With over 20 banks offering Islamic financial services and six wholly Shariah-compliant banks permitted by the U.K. regulators, the growth of a financial technology sector to serve the needs of the country’s 3 million Muslims seems like a natural fit. Yielders, an equity-based crowdfunding platform based in London, said it was the first Shariah-compliant financial technology company to get approval from the U.K. Financial Conduct Authority last month.
Islamic finance differs from conventional banking services because the transactions adhere to the principles of the Shariah, or Islamic rulings. Among its central tenets are the prohibition of interest when lending or accepting money and investments must also steer clear of gambling, alcoholic beverages or pork products.
“It’s not as simple as not having interest — it goes a lot deeper than that,” said co-founder Zeeshan Uppal. “It’s about financial inclusion and financial literacy.”
The platform works through initial cash purchases of properties by high-net-worth individuals. Investors then buy portions for as little as 100 pounds ($130). Yielders manages the properties, and since they are rented on lease, monthly rental payments go to the investors. When the asset is sold, investors get their proportion of the property’s value, based on an analysis of market conditions.
“It’s an equity-based platform, with no leverage or interest rates associated with the investment,” said Uppal, who explained that to achieve Shariah compliance, the platform needed to be vetted for other requirements, including the ethical element (for example, no investments in buildings used to sell alcohol). The investor agreement must also offer each of them equal rights, regardless of how much they’ve invested, he said.
Yielders said its revenue is based on a fee structure that’s charged to investors, which includes an initial fee (2.5 percent), a management fee (10 percent of gross income) and a profit share at the end of the investment term (15 percent of the net capital appreciation). The platform uses an API to connect to users’ bank accounts and payments are made through a digital wallet, much like PayPal.
Around 400 people have signed up, and 100 are active investors, of whom 35 percent are non-Muslim, said Uppal. For investor Jaid Longmore, a non-Muslim, the low minimum level of investment, predictability of rental income and the ethical dimension were big selling points.
“I like the principles around it, especially after the financial crisis, which was from mortgage-backed loans,” she said. “The properties are fully funded and paid for and it’s less risky.”
The route to regulatory approval was a two-year audit from the Financial Conduct Authority; prior to that, the company needed Shariah compliance approval from the country’s Islamic Finance Council, Uppal said.
The U.K. is poised to continue to develop as an Islamic finance hub, as shown by last month’s Bank of England announcement that it will develop a Shariah-compliant liquidity tool for use by Islamic banks. While the company doesn’t yet have any formal partnerships with banks, they are watching the evolution of the platform with interest, said Uppal.
“A lot of the banks in the United Arab Emirates, Gulf Cooperation Council countries, Malaysia and Indonesia are very aware of what we’re doing,” he said. “Right now we’re trying to penetrate this [U.K.] market — we’re having discussions with them because they’ve got a retail presence in the U.K. but they don’t offer investment opportunities and it’s possibility of where we’re heading.”