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UK Islamic fintech wants to take on the world

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Budding UK success story: Areeb Siddiqui, founder and CEO of Kestrl

UK fintech has enjoyed meteoric growth in recent years, and Islamic fintech has been a key part of that success. AGBI speaks to industry experts to get the inside track on the sector’s development 

UK fintech investment hit $37.3 billion in 2021, up sevenfold from $5.2 billion in 2020, according to figures published by global professional services firm KPMG in February this year. 

The 2021 Global Islamic Finance Index ranked 64 Organisation of Islamic Cooperation (OIC) countries and non-OIC countries on their success in developing the Islamic fintech market and ecosystem in their jurisdictions. Nine of the top 10 are OIC, Muslim-majority countries. The tenth, and exception, is the UK. 

So why is the UK punching above its weight? 

“The UK’s strong history with Islamic finance, its key role in disruptive finance in the conventional space, its access to funding and government support for technology-based products, and its history of innovation, makes it a strong ecosystem,” said Umer Suleman, group head of risk at global Islamic fintech firm Wahed. 

Launched in the US in 2017, Wahed is today licensed in nine jurisdictions, with 11 offices serving over 300,000 customers.

Suleman was appointed as general manager of Wahed’s UK operations in June 2021 to oversee the launch of the Wahed Invest app in the UK. Six months earlier, Wahed had acquired UK-based fintech Niyah. 

Wahed has since announced it is undergoing a $50 million Series B funding round to support the fintech’s current growth phase as it plans to launch a neobank on its platform in the near future, allowing users to fulfil their banking and investing needs on one “super-app.” 

“We’re planning to launch a challenger bank in multiple countries, starting with the UK first later this year,” said Suleman. 

The fintech firm also plans to utilise the UK’s position as a leading hub for Islamic finance – the government puts the value of net assets of Islamic funds in the UK at £600 million ($738.12 million) – as a springboard into other European cities.

The population of 3.3 million Muslims constitutes the second-largest religious group in the UK, with many often forced to use non-sharia banking services due to a lack of alternatives. 

However, its rapid growth in the UK is opening up a range of new services, owing to the proliferation of fintech firms.

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Umer Suleman, group head of risk at global Islamic fintech firm Wahed

UK fintech firms introducing new services 

Kestrl is another budding UK success story, particularly notable for its innovative growth strategy. 

It is the first UK Islamic fintech to be open banking-enabled. While other fintechs have relied on customers using their own debit card or robo advice tool, Kestrl links a customer’s bank accounts together to provide complete oversight of their finances.

Launched in March 2020 – just as the coronavirus pandemic struck – it has recorded some notable milestones since. 

Between 2020 and 2022, the fintech raised roughly £500,000 over two funding rounds, primarily from angel investors and high net worth individuals. 

It will be opening up a new funding round this summer after recording a surge in users over the last 12 months, with a 50 percent monthly growth to 15,000 active users on its app. 

Areeb Siddiqui, founder and CEO of Kestrl, says that the unfortunate timing of its launch ultimately worked to its advantage. 

“Before the pandemic we intended to launch a pure digital bank – a debit card linked to an app or ‘Monzo for Muslims’. The pandemic caused delays for our debit card third party providers. This gave us the time to speak more to our users and understand their real pain points.”  

Siddiqui says his fintech team learned that the majority of users were happy with existing debit cards provided by conventional banks such as HSBC or Barclays. 

However, they wanted an add-on service that they could use alongside their existing current accounts to help them manage their finances in a halal or religiously compliant way. 

This learning led to a recognition of the need for an open banking-enabled solution, and the reason why Kestrl pivoted towards a budgeting product.

Kestrl also realised that halal savings and/or investments were key. Rather than looking for a simple spending account, people sought methods to grow their wealth in a way that was convenient, inexpensive and religiously compliant. 

Kestrl will be launching a new savings product this summer. 

“By applying AI to users’ data, we can help them visualise their goals on a timeline and then save towards them automatically in discrete pots of money called Eggs,” said Siddiqui. 

“Users can then link these Eggs with partner Islamic banks to access halal savings accounts.” 

