Sharia investment start-up aims for Malaysia, India expansion

So, when Wahedna was 22, he started his own Sharia-compliant finance company with $30,000 (Dh110,175). Three years later, Wahed Invest is now valued at $100 million, according to Wahedna, the firm’s chief executive.

Now, Wahed Invest says it is looking to launch in several new markets, including the UAE, and roll out new services to the millions of unbanked Muslims around the world.

“We get 20 emails every single day from India asking us when we’re going to be opening there,” Wahedna said. “There’s a crazy demand for what we’re doing.”

The company offers a number of Islamic finance instruments, including Sharia-compliant robo-advisory investment services, sukuks, and index-tracking funds which follow indices that are screened by Standard & Poor’s.

As part of the company’s compliance with Sharia, it cannot invest in interest-bearing instruments, or industries such as alcohol, tobacco, arms, and gambling.

Wahedna said he had identified Malaysia, India, and Nigeria as Wahed Invest’s three most important growth markets.

“We’ve mined through a lot of data, such as the number of Muslims, how many of them have access to the internet, GDP per capita and quite a few others,” he said, “[and] we find that these countries are really optimal for what we want to do.”

But how does an Islamic investment service make money from the thousands of new customers it acquires?

You don’t have Islamic banks in these countries, you don’t have investment products, you don’t have transparency or efficiency. We’re coming with the tech for that specific purpose.

- Junaid Wahedna, chief executive of Wahed Invest, a Sharia-compliant finance company

“We charge a wrap fee,” Wahedna said. “Our cost per client is really tiny, so even if we charge 0.5 per cent on all assets under management, we make money. It’s a scale game.”

“Sure, it’s not the most profitable business in the world, but we genuinely feel like we’re doing a good thing.”

The company has yet to turn a profit, but Wahedna said that growth was being prioritised over profitability.

Wahedna, who grew up in the UAE but is originally from India, initially set the company up in New York, where he was working as a banker.

“It was quite obvious to me [when working in finance] that there was nowhere for retail Muslims to invest their money,” he said.

People would keep their money in cash, he added, consulting their local Imam for advice. Many would simply invest in property for its simplicity, Wahedna said.

“So we decided to take this existing robo-advisory concept, and apply these simple filters to make it Sharia-compliant, so that every practicing Muslim is happy and has somewhere to keep their money.”

Except it wasn’t that simple, he said.

“It was way harder than we thought it would be. It was a whole different world.”

The sharia-compliant securities that Wahed Invest needed to access were global in nature, Wahedna said, making them hard to access. Sukuks, he said, were also difficult to invest in because they are typically traded in $200,000 blocks.

“Creating this infrastructure took a really long time,” the chief executive said.

The first year and a half of the company’s life went in to infrastructure building and licensing, with the support of a number of angel investors, he added.

Eventually, the company was regulated by the Securities and Exchange Commission (SEC) in the United States.

“It was a really competitive market, but the service just took off…and most of our investors were first-time investors,” he said.

This included lots of women, Wahedna added, who finally had a place to put their money.

Traditionally, many Muslims have been reticent to deposit their money in to banks, since banks typically offer loans which are interest-based. Instead, Islamic banks invest deposits and pay out a portion of the profits.

Trust problems abound, too.

According to Wahedna, many associate Wahed Invest with the Islamic banking industry, which he said has a bad reputation. A number of halal banks have been accused of simply window dressing, adhering to the basic minimum of Sharia requirements while misleading customers about potentially haram, or forbidden, practices.

As a result of this, Wahed Invest has a full-time Sharia board to consult on Islamic matters, ensuring its full compliance.

Halal banking and investment products have been rapidly growing around the world: The industry is now said to be worth $2.4 trillion, according to the Global Islamic Finance Report (GIFR) 2018, and enjoyed several years of double-digit percentage growth.

In many cases, Islamic banks in the Gulf have enjoyed stronger growth than traditional banks, and experts say that unmet demand may fuel further adoption in the coming years.

Following Wahed Invest’s launch in the US, Wahedna said he realised that “the real market was the rest of the world”.

“America has five million Muslims, Europe has ten times that amount, and around the world there’s 1.5 billion Muslims. It’s crazy numbers,” he said.

Even if the number of practising Muslims is only 10 per cent of that, he added, “that’s still a massive addressable market.”

“You don’t have Islamic banks in these countries, you don’t have investment products, you don’t have transparency or efficiency. We’re coming with the tech for that specific purpose.”

In August 2018, Wahed Invest launched in the UK.

That same year, the company raised $8 million in capital. It is backed by Middle East investors and venture capital firms including Dubai-based BECO Capital.

Wahedna said that he hoped the company would launch in Malaysia, the fastest growing Islamic finance market in the world, Nigeria, and India, in 2019, as part of an expansion strategy to open in as many new markets as possible.

“We want to be the first global Islamic financial institution.”