The Koran instructs Muslims to steer clear of riba — interest, in Arabic — a difficult rule to follow if you, for example, participate in the global financial system.
Muslims who obey this tenet strictly are forced to avoid products such as mortgages, and even conventional savings accounts. In some Muslim countries there are dedicated Islamic banks that have come up with workarounds (ranging from genuinely interesting to pure gimmickry), but in many parts of the world there aren’t many good alternatives.
Luckily, Wahed, an Islamic robo-adviser backed by French footballer Paul Pogba, has come up with a novel solution with no conceivable downsides (ed note: this is sarcasm, in case someone tries to use us in their marketing): peg your current account to the price of gold.
Gold for cash
Platforms such as Wahed have set themselves the task of making capitalism a theologically-compliant endeavour for Muslims.
The company has started to roll out a gold-backed debit card to customers, which it boldly claims will enable British Muslims — or anyone else looking for a halal investment — to open Shariah-compliant current accounts for the first time (boldly, because there have been Islamic financial products in the UK for a while now).
Customers who take up the offer will be buying shares in the Royal Mint’s physical gold ETC (primary ticker RMAU), with Wahed banking on perceptions of gold as a safe investment. Clients will then draw down from the investment for their daily spending. This is . . . problematic!
In a launch interview with Yahoo! Finance, founder Junaid Wahedna said:
Our debit card uses an exchange-traded commodity on the London Stock Exchange to store customer assets in gold, ensuring that their money is safe, helping it to grow, and allowing them to spend and store money without risking exposure to riba.
It is also safer to use gold against the current depreciation of fiat currencies, which particularly affects those who keep their savings in cash as they’re hit the hardest from inflation.
He told the FT:
Assets over time are not hit by inflationary pressures in the long term . . . if everyone were to theoretically use our account versus keeping it in their current account, which is getting hit by inflation, this inflation crisis would not affect them nearly as much, if at all.
Stepping back . . . OK, cash had a bad one last year.
But the ETC fell 0.19 per cent (despite a land war in Europe), so did mildly worse in real terms — hardly ensuring “safe” money and definitely not beating inflation
Update: Wahed’s kindly PR has got in touch to let us know that the account will be pegged to RMAP, a sterling-denominated version of RMAU that did a fair bit better last year. RMAU made gains of 10.7 per cent, although this was amid a land war in Europe — something we can hardly guarantee as a reliable driver.
Moreover, FT Alphaville can’t help but think there are certain added dangers to pinning your current account balance to an asset that routinely fluctuates by several percentage points on a daily/weekly basis.
Plus, of course, there’s a fee: £2.99 per month on balances up to £99,999. Beyond that point, there’s a flat rate — with the obvious corollary that the better gold does, the more you pay (and that’s before getting into worries about things like capital gains tax).
There are further theological questions. Wahed claims this set-up isn’t maisir (speculation, also prohibited) as it is backed by a physical asset, with customers able to redeem shares for gold coins and bullion. Umer Suleman, global head of risk at Wahed, says: “Having wealth backed by or in the form of tangible assets is a key part of the philosophy of Islamic finance, and keeping in gold certainly meets this requirement.”
But there’s a hefty price to pay if you do decide to swap your current account balance for the actual yellow stuff. The Royal Mint charges for sourcing, manufacturing, quality-checking and Scrooge McDuck-ing* any coins or bullion. For example, a 1 oz bar is sold at a 6.8 per cent premium to the spot price for gold. Premiums are lower on larger quantities — eg 6.2 per cent on 100g, which retails around £5,230.
*Fine, we made this last one up, but the exchange premiums are real.
Dips in the market of between 3 and 5 per cent may well be smoothed out over time, but a current account in daily flux could be unhelpful when it comes to paying for fixed expenses such as rent and utilities.
Waheds and zeroes
Wahedna launched Wahed in New York in 2017 as a Muslim-friendly alternative to the likes of investment app Nutmeg. It is backed by the VC arm of oil giant Saudi Aramco, Wa’ed*, and aspires to provide a range of services.
*Just to congregate this Marc Jacobisifaction, that’s Wahed by Wahedna by Wa’ed (now try saying that again twice as fast).
Last year, it paid $300,000 to the SEC for allegedly “making misleading statements and breaching its fiduciary duty, and for compliance failures related to its Shari’ah advisory business” (Wahed did not admit to or deny the SEC’s findings).
In the UK, where it launched in 2018, it recently acquired two Islamic will providers, and has opened a shop on London’s Baker Street. The plan in the UK, Wahedna said, is to promote “openness and financial literacy” at a time when crypto’s collapse has sown distrust in the wider fintech industry.
Wahedna said that the company’s entire marketing budget in the UK was spent on education, given the high level of “scams in the community”. Post opening the store, he added that the card would require a “big educational initiative” to get off the ground.
Hopefully, FT Alphaville is lending a helping hand by pointing out that there are already several dedicated Islamic banks in the UK that offer both sharia-compliant mortgages and current accounts. There are also lots of Islam-friendly investment funds around that eschew problematic sectors like alcohol, gambling and banks that any shariah scholar would happily bless.
Moreover, most of the Islamic finance industry’s clerics are actually fine with even devout Muslims using conventional banking products if there aren’t any alternatives. Which is why Islamic banking hasn’t actually taken off as much as some proponents would have liked.
To add to its lustre Wahed uses Muslim celebrities like Juventus midfielder Pogba and former UFC champion Khabib Nurmagomedov as “brand ambassadors”. In a Wahed podcast last October Nurmagomedov said he had joined because “riba can kill not just a couple of people, but cities and countries”.
That’s one hard sell, but Wahed’s gimmicky gold-backed debit card may well carry more risk for customers than glancing blows with interest.
Update 10/3: We got the figures for the premium on a 1oz bar and the retail price for a 100g bar wrong — these are now fixed, apologies.