2021 has been a remarkable year for Islamic fintechs in the US. In fact, the Islamic fintech industry progressed further in this one year than it arguably did in the last decade. Let’s review how the landscape evolved from the dawn of the 1st January to the dusk of the 31st December.
Review of 2021
January 2021 actually did not look much different from any of the previous few Januarys. There were still no Islamic neobanks in the US. Other than Wahed, there were no other robo-advisors. There were no goals-based investment advisors. No Islamic crowdfunding solutions. No automated Takaful-based insurance products. Zoya and Islamicly provided individual stock screening data. The traditional asset management firms and mutual funds were holding on in the absence of any credible alternatives.
By December, though, as the country fought its way out of the coronavirus pandemic, the landscape had shifted dramatically. Saturna Capital’s Amanah mutual funds exceeded US$5 billion in assets under management (AuM). Azzad’s AuM, too, exceeded US$1 billion. ShariaPortfolio launched new Shariah compliant exchange-traded funds (ETFs) including SPRE (Global REIT ETF).
Not one but two new Halal-certified digital banks were announced in 2021. Fair Bank announced the first Islamic digital bank in the US, along with plans for an investment robo-advisor. Fardows also announced its plans for an all-in-one Islamic app to serve customers’ needs from digital banking to investments to money transfers.
In the investment management space, Wahed’s AuM (including HLAL ETF) swelled to US$147 million, with more than 15,000 customers in the US as at the end of the first quarter of 2021. Aghaz, the first goal-based investment advisor in the US, was a new entrant that quickly acquired more than US$1 million in assets in a few months since public availability. Also, in the Shariah compliant crowdfunding space, Fursa Capital became the first to acquire a FINRA broker license.
Building communities and providing data remained a focus. Zoya expanded its offerings to include ETF screening as well as providing screening data to companies in addition to retail customers. AmanaTrade announced plans for stock screening, a Halal trading platform and a community forum for investors. HalalInvestors launched services to provide a differentiated recommendation of Shariah compliance and values-based (environmental, social and governance (ESG)) data.
Preview of 2022
Recent progress and traction in Islamic fintechs in 2021 have been impressive. However, continued innovation will require a concerted effort on financial literacy in general and Islamic finance literacy in particular. Islamic finance knowledge is simply lacking; an average customer is mostly unaware of the implications of traditional financial instruments and the availability of corresponding Shariah compliant alternatives and, this is key, the superior returns potentially offered by the latter. Islamic fintech must focus on literacy in the shape of content, educational videos, blogs and articles in mainstream media to address this gap.
Islamic finance will see accelerated innovation and automation in 2022. One can peek at the UK and specifically, how the fintech industry has scaled across the pond in the last five years to realize the trajectory the local Islamic fintechs are on.
There will be new Takaful-based insurance providers. More neobanks providing Shariah compliant services will spring forward. Cryptocurrencies will be adopted by asset management as an alternative and untapped asset class.
Further, increasingly more entrepreneurs, Muslim or otherwise, are realizing the significant overlap between socially responsible (SRI) and values-based (ESG) portfolios with Shariah compliant investing. Islamic asset management has been inching toward ESG and SRI portfolios but in 2022, we should see significant leaps with innovative products and investment alternatives.
The regulatory framework in the US needs to keep up with the recent progress in Islamic fintech. Unlike the UK, with multiple Islamic financing services and a supportive regulatory infrastructure, the US lacks the support for Islamic finance products. That will begin to change in 2022, with the US following the UK’s lead toward a regulatory framework for a growing and increasingly significant Islamic fintech industry.
To support all of the aforementioned, Islamic fintech start-ups in the US will require capital. Today, most start-ups look toward the Middle East or Southeast Asia to secure venture capital. That must change. Local syndicates, angel investor groups and venture capitalists should explore untapped opportunities in this industry. Muslims, especially accredited investors and high-net-worth angels, should step up and support this growing industry. With the industry at this early stage, potential for superior returns in this asset class is high.
Islamic fintech in the US appears to be at an important inflection point. Having long trailed their peers in the UK, US-based initiatives solving core financial problems through Islamic fintech are accelerating. There has been significant progress in this industry and promising new entrants have introduced themselves. It is critical to seize the momentum and continue to innovate and scale. Here’s looking forward to 2022 and beyond, with a sense of optimism, initiative and growth.