South Africa’s FSCA to authorize Halal Fintech Wahed

Wahed, a New York-based halal financial services firm, announced Friday that it was granted a license by South Africa’s Financial Sector Conduct Authority. The license is going to enable the company to open business operations in the country.

Wahed’s financial services target investors from different Muslim communities. It is currently present in the United States as well as the United Kingdom. Eight other regulatory licenses are also held by the fintech company. South African licensing will enable the company to tap into South Africa’s Muslim community. The idea of the fintech company came to light in 2015 and nowadays already serves more than 200,000 clients across the globe. Investors have been attracted to fintech since it was six years old. It has received funding totaling approximately $40 million to date.

The scope of Halal Fintech Wahed’s business operations

Wahed, an American online investment platform, was launched in 2017. It excludes investments in companies that are restricted such as gambling and firearms. This company develops an ethical-driven investment platform that allows Muslims to manage their Islamic portfolios. The platform is fully automated, uses financial optimization algorithms and real-time software to provide services to millions of Muslims who don’t want to deposit money at traditional banks. This allows them to feel secure that their investments are ethically sound.

Shariah is Islamic law that prohibits interest charges. Wahed, the CEO of the company, stated that digital banking will be Shariah-compliant. This has been an exact issue that the FSCA attempted to tackle multiple times previously – the shariah compliance of various financial securities markets within the region and the appropriate service provision by the market participant companies. That is why you will find stocks, crypto, or Forex regulations in South Africa often in line with the Shariah principles. With Wahed’s services, customers can keep a minimum amount in cash to avoid deposits being used for lending and invest the rest. With more than 100,000 customers, the company plans to appeal to a wider range of customers looking for ethical financial products.

The company closed a $25m investment round in 2020 which was mainly directed by Saudi Aramco Entrepreneurship Ventures. Frequently referred to as Wa’ed Ventures, the investor company represents a massive venture capital investment firm owned and operated by oil giant Saudi Aramco. Dubai Cultiv8 was also represented by existing investors, CueBall Capital and BECO. These funds will be used for international expansion, including the development of the Saudi Arabian subsidiary. It intends to expand in the most important Muslim markets such as India, Nigeria, India, and the CIS. Authorized and licensed to conduct its business in Saudi Arabia, the company of four years has applied for regulatory authorization in 20 other countries.

Crunchbase reports that Wahed has raised $40 million total in funding since Junaid Wahedna’s 2015 founding. After the Malaysian Securities Commission granted Wahed the first Islamic Robo Advisory license, Wahed was launched in Malaysia in October 2019. It is also looking at listing the Islamic ETF it has on the Saudi stock market. Wahed is expected to reap the benefits of ethical investment and Islamic finance, as long as they are in line with Islamic ethics.

Why is FSCA regulation important?

The financial services industry has always been driven forward by innovation. In the past, incumbents led innovation in the sector while new entrants were a secondary role. The Covid-19 pandemic, however, has prompted significant shifts toward digital adoption and catapulted upstart fintech companies into the mainstream.

These fintech startups won’t wait too long for regulatory frameworks to catch up. That is why the market authorities are at significant risk of being left behind, as the pace of innovation is outpacing regulatory change. To keep up with changing times, regulators have had to adapt their engagement model.

The Financial Sector Conduct Authority (FSCA), together with other South African financial regulators, has established the Innovation Hub under the Intergovernmental Fintech Working Group umbrella. This hub will ensure that South Africa’s fintech activity is effectively regulated.

In February 2020, the IFWG created the Innovation Hub to allow regulators to promote responsible innovation and encourage financial inclusion in the financial sector. We have seen how consumers, upstart fintech companies, and regulators all benefit from the Innovation Hub. It provides a safe environment for experimentation and collaboration and allows market innovators to address specific questions about the regulatory landscape and policy.

The FSCA will host a series of hackathons to bring together key players from the fintech ecosystem. These will allow them to exchange ideas, create financial products that address urgent South African problems, and help formulate policy. The FSCA, as a regulator, wants to see market-friendly innovations. This will result in lower prices, greater competition, better access and financial inclusion, and increased regulatory compliance.

As we are amid the turmoil induced by the Covid-19 pandemic, leading to greater digital adoption and accelerated changes, FSCA aims to promote responsible financial sector innovations that create economic benefits for South Africans.

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