Angel investors from the Middle East have invested in a New York-based fintech start-up touted as the world’s first provider of Shariah compliant automated investment services.
The US$5 million round of seed capital has allowed Wahed to launch its online platform to US retail investors and would help in the start-up’s global expansion plans.
The concept of robo-advisors is not unfamiliar in the conventional finance world (particularly in developed markets); however, in the Muslim world, it is unchartered territory. This is nonetheless changing as Muslims, particularly the younger generation, become more tech-savvy and are rising in affluence.
“While online investing may seem unorthodox to some Muslims across the globe, Muslim millennials in the US have been interested in digital investment services and computer-generated, wealth management advice for some time,” CEO Junaid Wahedna explained, adding that however, US Muslims – projected by Pew to become the second-largest faith group in the country by 2050 – have been left with few online investment choices that align with their beliefs.
The idea to meet this demand gap, in a market segment which is among the most affluent demographics in the US, has secured the buy-in of individual and institutional investors from the Gulf.
These include the founder of one of the largest Islamic private equity firms (Arcapita), Khalid Al Jassim, who is currently the managing partner of Afkar Holdings; Nasr-Eddine Benaiisa, the chief investment officer of Islamic investment firm Mawarid Finance and previously the person who co-spearheaded McKinsey & Company’s Islamic finance practice; Laurent Nordin, a director with McKinsey & Company based in Abu Dhabi; and John Elkhair, the managing director of Elkhair Management whose previous stints included advising the CEO of Qatar Investment Authority and serving as JPMorgan’s managing director.
The financial commitments from these investors speak for the potential of Halal robo-advisors in the Middle East and the wider Muslim universe; although such a service has yet to emerge in the Arab Gulf, however, the GCC support Wahed has received would open doors to the Middle East for the North American firm seeking to break into multiple foreign markets. Interest in Asia is also picking up: Malaysia earlier last month became the first in ASEAN to license digital investment services, facilitating asset managers such as Farringdon Group to begin offering Shariah compliant robo-advisory. Wahed is regulated by the Securities and Exchange Commission and has in place an ethical review board to ensure compliance with Shariah.
In beta testing since mid-2015, the firm – founded by Wahedna and fellow engineer Nilish Chadha who now serves as COO – made its initiative known in September 2016 and since then, has lowered the minimum investment required to US$500 from US$7,500.
To keep the cost low (29-99 US cents versus the US market average of between 1-2%), Wahed invests in a variety of asset classes (equity, commodities, fixed income) represented by Shariah compliant exchange-traded funds (ETFs) rather than the more expensive actively managed mutual funds. That being said however, the Islamic ETF universe is painfully small with fewer than 30 globally: in cases where a suitable ETF is not available, a security, fund or instrument is chosen to mimic the profile of asset class in question.