Muslim Money Talk
Introducing the Muslim Money Talk Podcast, a place for all things Muslim and Money related.
Every week we'll be sitting down with Founders, leaders and industry experts from across multiple disciplines to discuss lessons learned, mistakes made and most importantly 'How they did it?'.
Brought to you by Kestrl: The Muslim Money App, software to help Muslims grow their wealth without compromise. Find out more here: https://kestrl.io/
Muslim Money Talk
Helping Muslims Invest in UK Real-Estate | Youness Abidou - Muslim Money Talk Ep 25
Meet Youness Abidou, founder and CEO of Nester, a Sharia-compliant real estate investment platform in the UK. He shares insights on navigating the regulatory landscape, the challenges of Islamic finance, and his vision for addressing financial gaps in the Muslim community.
This podcast is powered by Kestrl.
Kestrl is an app that helps Muslim to grow their wealth without compromising their beliefs
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00:00 - Coming up
02:17 - Introduction and banking career
07:41 - Discovering Islamic Finance
12:25 - Community demand for Islamic Finance
18:29 - Meeting co-founder Mohammed Paracha.
24:40 - British Muslims’ problems and Nester as a solution
28:59 - Early days and teething problems
32:28 - Islamic vs Ethical branding
38:11 - How Nester works for businesses
44:51 - How Nester raises money from the crowd
48:35 - Commodity Murabaha and controversy
53:17 - Getting a new license just for Nester
56:32 - Funding rounds and first transactions
59:12 - Future plans, and expansion to Saudi Arabia.
1:06:07 - Thoughts on the state of Islamic finance and community needs.
1:11:44 - Youness’ vision for Nester’s legacy and community impact.
I feel that when Muslims are approached by messaging that uses Islam or faith, the word halal, as a means to attract them to a product, I feel that is doing the product a disservice, because that product should sell itself service because that product should sell itself and it is positioning the the, the muslim community, into a space that they start feeling cornered and that they have no other choice but to take what is being put in front of them. We have one party that has funds and needs to invest it to make the funds work for them. We have another party or customer that needs funds to invest into a certain project. Yeah, we can put the two together, and the only thing that I believe, I think is the driver for success in respect of entrepreneurship is the level of belief that you have and passion in respect of the vision.
Speaker 3:In today's episode, I'm joined by Younes Abidou, the founder and CEO of Nesta, a platform helping anyone to invest into real estate here in the UK in a Sharia compliant way. He shares his journey, how he grew fed up with what he was seeing, both in the conventional finance space as well as Islamic finance as a whole, and how he took his knowledge and his experience to create something that the UK market had never seen before. They had to get their own license for it. An incredible discussion, as always. I'm your host, areeb Siddiqui, and this is Muslim Money Talk. Before we begin, we actually noticed only about 10% of you are subscribed to the podcast, so if you like what you're listening to and you want to hear more from us and see more things Muslim and money related, then please consider subscribing and, of course, leaving this episode a like and share it with your friends, leave us a comment or a review, because it really really does help us out and help more people to find us. Thank you. Now back to the show, yunus. Assalamu alaikum.
Speaker 3:Welcome, Salam Welcome to Muslim Money Talk.
Speaker 1:How are you? Very well, thank you. Thank you for having me.
Speaker 3:No thanks for bearing with us. Whilst it took a while For people who don't know, it took a while to set everything up. Not a problem at all.
Speaker 1:Eunice and his team waited very patiently.
Speaker 3:I was thinking, Eunice, do you remember the first time we met my memory is the worst, honestly. I meet people on the street and they come and start having full-blown conversations with me and I can't remember their names.
Speaker 1:So no, no is the answer it's bad when you're face blind and also bad memory of names.
Speaker 3:Yeah, yeah, the worst combination everyone is bro, everyone is bro to me even the sisters, yeah there was a time, though, because our journeys have kind of been running a little bit side by side.
Speaker 2:We started similarish times around three, four years ago we also.
