Islamic Finance 

Fintech / Leveraging technology to offer Shariah-compliant investment solutions

| 08 November, 2015
 Enricko Lukman
Fintech / Leveraging technology to offer Shariah-compliant investment solutions

(Photo: Hadrian / Shutterstock.com)

Adoption of Shariah-compliant investments has started taking off in the last few years. Islamic funds are now a $60 billion industry, up more than 200 percent since 2008 and the industry is projected to reach $77 billion by 2019, according to a study published by Thomson Reuters. 

Finerd, a Dubai-based financial technology startup, is among the many companies trying to ride the wave. Launched in April, Finerd provides an automated investment-management platform. One of its key products is a Shariah-compliant investment solution.

Among other tasks, the team automates the creation of investment portfolios, execution of those portfolios, periodic rebalancing of their asset allocation and client and regulatory reporting. This enables Finerd to push down costs and provide investment solutions to everyone without a minimum investment amount.

Finerd charges between 0.75 and 1 percent of total managed assets as a management fee, and an additional 0.10 to 0.35 percent for each investment instrument chosen by Finerd. Clients can set up their investment preferences based on their particular risk tolerance and investment horizon. Afterwards, they can use Finerd’s online platform to track and manage their portfolios 24/7. Clients can withdraw their money in just two working days.

“Efficient investment management should not be a privilege for just a few but for everyone,” says co-founder and CEO David Martínez de Lecea. “This region and the Islamic market in particular lack any solution as efficient as ours.” 

Finerd invests in a mixed portfolio of globally diversified equities and bonds using exchange traded funds (ETFs). When demanded by clients, the team can specifically select and distribute Shariah-compliant instruments.

The firm serves clients globally. In turn, this becomes one of the many challenges for Finerd’s Islamic investment solutions. “The main complication is the lack of unique criteria to determine compliance as these can significantly vary by country or region,” explains de Lecea. 

NICHE

De Lecea sees Islamic mutual funds as his main competition. Mutual funds are by far the most popular investment vehicle in the Islamic finance market. They account for $53.17 billion of Islamic funds under management, while ETFs stand at second place with $6.33 billion.

Finerd opts for ETFs because of their low costs, tax efficiency and high liquidity. When compared to Islamic mutual funds, the startup claims Finerd’s solution can provide the same level of compliance and expected returns with lower costs and higher liquidity.

However, Islamic funds still represent a small part of the more than $63 trillion global asset-management industry. Despite its immense market potential, Islamic asset managers are struggling to promote the fund. “The young industry continues to work within a largely unsupportive regulatory framework, lack of government support and absence of clear Shariah-compliant investment avenues,” according to the Thomson Reuters report.

While other companies offer online financial investment solutions, not many offer Shariah-compliant portfolios. Finerd is currently raising funds to offer its solutions to a much broader client base in the UAE and beyond.

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