Islamic fintech pioneers test creative ways to engage consumers
In 2015, Junaid Wahedna stepped out of a taxi in New York, bewildered by the conversation he had just had with the driver. The young financial analyst’s cabbie, and fellow Muslim, said he had recently sought financial advice from his imam.
This is not unusual behaviour: every day, Islam’s spiritual leaders are called upon to counsel on many matters of life including personal finance. Sharia law imposes a range of restrictions on investment, and some of these rules are open to interpretation.
What surprised Mr Wahedna was that the driver’s imam had told him to put his entire life savings into Apple stock — it was a successful company with relatively low debt, so in the imam’s opinion appeared to be sharia-compliant, or halal.
Yet this was a high-risk bet. “Apple today could’ve been the AOL of the 1990s [the one-time internet giant that has floundered],” warns Aris Parviz, UK country head at online platform Wahed Invest — the company Mr Wahedna set up in 2015 after his encounter with the taxi driver.
“A lot of people in the community end up getting burnt because they don’t know who to go to,” Mr Parviz adds. As such, fintechs focused on Islamic finance are entering a market in which consumer knowledge and engagement remains relatively low.
When it comes to the stock market, Islamic finance proscribes investment in undesirable — or haram — industries, such as alcohol, tobacco and gambling. But it goes beyond excluding so-called sin stocks. There are also stock investment criteria concerning a company’s market value: total debt divided by trailing 24-month average market capitalisation must be less than 33 per cent to be compliant, according to the DJIM Index Shariah Supervisory Body.
Earning interest on assets is also banned. Rather than purchasing traditional bonds, Muslims can buy sukuk certificates. These give the sukuk holder part ownership of the underlying asset so they receive a share of the earnings generated, instead of directly receiving fixed interest payments from issuers.
Such restrictions do not necessarily harm investor returns. The sharia-compliant Dow Jones Islamic Market Titans 100 Index grew by 13.15 per cent over the first quarter of 2019, outpacing the FTSE 100’s 8 per cent rise.
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Investors can now access a wealth of halal robo-advice, payment platforms and peer-to-peer finance through fintech. Apps like Wahed Invest — which has more than 20,000 users worldwide — aim to help Muslims understand some of the rules more easily. Industry hub IFN Fintech lists more than 100 companies on its Islamic Fintech Landscape database that offer sharia-compliant services.
Yet engagement remains a sticking point for Islamic finance. In the UK, for instance, almost half of Muslims have never used a sharia-compliant product, according to Gatehouse Bank research published this year. A third of Muslims with an interest in Islamic finance rely on scholars for advice, while 32 per cent seek the counsel of Muslim financial experts.
Sixty-one per cent of respondents to the bank’s survey were also sceptical about how Islamic these products really are. Kemal, who worships at the Masjid Khalil mosque in west London, refuses to believe they are truly compliant, and as such he does not have a mortgage. While he admits to lacking education on sharia finance, he says he would be open to the idea of using an app to learn more.
Ahmed Al-Balaghi, a fintech researcher and co-founder of Biconomy, a developer of blockchain tools, says he is willing to compromise on some boundaries of his faith when it comes to finance.
“Having a mortgage is a must, otherwise you can’t get a house,” he says, accepting that being domiciled in the UK can sometimes make it harder to adhere to Islamic rules.
Mr Al-Balaghi likes Yielders, an Islamic crowdfunding platform for UK property that allows investors to buy shares in houses that it buys and lets.
There is no interest or leverage associated with any of Yielders’ products. The fintech researcher lauds the model’s simplicity, as well as the company’s willingness to “introduce as much fintech as possible” into its processes.
He also believes the platform could act as a model for innovation in more risky areas of finance, such as cryptocurrencies: speculative investments are banned in Islamic finance, and things like bitcoin are considered haram by many scholars.
In the UK — where about half of Muslims are aged 24 or below, according to the 2011 census — fresher technologies and a more exciting story could help engage younger demographic groups with their finances.
The current crop of Islamic fintechs are educators and pioneers in a potentially lucrative market. As Mr Al-Balaghi says: “I really like how they are pushing the narrative, starting with baby steps.”
Based in New York, Wahed is the world’s first halal robo-adviser and digital investment platform. Individuals can invest in diversified portfolios of stocks and shares Isas, as well as sharia-compliant index-tracking funds. The app is available in more than 130 countries.
Launched in 2016, Yielders is the first fully sharia-certified fintech platform to be regulated by the UK’s Financial Conduct Authority. Using the crowdsourcing model, it allows Muslims to invest in real estate via a special purpose vehicle. Investors “buy shares in a property that has already been funded and in most cases already let”.
Eiger Trading Advisors
Eiger is a trade intermediary that sources sharia-compliant commodities on behalf of Islamic banks and financial institutions. Launched in 2008, it also offers liquidity management services, enabling transactions in a range of assets that includes sukuk, retail banking products, derivatives and structured products. It also provides the Eiger Trading Platform, through which users can buy and sell assets.
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