Speaker 3:We moved into our first office in Moorgate at. City Point. I think you were just across the road. We were.
Speaker 1:We were in. Yeah, we were in Moorgate, further down the road yeah, yes, are you still? There. No, no, we've moved to Salisbury House, which is in Finsbury Circus.
Speaker 3:Oh, very nice.
Speaker 1:Yeah, bigger office better views.
Speaker 3:Okay, I think Monza was around there.
Speaker 1:Possibly I'm not sure it's a much better office and I have my own office now which is quite nice, I don't get so much chatter anymore, which is quite pleasant.
Speaker 3:It's a very FinTech-y area. I feel We've moved to Canary Wharf recently.
Speaker 1:Because, we thought okay, we're going to try and pretend to be the big boys now. Yeah, you are.
Speaker 3:You are the big boys, but we're. It's very lonely out there, you know.
Speaker 2:I feel like you don't run into people as much as you do in the city and what I loved as well.
Speaker 3:I would always end up bumping into you at um the halls for Jummah where you know everyone in the area. We just sort of congregate there. There wasn't really a masjid in that part of town. So, every Friday and shout out to the halls for Jummah. Guys for setting that up. But, they rent out halls around the city for people to do Friday prayers.
Speaker 1:So yeah, we'd always run into them. We'll have our little five minute catch up. Yeah, talk about all our struggles.
Speaker 3:Yeah, yeah, how's it going? Yeah, exactly.
Speaker 1:Absolutely.
Speaker 3:So there's so much I want to talk to you about. I want to talk to you about your journey, co-founding, starting life in general, battling with the regulators in this country, the Islamic finance scene in general.
Speaker 1:But let's go all the way back to the beginning, to what inspired you to actually found nesta so I I touched on this recently on a linkedin post, but I'll I'll give a little bit more um color color and context what I I so my journey.
Speaker 1:Like I, I'm a boring accountant by trade. Right, I was at ernst and young, I spent six years there within their real estate team, so I did that whole. I did the stereotypical kind of progressing through accountancy, um, but my, my, my draw was to real estate transactions. That's what I did towards the end of my time there, um, and I was within their what was then called the real estate finance team, so doing like transaction advisory service work. Uh, that took me into banking and that was my start, um, and so for me, the first few years of banking was pre-credit crunch. I was in the conventional space. That was a very, very wild time. Um, there was a tremendous amount of activity and I was that I mean, at the time I was, you know, in my late 20s fantastic. Right, you know, we're in a good space. We're doing like loads of work. I many of the buildings around canary wharf I funded, right, really yeah, yeah, so, uh, yeah, that was.
Speaker 1:It was just a very interesting time. Credit crunch happened, everything went bad. I'm now, you know, a young relationship manager director, managing relationships with people that have lost billions and that's not an exaggeration, right? They've lost billions and they're coming and speaking to me about how they get out of this, this problem. Anyway, so that was. That was really really difficult right seeing grown men cry in front of you and you're like 28 um and that was your first job. That was my first job out of accountancy out of accountancy.
Speaker 3:Yeah, so you did your ACA at EY yeah, correct.
Speaker 1:Yeah, um, I went through that period, did the, you know, transaction advisory service works, which gave me a touch or a feel of banking, and that was, you know, working at Anglo was a kind of step into banking life and, you know, for four years it was fantastic and then everything obviously collapsed around us, right, and that was the result for me. So, when I left Anglo for a year, I did my own advisory, or set up my own advisory service, um, and that was basically to support the borrowers that had just, you know, effectively been made bankrupt by the lack, of um, liquidity and problems that they had as a result.
Speaker 3:So you left your your full-time job and you went and started up your own.
Speaker 1:In any case, it was just an. It was, uh, you know, a difficult time, interesting time, and that was for me because, you know, or led to what I kind of sometimes term as an epiphany, because it was, it was the time that islamic banking or islamic finance came into kind of existence.
Speaker 3:For me, so you weren't aware of it at all before this point life just hadn't taken me in that direction.
