Access to invest in a Halal manner is the cornerstone of Wahed Investment’s philosophy. Ensuring that people, regardless of wealth, can use our services for the exact same price and benefits as high net worth individuals. Business Islamica speaks exclusively to its CEO, Mr Junaid Wahedna
How is Wahed Invest revolutionizing ethical finance?
Islamic Finance is traditionally associated with inefficiencies and a very old-school way of providing financial services. The current industry is significantly lagging as compared to conventional finance in terms of investment options, liquidity, and most importantly, access to sophisticated investment products.
The industry prides itself on being able to offer a handful of Mutual Funds, REITs, and Sukuk. The Islamic Mutual Funds are often regionally restricted and significantly more expensive than their conventional counterparts. REITs are at a very nascent stage and most players do not have the infrastructure to provide globally accessible options. Sukuk are traded in minimum USD 200,000 investments and are often snapped up by institutions and HNWIs, far from reach of retail investors.
Access to invest in a Halal manner is the cornerstone of our firm’s philosophy. We want to ensure that people, regardless of wealth, can use our services for the exact same price and benefits as high net worth individuals. For example, if someone has USD 10,000 in savings and wants to invest this in a Halal way, unless they are in specific markets such as Malaysia or Saudi Arabia, there is absolutely no method of investing this in a professionally managed, diversified and liquid manner. Even here, in the UAE, to gain financial advice on how to invest savings, most wealth management divisions of Islamic banks have ridiculously high minimum investment amounts like USD 1 million. The majority of people do not have such savings to invest and thus are completely ignored by these traditional Islamic Financial institutions. We at Wahed, use technology, Islamic principles, and the world’s leading financial optimization theories, to give people a way to invest, regardless of their net worth, location, or how long they intend to invest for. In short, we strive to give world class portfolio management services for a low threshold of capital at minimal cost for the Halal investor.
What is Wahed Invest?
Wahed Invest is an automated Islamic financial advisory platform. Wahed aims to be the first global Robo-advisor to be accessible by the world's lower socio-economic demographic that has been ignored by the financial services industry thus far. We want to show that there does not need to be a cost of being Muslim and, in fact, Islamic financial products can be as, if not more, efficient as conventional finance products. We aim to propel the traditional Islamic Finance sector to the forefront of financial innovation worldwide.
How do you ‘sell’ or ‘pitch’ your organization in the North American market vs the MENASA market?
One must understand that these two regions have completely different demographics, with different income levels, different needs, and different risk appetites. The North American market is one that is more technologically savvy- there is a higher degree of trust with using digital technologies for financial transactions. Our target market of Muslims is also differently grouped as in North America, Muslims are often grouped together around regional communities and Mosques. On the other hand, in this region they are abundant and dispersed. Muslims in North America, although small in number, have high savings, and are actively looking for a liquid and transparent way to invest this as currently. There are only a handful of Mutual Funds that are not nearly as competitive as conventional investment products in the region. Muslims in the MENASA region have lower incomes on average but are significantly larger in number and have many other Islamic investment options to choose from. Thus the marketing pitch would be more community driven for the NA market and geared towards retirement savings, while the MENASA market will be more holistic in comparison.
What can you share with regards to the methodology used in Wahed Invest?
Our investment methodology employs five steps:
• Identify an ideal set of asset classes for the current investment environment
• Select low cost ETFs and/or securities to represent each asset class
• Determine your risk tolerance to create the appropriate portfolio for you
• Apply Modern Portfolio Theory to allocate among the chosen asset classes for your risk tolerance
• Monitor and periodically rebalance your portfolio
We use Modern Portfolio Theory (MPT) to identify the ideal portfolio for each client. The economists who developed MPT, Harry Markowitz and William Sharpe, received the Nobel Prize in Economics in 1990 for their groundbreaking research. Today, MPT is the most widely accepted framework for managing diversified investment portfolios.
What was the inspiration behind Wahed Invest?
My graduate studies and research at Columbia University was specifically in Financial Engineering and Optimization. While I was there, I researched how stochastic and deterministic models could be applied to optimize the way people invest in a myriad of financial structures. Since I have always had a passion for Islamic Finance, I noticed the significant inefficiencies in the Islamic Investment industry. There was, and still is, a huge margin for improvement. But this wasn’t where the inspiration came from as I went on to dabble in Merchant Banking in NY after I completed these studies.
The true inspiration came from a New York taxi driver that I had the pleasure of meeting. One day, I was having a casual conversation with this driver, who had just recently moved to New York from Bangladesh with his family. He told me “Junaid, since you are in Finance, I would like your advice on something”. I said “Sure”. He said “I have moved here with my family with a little over $100k in savings. We are practicing Muslims and so I do not want to keep this money in a bank or anywhere that is not Halal. So there is this person I know at the Mosque who told me that Apple stock is completely Shari’ah compliant, and so I am investing all our family savings in Apple stock”. I of course told him to definitely not do that with all his savings and to seek a financial advisor to diversify his portfolio, to which he said there were none that were willing to take his business. I then went on to research this in detail and found that he was actually right- there was not a single financial advisor in the entire region willing to take a client with such a small amount of money. So what do these people do?
The 99% of Muslims that are not HNWs, there is absolutely no option for them. This is when I realized that if I could work to resolve this gap for the millions of Muslims that want to, but do not have a way, to invest in a Halal manner, and if I didn’t act on it, then it would be a waste of the education, experience, and resources that I was blessed with. This, in short, was the inspiration behind Wahed Invest. And consequently the doors which opened, and the support I received along the way was overwhelming.
Junaid Wahedna is the CEO of Wahed Invest Inc. Wahed is the world's first Islamic robo-advisor headquartered in New York with the aim of democratizing halal investment management worldwide. He has a Graduate Degree from the Department of Industrial Engineering & Operations Research from Columbia University in New York. While at Columbia, he served as the Managing Editor of the The Columbia Financial Review. Junaid is the holder of the Chartered Alternative Investment Analyst (CAIA), Certified Management Accountant (CMA), and CIMA Diploma in Islamic Finance (CDIF) designations. Prior to Wahed, Junaid gained an intimate understanding of global Islamic Financial markets while working in Merchant Banking in New York City. He has spoken at leading international conferences on Islamic Finance and Ethical Investing.