The market for Islamic fintech is growing globally, and in the UK. Last month the Boubyan Bank Group announced that the world’s first Islamic international digital bank will be launched in the UK.
The global Islamic fintech market is estimated to reach $128bn by 2025, a 161 per cent increase from 2020’s figure, according to recent data from Dinar Standard.
Founder and director of Wahed – an American Islamic digital financial investment platform now available in the UK – Junaid Wahedna explains some of the challenges and opportunities facing the sector in the UK to City A.M. in this exclusive interview.
Why did you start Wahed?
I come from a practising Muslim family and grew up in Dubai. After I was working in merchant banking on Wall Street for a few years I noticed very quickly that the vast majority of Muslims, who are not high net worth, didn’t have any avenue to keep their money outside of an interest based system.
And the reason that’s really important to us is in our faith – similar to all Abrahamic faiths including Christianity and Judaism – we are not allowed to deal in any interest. It’s expressly forbidden yet we’ve really normalised it as a community and nobody talks about it because they think there’s no alternative.
And so our company was set up with the main mission and purpose to give access to the entire world, to keeping their money away from interest.
There’s a lot of hype around Islamic finance at the moment – why do you think this is the case, and why now?
I feel that the absolute number of Muslims globally is growing faster than any other religion. They are moving to the middle class in every society and they’re absolutely going to play a big role.
Unfortunately our industry has got a really bad reputation, because a lot of Islamic finance institutions use religion, and the lack of competition, as an excuse for poor customer support and products. In the industry we call that the “cost of being Muslim”: you just have to deal with bad support and high fees.
A big part of our job is to get rid of that.
But Islamic finance is a very broad term. At the end of the day, if something is a good product, it’s going to make sense to everyone, right? It’s ethical, it’s good, it’s transparent. I see no reason why a non-Muslim wouldn’t want to invest in our product.
How has Brexit particularly affected the expansion plans for Wahed in the UK?
Initially when we came to the UK, we came because it was our avenue to Europe. And so when Brexit happened, it absolutely shattered our plans. And that was a big issue for us, because the market was suddenly not nearly as big as we had projected for. I’m not saying the UK alone is not big enough, or that it’s a bad market.
It’s just when you prioritise what markets you enter you look at these things and, to be frank, if Brexit had already happened – chances are that we wouldn’t have come to the UK. So I do feel in the future companies needing to hit big markets, will start with Europe.
How much of an issue are regulatory requirements in the UK for your business plans?
I think the UK regulator so far has been really good to work with. There was one country which we went to with a very big Islamic market, where they said you need a fingerprint to open an account, that’s the law. It was ridiculous.
So we absolutely have to look at regulatory requirements and timeline. There are certain subjective factors, but they have a cost element attached to them too and the UK has definitely been one of the best regulators.
Where do you see room for growth?
Through education. We want people in our community to understand why it is forbidden to deal with interest and usury. I think people think it’s just a rule. Many don’t understand anything about it or even how banks work. It’s our job to help explain it.
With better knowledge about financial services and how exploitative they can be, I don’t think anyone would want to use a bank, regardless of how it’s structured because they would then understand the net effect – and there’s a natural mathematical inequality being created. This inequality is solely and predominantly because of banks.
Because of this lack of knowledge and complacency to look for better services, banks continue to be used by everyone and inequality is getting wider, but no one knows why…and it’s because we keep our money in the bank.
Fintech innovation combined with the principles of Islamic Finance and greater financial education can help to change this inequality and shape a better financial future for everyone.