Speaker 1:Um, and after experiencing that and and kind of going through that journey with, uh, some of the borrowers, I, I just saw myself in a space where I just thought this was not right. Yeah, the, the system does not, does not work right. There's something about it. Were you frustrated with the most? The, the fact that it can switch off so instantly, um, and basically take people out so so easily? Um, you know, it made it look, it made it feel and I was in the middle of it, right, um, and it's very different people. People experience this in different ways, but, um, you know, some, some people invest that work in investment banking friends um experience credit crunch very differently to what I did that. They were taught they were dealing in paper money and paper transactions and paper relationships, um, whereas for me, I was meeting people on a daily basis. I was, you know, I was being called, you know, every hour um asking for, um, an update or asking how they can get out of certain situations really stressful.
Speaker 1:You, basically I was 28 yeah, I was like 28 or something like that. Anyway, that experience kind of took me away from the conventional banking space and I wanted to find something different. It just so happened that my old manager from EY was the CFO at Gatehouse and he said we need some help. Who? Was that A chap by the name of Twala Danu. Okay. And he said look, we need some help. We're a bank, we have a banking license, but we do no banking activities.
Speaker 3:What were they doing at?
Speaker 1:the time, they're a proprietary investment house effectively, so they invested into real estate with their own equity and then they introduced those same transactions real estate transactions to GCC investors. Okay, so they bought up property in the UK and then they went out to the GCC and found equity to fund.
Speaker 3:And said okay, can you help fund these properties?
Speaker 1:Correct yeah, but no banking activity.
Speaker 3:Why had they gone? So the Gatehouse for people who don't know and still is one of the few Islamic banks in this country. Was that just the typical route to market at the time they had just secured their banking license.
Speaker 1:It was the one area of business that they, I think, had experience in terms of, you know, the the team that they had, um, and that was their focus. So I I I joined gatehouse um back in 2011. Um, the focus was to um, provide some structure around their finance team, um and look at introducing some structured finance product. Gatehouse was a small bank, didn't have the firepower that I was used to. My book at Anglo was 1.2 billion and that's what I personally managed. I came into Gatehouse and I was, you know, creating cooks and these debt instruments of four and five million pounds Like very, very different experience.
Speaker 3:So from what kind of projects in the UK Are we talking?
Speaker 1:retail Real estate, real estate, yeah just real estate buy-to-lets Typically buy-to-lets, they're very dry investments. So the journey then kind of continued for me. I needed to get back into doing what I knew how to do um or you know the the kind of core banking real estate finance, uh, and joined abc and this is where the journey starts with regard how it connects to nesta, because I spent a lot of time at abc. We grew the book, we started effectively doing what I knew um how to do in terms of introducing real estate finance and structuring the acquisition of a real estate in the uk. But the knowledge of what I was doing in terms of my career progression filtered out to the people that I knew and the people that knew me and my external relationships, if you like, my external relationships, if you like, um. I started to get requests from people who said who would say we understand, you're working in islamic finance.
Speaker 3:Can you help us? Yeah, so tell me about that community, because you grew up in east london.
Speaker 1:Yeah, correct, yeah, yeah, okay so I, I you know, raised in in walthamstow many, many friends that um uh are from the pakistani community, mainly moroccan moroccan, yeah, yeah parents, moroccan and um, so so many many of my friends would have family members, or indeed themselves, invest in real estate.
Speaker 1:That was the core asset class that the community would choose, once they had saved some, um, some funds, to effectively deploy into equity, into the acquisition of the transaction. And so they would approach and say we want to steer away from conventional. You know, you're one of us, you're someone that we can speak to and we trust, help us secure islamic finance. And my response was always my minimum ticket is 10 million, like, get to there and I'll be able to help you, but that but, people react when you said
Speaker 1:that like yeah, I'm not sure I can say it on a podcast, to be honest, and some of them were elders, right, and you know, I would be told to turn up to someone's house to go and speak about financing by a friend and he said, look, you know, go and speak to my uncle. Here's the address, he's expecting you. And so I'd go and we'd have a conversation and I would never have an option for them, I'd never have an answer. And I was here and I was working in the industry and I was doing all this great stuff and inside I thought I was doing right. But here we have, like, the community that was looking for a solution and they were eager. There was demand, right, there was inherent demand out there for Islamic finance products, but no one was doing anything about it.
