandise on behalf of the company and shares a portion of the profits.

"We use a murabaha structure with the underlying commodity serving as collateral. This is a standard murabaha structure," Asiya's Dubai-based investment advisory director Brian Luck told the Gulf Daily News, our sister publication, on the sidelines of WIFFMC 2013 yesterday.

"We provide a gateway for capital flows to and from growing markets in Asia. We build paths for investment opportunities between the Arab world and high growth emerging Asian countries," he added.

Asiya estimates that current annual intra-Asia trade of $5 trillion could reach $20 trillion by 2020.

Despite strong growth in Islamic finance globally over the last few years, the industry has neglected merchandise trade, leaving trade finance for conventional banks to dominate.

"The opportunity is that banks are scaling back their trade finance business, making credit scarce for small and medium-sized firms," said Luck.

"Trade finance is not a well-known asset class but it is one of the tried and tested Islamic fixed income products available," he added.

"With locations in Asia and the Middle East, we offer our clients the opportunity to co-invest in Asia through our asset management products and direct investments," stated the top official.

"Our clients also benefit from access to our economic research and advisory services to help them in effectively building investment strategies between both regions."

Asiya is banking on heightened appeal for its product among Islamic institutions across the Gulf which are working to diversify their money market transactions. "The fund will have a higher yield than commodity murabaha contracts and better liquidity than sukuk," he said.

"We are aiming for a net return of more than five per cent," said Luck.

Asiya has $55 million worth of assets in the pipeline, with capacity for approximately $400 million.

"We are a value investor whose approach is based on in-depth market research and analysis and primary thinking that allows us to identify and capture profitable investment opportunities.

"The firm's strategies are run by a team of highly skilled professional investment managers based on the ground in Asia and supported by influential shareholders from the GCC," he added.-TradeArabia News Service