Thursday, June 20, 2024

EXCLUSIVE: “Keeping The Faith” – Junaid Wahedna, Wahed in ‘The Fintech Magazine’

The rise of Sharia-compliant products is a way of righting age-old inequalities in finance, believes Junaid Wahedna, Founder and CEO of Wahed

With the democratisation of finance an accepted goal for most within banking services, it remains a challenge that the very building blocks of the industry are, on the face of it, anathema to big swathes of the global population who try to live by Sharia law. With interest considered riba – ‘an unjust, exploitative gain’ under the law and forbidden for Muslims – interest-earning bank accounts, interest on any form of lending or borrowing, including most mortgages, and interest-charging payment cards, are very much off the table.

Add into the mix the fact that for financial services to be compliant with the teachings of Islam, they cannot invest in companies associated with alcohol, tobacco, or gambling, and many Muslims living in non-Muslim majority nations face compromising on their faith simply to access basic facilities.It’s clear that halal (permitted) alternatives are required. And where there is a need in finance, very often it is fintechs who take up the gauntlet. Wahed, which was first launched as a Shariah-compliant investment platform in the States, came up with just such a transaction banking and savings alternative for British Muslims.

While it’s perhaps no surprise that the Islamic fintech market size in the 57 member states of the Organisation for Islamic Cooperation (OIC), totalled $49billion in 2020, and it’s anticipated to grow by 21 per cent to reach $128billion by 2025 (according to figures from Dinar Standard and Elipses), elsewhere, there is a widening gap between demand for Shariah-compliant finance and supply. In the US, for instance, a study by think-tank the Pew Research Centre estimated there were 3.45 million Muslims (1.1 per cent of the population) living in the States in 2017.

Between 2010 and 2020, the number of mosques increased by 31 per cent and almost a quarter of worshipers attending them were Gen Z or young Millennials – the typical fintech demographic – according to research by the US Institute for Social Policy and Understanding. The figures give an insight into Islamic observance in a country that is woefully underserved by Shariah-compliant financial services.New York-based Wahed, backed by Saudi oil giant Aramco, originally mobilised to cater for this ‘underserved sector’.

Since its creation in 2017, Wahed claims to have served more than 300,000 customers in 100-plus countries around the world with offices in the US, Malaysia, UAE, KSA, Nigeria, Kazakhstan, Indonesia, India and Mauritius. It became the first halal investment platform to be approved by the UK’s Financial Conduct Authority in 2018 and went on to acquire startup Niyah, a British company that designed a digital banking app for the Muslim community, in December 2020.

“You have a bank account number, a sort code, a debit card and ability to make transfers, but all your money is always kept in assets. It seems simple, but it’s never been done for this specific use case”

CEO of Wahed, Junaid Wahedna, explains the company’s genesis: “I come from a practising Muslim background myself, and finance is a very nuanced issue. Put simply, Muslims aren’t allowed to deal with or be exposed to interest in any way, shape or form. And, as you can imagine, that’s an impossible thing to avoid, considering our financial ecosystem in the West completely works around interest.

“So that’s why Wahed was formed; to give a credible, regulated alternative to keeping your savings in your bank account.”Wahed began by delivering a simple savings solution: instead of keeping money in a savings account or at a lending institution where it would be exposed to interest, customers could invest in a screened diverse portfolio with no interest element or related to any investees who could be regarded as unethical.

Earlier this year, Wahed upped its offering to UK customers by rolling out a gold-backed debit card, which will allow them to use Wahed as their main spend and save account, making purchases using their Wahed card with their money held in a gold exchange traded commodity (ETC).

“Customers didn’t want the money ever to be sitting in a bank because it would be used for interest-based lending and inequality creation, but they had been asking, ‘why can’t we pay our salaries directly into our Wahed account?’, ‘why can’t we spend out of our Wahed account?’” says Wahedna.“And that’s where this idea came about to have a transaction banking layer where you have a bank account number, a sort code, a debit card and the ability to make transfers, but all your money is always kept in assets. It’s very simple, but it’s never really been done for this specific use case.”

There are other advantages, too, that make it appealing to Muslim and non-Muslim users alike.“Your money is usually kept in fiat currency in a high street bank, but with us, it’s always kept in a real asset, so you don’t have the same inflationary pressures. Your wealth grows over time, just as the high-net-worths’ do.

“There is no multi-millionaire keeping their money in cash. They are all in assets and portfolios. And that’s the solution we wanted to provide the everyday consumer. So, not only does it solve this faith-based restriction that we have, but it’s also better for them in the long term.”

Of the UK’s 3.9 million Muslims, one-third are based in London where Wahed opened a physical branch on Baker Street in January this year. With closures becoming the norm for many high street banks, Wahedna explained at the time of the launch why it was important it bucked the trend.

“In the UK, [the Muslim community is] actually one of the lowest socio-economic segments of the country, with low incomes and poor financial literacy,” he said. “They have trust issues and so they want to see a physical presence before they trust you with their money.”

Taking such a contrary approach is something of a USP for the business, says Wahedna and it doesn’t appear to be doing it any harm. During the recession, when there has been huge market re-evaluation within the fintech space, Wahed has more than ridden the storm.“

The recession has been amazing for us,” says Wahedna. “Our customers are very sticky, and we’ve grown our revenue some 75 per cent over the last year. “Previously, the trend has been for fintechs to come out with lending products or day trading apps – and that’s great as long as the markets are moving up. But once you have a recessionary environment, and markets are moving downwards, then people don’t want to trade anymore, they’re not making any money, and a lot of people get hit. We were lucky because ours was always a long-term savings product, it was always very conservative, and so we retained our client base.”

The past six years have not passed without controversy, as you might expect from a fintech that challenges fundamental norms. In February of last year, the US Securities and Exchange Commission (SEC) charged Wahed Invest, LLC with making misleading statements and breaching its fiduciary duty, and for compliance failures.Without admitting or denying the SEC’s findings, Wahed agreed to its rulings, which included retaining an independent compliance consultant, among other undertakings.

It went further, in May 2022, by recruiting a former director of the SEC itself – Lori A. Richards – as the first woman to sit on the company’s board.Wahed, which is powered by investment infrastructure provider WealthKernel, continues to keep the faith. Last year, it launched an exchange traded product (ETP) on the London Stock Exchange that allows investors to track the Wahed FTSE USA Sharia exchange traded fund (ETF) – the latter having outperformed the S&P 500 over the last three years, according to Seeking Alpha analysis.

And it is now acquiring a number of related Sharia-compliant services that can be accessed via its financial management platform in the UK: it offers pensions and savings and recently acquired iWill Solicitors in the UK.

Its mission is simple, says Wahedna: “We are helping solve the systemic issue of inequality created by the current financial system. By creating a genuine alternative to interest-based systems, we believe we can help beat inequality in the long run.”


This article was published in The Fintech Magazine Issue 28, Page 16-17

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