Speaker 3:I'm getting this vibe that throughout your journey, you've always had your ear to the ground in terms of what the community are sort of feeling about Islamic finance, which I think now we're very aware, I think from 2019, 2020 onwards, but back then I don't think anyone really had that data to hand.
Speaker 1:Yeah, correct, you had that idea. The trigger that made me want to go out and do something about it was a conversation I had with one of the I won't name him right, but one of our team members, father oh really yeah, who you know, an uncle and someone, um, who's a great individual, um, and always was given advice right, and he called me over and we sat down.
Speaker 1:He said all you know, tell me this is what I'm doing, this is what I need, and I won't obviously expose him, but this is what I need. How can you help me? Because I want to do this in an Islamic way. I don't want any conventional debt, but I have an opportunity here to grow my wealth for my children and the only way I can do that is through debt. But I don't want to go to to conventional banks, and this was another real estate opportunity.
Speaker 1:Yes, yeah, yeah, and I didn't have an answer, but this was someone I respected quite dearly, right. So I said you know what I said, uncle, let me go out and I'll try and find something for you. And I was out looking for six months and I was in the industry, right? So no one can find better than I can.
Speaker 3:What year was this it's? Been 2010, 2011.
Speaker 1:No, no, no, no. The way after this was 2015, 16.
Speaker 3:Okay, yeah, yeah, yeah.
Speaker 1:So no one was going to find this better than I could, right.
Speaker 3:So even at the time Gatehouse Arianne Bank yeah.
Speaker 1:They weren't performing in this space, and I'll tell you what they were performing in. The Islamic banks were providing core buy-to-lets. So you're buying another property and it's let on a residential basis Okay, there was a product for that call-by-to-lets. There was a product for HPP loans going out there to buy a loan for you to live in. There was then a gap, and the only time the level at which banks re-entered the space is in respect of loans in excess of five million pounds at a time, and at that point you had a couple of small banks that would step in and provide corporate loans in respect of real estate transactions.
Speaker 1:So everything I'm talking about in my world is real estate. You know, that's all I do. And so there was a. There was that gap between you know, a few hundred thousand if you're looking at buy to less and 5 million pounds. And so this, you know, this conversation with uncle um and my subsequent inability to help him to find some, you know, finance house, then kind of just left a mark on me and I at that point started to think more openly about what ideas I could come up with that um could bridge that gap. Uh, and alhamdulillah, throughout my time at abc built a very, very good relationship with muhammad paraja I was about to say because at the nesta gala that you guys threw, which was an amazing event.
Speaker 3:You guys, thank you in a very nice hotel in in london. When was, I think, february this?
Speaker 1:year.
Speaker 3:That's right earlier this year you told I always remember the way you started. That story, which is nesta, began when a boring accountant had a conversation with a boring lawyer. Uh, on your way to work one, that's right so is that really how it began? You were on a phone call with mom absolutely, yeah, yeah.
Speaker 1:So we we would speak quite regularly. He was a leading partner on the majority of our transactions at abc.
Speaker 3:That I was managing norton rose. He's norton rose.
Speaker 1:Yes, yeah, um, and so it would it. We, we would normally catch up maybe a couple of times a week in respect of updates on a transaction. If a transaction is live, it would probably, you know, we would have daily phone calls, and they're usually on the way to work, you know, lining my day up, um, and making sure that whatever's needed is planned for in respect of communication with borrowers and relationships and so on. So that conversation was Not atypical, right?
