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 behavior: 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.

The imam had told him to put his life savings into Apple as it was a successful company with relatively low debt 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 capitalization must be less than 33 percent 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 percent over the first quarter of 2019, outpacing the FTSE 100’s 8 percent rise.

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 relies on scholars for advice, while 32 percent seek the counsel of Muslim financial experts.

Sixty-one percent of respondents to the bank’s survey were also skeptical 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.

Originally published on https://www.ft.com