Having already initiated a test pilot in the Isle of Man, ZeroPA, which is targeting the UK Muslim market with its interest-free digital finance solution, is working on expanding its business to the rest of the UK with a license from the Financial Conduct Authority (FCA), IFN Fintech has learned.
First conceived as a concept in 2016, ZeroPA was launched in June 2022. It received an e-money license in September and started disbursing financing last December to Muslims and non-Muslims.
“In our first four weeks of lending, we have achieved what we had expected in three months in terms of lending volume,” CEO and Founder Saqhib Ali, told IFN Fintech, without disclosing exact figures.
Saqhib set up a legal entity in the self-governing British Crown dependency Isle of Man last year to spearhead a pilot project to test its interest-free solution, which combines P2P, buy-now-pay-later and cashback mechanisms.
“Because of the robust regulatory regime and having to register with the FCA and the OFT [Office of Fair Trading] to become a designated business and a regulated moneylender, we decided the Isle of Man was a good territory to start our lending in,” shared Saqhib, who added: “The pilot was always intended to give us ideas on how to manage this business for scale-up in the UK and potentially other markets.”
The pilot project will be reviewed at the end of March.
ZeroPA intends to apply for an FCA license this year to allow it to expand its services in the UK. Understanding that it is a time-consuming process, it is exploring forming partnerships with established financial institutions, such as Ansar Finance, to leverage on their FCA approval until it is able to secure one itself, Saqhib revealed. Ansar Finance, established in 1994, is one of the earliest providers of Shariah compliant interest-free loans in the UK, regulated by the FCA.
How it works
Likening it to rotating saving schemes common in Asia, Africa and South America, ZeroPA lends to borrowers at no guaranteed return using funds from investors. Essentially, it is matching lenders to borrowers at no cost. Instead of cash loans, ZeroPA issues vouchers and e-cards, valued between GBP50—1,000 (US$60.38—1207.56), to spend with retailers, manufacturers and utility companies. Borrowers have up to 52 weeks to pay back.
“Because we want to target our lending to those most in need, we only lend to those who have been referred to us by a partner, such as a Credit Union, Citizens Advice Bureau, Place of Worship, School or Food Bank,” according to ZeroPA.
It is from the retailers that ZeroPA receives a revenue share. Its revenue model also includes introducer fees from financial institutions.
“Our biggest challenge is developing the retailer relationships, because without the retail relationships, we have no revenue model, and we need the money to lend out. Using a peer-to-peer model, it’s more challenging than if we were a deposit taker,” explained Saqhib. “Our second challenge is getting money in from lenders because otherwise if we don’t have the money to lend, then we can’t meet that demand that we’re seeing on the Isle of Man.”
ZeroPA is in discussions with several potential merchants currently.
It is worth noting that ZeroPA also established a community interest company (CIC), under the ZeroPA Madad brand, to offer emergency grant of up to GBP50 toward food, utilities, clothing and furniture to borrowers who cannot afford a loan. CICs are a hybrid between a charity and a profit-making company designed for social enterprises that want to channel their profits toward public good.
Diagram 1: ZeroPA’s model
Source: ZeroPA
Shariah compliance
A practicing Muslim, Saqhib set up ZeroPA as he was disenchanted by the conventional finance industry during his stint at Lloyds Banking Group from 2012 until 2016. While he thinks it is understood that ZeroPA’s Riba-free model is compliant with Shariah principles, the start-up does intend to get an official stamp of approval from Islamic scholars once it has secured sufficient funding.
The company joins at least another 41 other fintech companies providing Muslim-friendly products and services in the UK as at the 16th February 2023, according to the IFN Islamic Fintech Landscape.