Speaker 1:You know, it was something that we would have quite often but the moment it kind of shifted was that I built a business plan off the back of the conversation with uncle and I put it on paper. I put it on paper, I thought I need someone right that has status, someone that can help in the core areas that I'm not going to be able to perform in, and in my mind it was the structuring. I mean, I've obviously approached business and entrepreneurship from a different space to some others who were looking more from a creative perspective, but for me it was I need to build something here. I need someone that knows how to build and I know what my side is. Thank.
Speaker 3:Thank you for listening to Muslim Money Talk. If you like what you've heard so far, you might be interested in checking out what we do at Kestrel, the Muslim Money app. Kestrel is a service that helps Muslims who want to grow their wealth without having to compromise, whether it's on their belief or user experience or price. I founded Kestrel because of how fed up I was at how poor Islamic financial services were in this country. Often people didn't use them because of how bad the user experience or customer service and indeed, how high in price they were. So Kestrel was the answer to that.
Speaker 3:If you download the Kestrel app today, it can help you by creating a budgeting plan. Plug in whatever bank account you have and it will create an auto budget just for you. You can then tell us what goals you're saving for, and we'll save towards them automatically into pots and then, crucially, link you towards Sharia compliant investment and savings products as well. So download Kestrel today and try it out for yourself. Now back to the podcast. I think that's exactly the right way to go about building a business. You're looking for a co-founder to complement you? Absolutely.
Speaker 3:In the financial services space. It's all about the revenue generating, the value creating proposition, which, in your case, is the structuring of deals.
Speaker 1:A hundred percent. And so when I spoke to Mohamed, to me it was a case of identifying, as you said, that co-founder, and identifying qualities in a person that um that matched yours and values that matched, that matched mine, um, and someone that had the same kind of principles. And so we aligned right, and I knew that we had aligned um before the conversation. The conversation went very, very quickly from uh I'd like to ask you a question, forgive me if this is too direct and I said, muhammad, do you feel your efforts in islamic finance at the moment are reflective of what you truly want to deliver in this space, as you did in 2002 or 2003, when he was part of, you know, the whole introduction of the laws and statute and sitting on the bank of england steering committee?
Speaker 3:and that was a very, very different muhammad pracha to the muhammad pracha at the time of us having that conversation, because you know he's obviously you know he's just doing, we were doing our jobs right and for people who don't know, back in 2003, 2004, that was basically setting up the framework for what felt like a revolution, correct it was like the restarting of Islamic finance and Islamic banking, which obviously, at this point had clearly begun to stall yes it had obviously started beforehand, but you were really close to it and you could see those signs yeah, correct, and it wasn't serving the right people as far as I was concerned, and so um so you asked muhammad, I asked muhammad, we we and I, and I triggered, I triggered that thought and his response was what do you, what?
Speaker 1:why do you ask? And we, kind of you know, started to expand that conversation. I obviously struck a nerve, right, because he stayed on the phone.
Speaker 3:Did he get a little bit insulted or concerned, because some people might take that the wrong way?
Speaker 1:Yeah, no, we had a very, very good relationship, right, but I would say that it became a very emotional conversation. Mohammed is very, very principled, he has a strong feeling towards doing good for the community, and I knew that, and we weren't at the time. And so, yeah, we had this conversation and he said what's your idea? And I, you know, I could sense the frustration in his voice yeah, and what you? What do you want to do about it? And then I pitched nesta and I pitched what, effectively, is the business that we are operating now hasn't shifted the?
Speaker 3:ideas and the principles for you to come up with this um beforehand it took me about three months to put it down on paper okay um, but once I had identified what, what is now the business in terms of how?
Speaker 1:so with nesta, it was the connection between two parties right in my mind. I I had not contemplated the investor side of the business as, as far as I was concerned, when I first started thinking and answering Uncle's solution, I had to go out there and find money and I would create a finance house. That was the answer to that problem. It was only much after that that conversations started happening. I was out there trying to listen to more and I heard that actually there was another problem, and that problem was that there are individuals that have a tremendous amount of money that's not in the banking system because they're afraid and don't understand it.
Speaker 3:Under the mattress.
