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Wahed CEO on gold-backed debit card and the appeal of interest-free finance

Watch: Islamic finance principles could have averted Crypto collapse in 2022' | The Crypto Mile

Gold-backed debit cards and wealth management offers a form of banking that is free from interest, speculation and inflationary currencies. Yahoo Finance speaks to the founder of investment platform Wahed about a centuries old system that seems to be at odds with the boom and bust of global finance.

Since the 2008 global financial crisis, the finger of blame has pointed to the destabilising effects of leverage trading, speculation, and investment in complex derivatives and synthetic assets.

The fall of Lehman Brothers in September 2008 was mirrored with the collapse of the cryptocurrency exchange FTX over a decade later in November 2022.

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Advocates of Islamic finance argue that there is a common denominator present in each of these financial calamities, one that drives the boom and bust patterns of rapid growth followed by sudden collapse.

Junaid Wahedna, CEO of Wahed investment platform told The Crypto Mile that the principles of Islamic finance could be an antidote to the rollercoaster ride of boom and bust capitalism.

Read more: FTX bankruptcy sees 80,000 UK crypto investors lose funds

Referring to recent crypto-crashes, such as the Terra UST collapse, the bankruptcy of hedge fund Three Arrows Capital, and the fall of FTX, Wahedna said a Sharia-compliant system could have averted the crash "It would have ensured strict check-list; no leverage, which was a big part in why these crashes occur, and no speculation, no derivatives or synthetic assets and instruments," he said.

The Bahama-based FTX exchange was a hive of high-leverage derivatives trading. Three Arrows Capital was renowned for its high-leverage long position bets that the crypto bull-run would persist. But this high risk/high reward activity from the crypto sector was only a performance in miniature of what happens on a daily basis in global institutional finance.

Read more: Worst crypto scams and 'coverups' of 2022

For many Muslims, investing in line with their faith is complex as they must avoid companies that obtain their profits from interest. "The financial ecosystem today revolves around interest, even in our everyday lives, in the bank accounts we use. So, when you keep your money in a current account or a savings account, your money is exposed to interest," Wahedna said.

He said his firm offers an alternative way to store wealth and invest. Wahed's gold-backed bank accounts are promoted as an alternative to storing wealth in inflationary currencies, and interest gaining financial instruments.

Wahed's gold-backed debit card

The New York-based Islamic fintech that is backed by Saudi oil giant Aramco (2222.SR), has recently launched a gold-backed debit card that is Sharia compliant and avoids customer money staying inside the traditional banking system, where it would be exposed to interest.

"Our mission is to try and find a genuine alternative for people with same values and ethics, so our solution is that you keep your wealth in real assets, but make it liquid enough to transact.

"We have chosen physical gold as the primary asset to back up customer accounts for a very specific reason, our marketing surveys and all our research said that people are very comfortable with gold.

"Even historically it's been God's currency, and a lot of our communities are very comfortable with it, which is why we selected gold to back this primary account."

Read more: Why UK banks are blocking transfers to and from crypto exchanges | The Crypto Mile

He added that customer accounts could be backed by other real assets that fall in line with Islamic values and ethics. He said that his investment platform scrutinises the equities that customers may want to invest in, ruling out those that have connections with tobacco, alcohol, gambling and pornography.

"Other assets that are fine are real estate, complaint commodities and, equities that have been screened."

Read more: Islamic finance embraces fintech with gold-backed debit car

House buying that avoids mortgages

Wahedna pointed to the housing market as being built on a mountain of debt. He said: "The majority of debt today is mortgage debt. The accumulation of debt in the housing crisis is just getting worse, so we do need to come up with a solution for that and we have theoretical hypothesis of how we are going to do that."

He described a shared ownership concept, where instead of a loan being given to the property purchaser, the buyer instead invests what they can in the house that they are going to buy and a financial institution buys the rest. The buyer can then purchase the entire house over time at market prices.

He added: "This is actually out there today, as there are companies in America that already do this. Even in the UK there are relatively large institutions that offer shared ownership, it's just not known to many people.

"Let's say you want to buy a house and you have the 20% down payment, a company comes and buys the 80% remaining of your house.

"So, if your house price goes down, they take the hit as well, unlike a mortgage.

"Because in a mortgage you have to pay the bank their principle no matter what. You can then buy the whole house over time and this would depend on the structure of the company you use, but you should be able to buy back the price of the house at market price, so if the house price goes down, you buy it for less."

Watch: Fireblocks director and former fintech head of Bank of England talks about CBDCs and stablecoins

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