You want halal fixed-income investment options, but there aren’t many out there. Luckily for you, we’ve done the hard work and complied a Halal Fixed Income Investment Guide and Halal Investment Comparison to ensure your portfolio has some of these vital elements.
This review is of one of these promising options – Qardus.
In this article, we’ll discuss:
- What is it
- Pros and Cons
- High-risk high reward – good to have a basket approach.
1. What is it
It’s an ethical, Islamic, equity crowdfunding platform, where you can invest in an unlisted company (a company that is not listed on a stock market) in exchange for shares in that company. We have a detailed article on crowdfunding here.
Qardus say they are the first ethical sharia-compliant business financing platform in the UK. Let’s break this down.
- Business financing – meaning they offer finances to SMEs across the UK. This comes as secured and unsecured, with an average ticket size up to £100k and terms of up to 24 months. They have plans to offer asset financing with a longer duration. The investments on Qardus are shares in a Special Purpose Vehicle (SPV).
- Ethical and Sharia-compliant – meaning all businesses applying for funding are screened for sharia compliance. Sharia-compliant structures are used on both sides of the marketplace. Their platform is also sharia certified.
So you can use this platform to either invest in a business or secure funding. We’ll focus on the investment side.
How the investment is structured
The investment is structured via a Commodity Murabaha structure and is approved by most leading scholars.
Muslim business needs sharia-compliant working capital financing to cover their short-term operational needs. The Commodity Murabaha Agreement has a fixed profit rate and corresponding deferred sales price instalments are specified in advance. This allows them to finance their growth at a lower cost of capital compared to other methods. Qardus gives a fuller explanation here.
Even though this is not the most preferred sharia mode for financing, Qardus have stated that they plan to see if other structures can be offered and we are comfortable with their approach as it stands.
As Qardus explain on their website, a Qardus Special Purpose Vehicle (SPV) uses the funding provided by the investors to acquire commodities (usually non-precious metals such as tin or steel available from the London Metal Exchange) from the open market that it sells to an SME at cost price plus a profit margin.
The SPV, as the agent, then sells the commodities back to the open market on immediate payment terms and consequently, the SME receives an amount of cash equivalent to the cost price of the commodities but has an obligation to pay to the SPV the cost of the commodities plus the agreed profit margin over the term of the facility.
SPV shares will not generally have voting rights attached to them – details of the rights attaching to the SPV shares will be set out in the Musharaka Agreement and/or on the Qardus website when they communicate the investment opportunity to you.
You cannot sell your investment in a secondary market. So be prepared to stick with it for the long run. However, there are ways to sell your shares to a buyer as per Qardus’ terms.
Fees are charged to the SME, not the investor.
Types of financing available
Qardus offer five different flavours of business financing.
- A Small business financing facility
- From £25,000 to £200,000 for working capital purposes
- Tenures from 6 months to 24 months
- Monthly repayments back to investors
- Unsecured financing facilities (will typically require shareholder guarantees), all asset secured, specific asset secured
Let’s take a look at what they’ve had to offer. You can take a look here for yourself.
As Qardus is a sharia-compliant platform, so are the businesses.
Unfortunately, when I signed up, I was presented with nothing. They had five offers which were all closed.
However, the closed offers do give us a flavour of what we can expect. The business ranged from a housing provider, a dental practice and pharmacies. Projected returns ranged from 10-15%, with a minimum investment of £100. The term for each offer was for 24 months.
The definition of what constitutes a high-return investment is subjective. Generally, anything 10% or above is a high return relative to other investments out there. Therefore, this platform is great to diversify your portfolio with a higher-return higher-risk investment.
How to sign up
Signing up is very quick and easy and you can start investing within a matter of minutes. You have to be at least 18, a permanent UK resident and have a UK bank account. You can also invest through your business if it’s registered with Companies House. However, as with any other investment platform, there are further checks required. My ID check came back in seconds.
Once you’re signed up, you’re presented with a small business that you can help finance. After investing, you receive your principal and returns in monthly instalments from the businesses you have funded over the term of the facility. They have a handy dashboard where you can track repayments.
2. Pros and Cons
- Very quick and easy to sign up.
- Sharia-compliant platform with sharia-compliant business.
- Only need £100 to invest.
- Investors pay no fees. All fees will be paid by the SME. 100% of your funds will be invested.
- A personal director guarantee is also taken against the facility to help recover the amounts outstanding if something goes wrong.
- An opportunity to add high-risk options to your portfolio.
- Can help SME business grow.
- High risk.
- Projected levels of returns are not guaranteed. They could be less or zero. However, a personal director guarantee is also taken against the facility to help recover the amounts outstanding if something goes wrong.
- You cannot take your money out when you want.
- Your investment is not covered by the Financial Services Compensation Scheme (FSCS). Therefore, if your investment fails, any losses will not be covered by the FSCS. Only if Qardus is found to have misrepresented the investment, you might be able to claim up to a certain amount of compensation from the FSCS.
3. High-risk, high reward – good to have a basket approach
It’s important you understand what these type of investment entails. It’s very easy to get carried away with high projected returns.
You can find and compare these types of investments on our halal investment platform.
High-risk investments have the potential to lose a large chunk of your principal investment (or all).
We have a full explanation of high-risk high reward investments here. However, some initial key points to consider:
- They are risky but also rewarding and should typically make up only a small part of your portfolio (10-30%).
- Usually, they are only suitable for high net-worth individuals and sophisticated investors.
- If you have a reasonable amount of savings (above £50k), you should definitely consider investing a little of your port into alternative investments.
- There are dangers of diving into asset classes you do not understand.
- Always be wary of who you trust your money with to invest on your behalf.
- Within the portion of your portfolio set aside for alternative investments, make sure you diversify across various alternative asset investments too, to further spread the risk.
- Understand the tax implications of alternative investing. There are some very beneficial tax benefits available in particular for start-up investing.
We should all look at high-risk, high-reward investments as part of our portfolios. They do have a slightly higher buy-in than most, but those who qualify should seriously consider them and look to build a diversified basket of these types of assets alongside more mainstream and less volatile investments.
Qardus is a solid way to invest in these types of assets, in a sharia-complaint way, which have been thoroughly checked through. They offer high returns but are high-risk investments. If you are interested in signing up, kindly use this link here – it supports our work.