Speaker 1:Yeah, quite literally, quite literally, and this is hard-earned cash. Right Before we kind of get a bit carried away with what that money is Hard-earned cash, yeah, but it's extracted and not kept in a bank.
Speaker 3:Are they people of a certain? Are they older people? Yeah, elders. Elders and communities yeah, yeah, keeping the money at home.
Speaker 1:Yeah, absolutely. And then there are people that I was speaking to that had money in the bank that was doing nothing.
Speaker 3:Yeah.
Speaker 1:Just sitting in a current account.
Speaker 3:We find that at Kestrel all the time. So, at Kestrel. Obviously we can see people's data when they plug in their bank accounts. And we use that to create budgeting plans and savings plans and push them towards Sharia-compliant investments investments but I'm shocked at how much people are just sitting in in current accounts. They have no savings accounts to speak of, islamic or otherwise.
Speaker 1:Um, and that's what we see at the other end of the spectrum, on the younger side yeah, and so, you know, I I started kind of expanding that and and and when I identified, when I identified the second problem and the two gelled together. We have one party that has funds and needs to invest it to make the funds work for them. We have another party or customer that needs funds to invest into a certain project. We can put the two together and at the time I had this really fancy idea of it being some sort of tokenization, right. I was just getting a bit excited then, right. But um, then we kind of pulled back and said muhammad said actually, you know, subhanallah, this is something that I've already drawn up to so correct?
Speaker 1:yeah, so he had created effectively a replica of my business model six months before I had presented it to him. So I sent him mine and he sent me his. His is obviously a lot better worded than mine was right. We agreed how we would take it forward because we both saw that you know, we shared, you know all elements of this business and vision and we said, yeah, we'll do it together. And that's how it started.
Speaker 3:Were, you just sat on a train during this conversation.
Speaker 1:Genuinely I missed. I mean just recounting it to you. I've tried to recount it as close to the reality as possible, but you know know we were talking about other. I was on the. I was on the train station for about 45 minutes, I think I'm. I missed my first train, or it was delayed, which meant I made the phone call and then, after um, when the train came by, that time I was in this conversation and I think I missed them up maybe two or three after that life-changing conversation.
Speaker 1:Yes, and James yeah, St James Street Station.
Speaker 3:So then you presumably handed in your notice and went on to found Nestor.
Speaker 1:Maybe within a month I was out.
Speaker 3:And you became CEO, and what was Mohamed's role?
Speaker 1:Mohamed was a co-founder. Obviously, mohamed's aligned to. You know he's a very senior partner in Norton Rose. He was, you know he was someone… Based in Dubai? Yeah, based in Dubai, absolutely. So for him it was just effectively an interest in a business, but you know someone I can tap into and have conversations with and, you know, very involved in as much capacity as he was able to be.
Speaker 3:Set the scene for me in terms of your life at the time because, you were? What year was this?
Speaker 1:2018. 2018. We started, yeah.
Speaker 3:And you were presumably married. Yeah, yeah, yeah.
Speaker 1:Yeah, one of the one of the early, one of the early kind of marketing videos we did. I brought my kids into the office.
Speaker 3:I remember it kind of marketing videos we did I brought my kids into the office. I remember it.
Speaker 1:Yeah, a couple of daughters right, I did yeah, um and uh, yeah, they were there and yeah, yeah, like a young family, it's been difficult. Right, it's been very, very difficult. The, the, the, I mean. I'm speaking to someone who understands completely no, but I started kestrel.
Speaker 3:I wasn't married, I didn't have children I didn't have a mortgage or anything, um, um, and I sometimes think, well, could I have done it where I am now, with two children married or all of those things? I don't know. I really don't know, it's a really hard decision to make, right To basically turn your life upside down. Did you have that conversation with your wife?
Speaker 1:Yeah, it was, um, look, it was uh, uh, uh, and has has been, and will continue to be, a very difficult journey, and I think this is where many businesses struggle this point in the journey where, okay, you've created something, it works, and you're in that space now where it can start to grow. Um, and you, you, you either take your foot off the pedal or you don't have the same amount of hunger, um, and things start to go a little sideways.
