A new digital banking platform has started offering the first halal-certified banking experience in the U.S., by promising interest-free lending and investments.
Fair is a “neobank”, or digital-only bank, that practices principles in line with Islamic law, which forbids usury or collecting interest on loans. Fair’s customers can conduct business through its app, where customers can find a range of financial services based on Fair’s guiding principles. Every service is available for a one-time joining fee.
The new bank’s digital finance platform is the only one in the U.S. certified in Islamic Finance by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). The system is also FDIC-insured.
Customers can also avoid hidden fees and pay no fees for international money transfers. Wire transfer fees average about $45-$50 for transfers going outside the U.S. Fair also offers free ATMs and teller services and debit cards for children.
Through membership, customers can get access to “wholesale prices”, much like retailers such as Costco. The bank was launched this month with commitments of more than $20 million from independent investors.
The neo banking market was $20.4 billion in 2018 and is predicted to reach $471.0 billion by 2026. Fair says it has created the halal financial tech platform to also address halal-certified banking practices that contribute to the wealth gap and accessibility to financial instruments by underserved populations.
The one-time membership fee — $99 paid-in-full or installments — grants unlimited access to all Fair online banking and financial services, including interest-free lending, investments, and insurance in one platform. Fair customers also avoid banking fees, which Americans pay an average of $329 every year. Hidden bank fees cost Americans $11.6 billion during the first three months of the COVID-19 pandemic.
“Fair was created by an immigrant for immigrants,” Khalid Parekh, Fair founder, and CEO told The Arab American News. “I’m an Indian immigrant who came to the U.S. 20 years ago, with $100 in my pocket. I struggled with the American banking system and with the fact that bankers wouldn’t really help me if I didn’t have a big balance, and that I would get charged fess for not having a certain amount. And international transfers were never convenient.”
Parekh said Fair’s principles of banking are in line with Sharia laws. They work by letting its customers deposit without Fair leveraging those funds by loaning it out to other people to make a profit. Fair also uses an advisor platform that ensures Fair only recommends Sharia-compliant financial products. The bank also promises customers 2 percent dividends on savings. That’s compared to the 0.9 current national average for mainstream banking institutions in the U.S., according to the National Credit Union Administration.
“We don’t give interest and don’t take interests,” Parekh said. “I wanted Fair to be more than a bank; I wanted it to be a whole financial institution where you can do banking, lending, investments, and retirements. We want to help our customers through the entire financial journey.”
Fair provides interest-free lending for homes, auto, and businesses. For housing, Fair uses an equity-based platform, where it matches customer payments on a home. Fair forms an LLC (limited liability company) with the customer to purchase the house. Every month the customer buys equity from Fair towards the principal.
“We take equal risks when people buy homes and do due diligence and credit underwriting properly for all our members,” Parekh said.
Fair says its retirement investments are done in markets not prone to bubbles and by avoiding companies that are deemed to have a negative social impact-e.g., companies that profit from poor labor standards, harmful products, or environmental devastation. Fair also utilizes the Islamic principle of Sadaqa-e-Jariya, or voluntary charity, a type of charity that benefits people long-term and continues to earn the giver rewards even after death.
“Our early investors are all immigrant businesspeople,” Parekh said. “We did not take money from big banks or financial institutions. Our motto is people over profits. We do not want to take money from investors that will influence the products and services we offer our customers.”
Although a large number of digital-only banks have emerged in the US in the past few years, Fair differentiates itself by offering interest-free lending. The digital platform also offers its members the ability to invest, get insurance, and plan for retirement– all in one platform.
Currently, the Fair app is available in English, Arabic, and Spanish. But, the company plans to add new languages soon.
Parekh said that though Fair is designed to bring accessible and digital halal-certified banking to Muslim Americans, it can be used by anyone interested in ethically minded banking and wants to avoid conventional for-profit banking practices.
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