“Budgeting has been our most popular tool, with between 12,000 and 15,000 active users on the platform,” he added. “However, our stock screener has seen a rise in popularity since launching three months ago and is looking to overtake the budgeting usage. 

Challenges for Islamic fintech

In spite of Kestrl’s success, Siddiqui says two key challenges remain: funding and a trust barrier. 

Fundraising for Islamic fintechs has historically been difficult, with UK and US venture capital firms sometimes seeing this niche as risky. 

Kestrl has turned to angel investment for the majority of its funding, with Islamic finance pioneers such as Sultan Choudhury (former CEO/founder of Al Rayan Bank), Stella Cox (managing director of DDCAP Group) and James Bagshawe (co-founder of Gatehouse Bank) coming on board as shareholders and advisors. 

On the trust barrier issue, Siddiqui said: “Many Muslims have an immediate distrust of financial institutions that might be looking to take advantage of them. The customer acquisition cost can be high as it takes longer to establish a meaningful connection with a user – often through the use of social media, in-person events and influencer campaigns.” 

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Stella Cox, managing director of DDGI, a global Islamic financial technology solutions provider

However, while challenges remain, the appetite for Islamic fintech continues unabated. 

There has been a step-up in the number of early-stage funding rounds for UK firms, and the amount of capital raised for them. In July last year, Islamic Finance Guru, a UK based fintech firm, closed a £3 million investment round. 

“The investment came from mainstream VCs,” said Stella Cox, managing director of DDGI Limited, a global Islamic financial technology solutions provider established in 1998. 

“Within those emerging and early-stage businesses, the focus of Islamic banking is on the digital proposition. Islamic crowdfunding and peer-to-peer platforms are also enjoying a strong growth trajectory in the UK.

“This is having a positive impact on the mobilisation of funding and the diversity of asset classes that Islamic compliant funds can encompass, including those with lower ticket values.” 

Islamic compliant peer-to-peer fintech

In late 2021, Nester became the first Islamic compliant peer-to-peer fintech to be authorised by the UK’s financial regulator, the Financial Conduct Authority. 

In May this year, Nester said it had a pipeline of 12 transactions, worth £17 million, which it expected to close in the next six to eight weeks.

“Nester’s founders both have career histories within the Islamic financial marketplace, accented by their work with UK and GCC focused firms and clients,” said Cox. 

Meanwhile, Kuwait’s Boubyan Bank announced in July 2021 that it will launch Nomo, an international digital bank from the UK. 

Designed to provide a digital solution for accessing and investing money in the UK and internationally, Nomo offers bank accounts and financial management services for clients in Kuwait and the Middle East region.

“The UK provides an established base for cross border expansion,” said Cox. “Its domestic financial infrastructure is complemented by strong regulatory and legal credentials that offer firms support and validation as they move to new markets. 

Spreading wings 

The next step in the UK Islamic fintech industry’s evolution is for it to grow across border by joining forces with established Islamic hubs. 

“There are many ways we can work with the Islamic finance ecosystem in the GCC,” says Siddiqui. 

“One of the quickest routes would be for GCC banks and wealth managers to take advantage of the networks that UK Islamic fintechs have developed to distribute their products. 

“There is a real need for new halal savings and investment products in the West. As fintechs we have the digital presence to distribute them.” 

Siddiqui adds that another way would be for existing banks to collaborate with fintechs to launch their own digital offerings, either through a ‘software as a service’ model as Kestrl is doing in Malaysia, or by taking a stake in the fintechs themselves. 

“All of Kestrl’s personal financial management tools, from budgeting to stock screening and auto-saving, are fully available to plug into a bank’s digital services,” he said.  

“We could even look to white-label our app entirely, meaning a bank could save significantly on development time and cost.” 

Suleman agrees there is untapped potential for cross-border collaboration. 

“There is huge potential for this,” he said. “The GCC have clearly demonstrated success in creating physical infrastructure and now have the opportunity to show their digital capabilities and deliver products and solutions globally. 

“If the US, UK and GCC apply themselves as they have done in local markets, I believe that, within five years, we will see a different face to the global Islamic fintech ecosystem, whereby we move away from imitation and towards real innovation.” 

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