Speaker 3:Um, but the only thing Businesses fail in their first year.
Speaker 1:Yeah, absolutely. The only thing that I believe I think is the driver for success in respect of entrepreneurship is the level of belief that you have and passion in respect of the vision, and that is I. I think what took me through was when we set up, when we set up nesta interestingly, right, an accountant and and a lawyer, we had a project name, right. So, um, nesta was first called project empower limited and if you go to company's house and look back at nesta holdings limited, which is our main company, you'll see project empowers was the name.
Speaker 3:Yeah, where did nesta come from then as a name?
Speaker 1:well, I was spending a few pounds and, um, some creatives came up with with the name alongside yeah, alongside spinach, spinach, yeah. So it was quite interesting. They presented a masculine brand and they presented a feminine brand.
Speaker 3:Which one was the masculine?
Speaker 1:The feminine, nestor, I'm guessing, was the feminine because of the egg and spinach, you know associated with Popeye and associated with kind of strength and iron and power and all that kind of stuff, right. But yeah, we went with with nesta, which was um okay yeah, uh, and, and that journey in itself you can imagine, right, trying to get an accountant and lawyer in a room talking about creatives and colors and, um, where do you think this should be placed? And what, what does this? What feeling does this give you?
Speaker 1:like, honestly, I was it's a strong choice, not my space right, not my space right, and that was within the first couple of months.
Speaker 3:We struggled a lot with the name. Originally we were thinking of things like Ethipay and Ethipal, because the original idea for Kestrel was to be a digital bank and a lot of the advice we were given was not to go Islamic right, to pick a very general name maybe ethical. And when we were testing all these names out, a lot of people said that it sounded like dog food, like ethel pal who's kind of giving that vibe um, and in the end we said it on this. We settled on this name, kestrel, because great name um, I love your logo.
Speaker 1:That's uh like how, when, when. When I first saw your logo, I thought ah, they've done it, they've done it okay, and we just had like a very uh intrepid designer in the house who just, yeah, who made that?
Speaker 3:but, um, alhamdulillah, it's uh the name of a little bird, and it started off as a bit of a joke because we were like oh we're going to take out starling, and there are many things that eat starlings, including kestrels, which is a little falcon, that does that. But it kind of stuck and the idea was that we didn't want it to be very Muslim-focused because we thought eventually this could be for everyone.
Speaker 1:A very, very important element of our business also.
Speaker 3:I wanted to ask because, we found this in our first year when we started off our website. It was just very ethical, not very Muslim-focused. But something interesting began to happen Muslims who we really saw as a beachhead market, and it was our vision and our mission to really try and solve this problem for our community. They were coming to the website and not seeing enough targeted marketing and that was sort of repelling them a little bit. They weren't getting it as much.
Speaker 3:And then non-Muslims were also coming and checking it out. But they would see a little hint of halal, like they'd see Mufti Faraz's face on there somewhere, or a sharia certification, and then that would send them away thinking, oh, this isn't for me. Is that ever something that you faced?
Speaker 1:Alhamdulillah, we've seen the growth in our investor base and we're very satisfied with that growth. Could we have grown more? Quite possibly, you know, um, and we could have done it if we had really pushed the marketing. We we haven't. Number one, it's not my expertise or muhammad's expertise. And number two, we were very much focused on building the underlying product for us. That's what was going to sell, and the underlying product for us should sell itself, and we had this conversation very, very early on. We're both, you know, two individuals that are very, very exposed to islamic finance, um, uh, industry and have seen a lot of the problems that other institutions have faced, and we agreed that we will position ourselves very, very agnostically when it comes to marketing and our brand.
Speaker 3:What problems are you talking about there?
Speaker 1:I feel and I'm going to answer this very carefully, right, but I feel that when Muslims are approached and I say are approached in the form of marketing, by messaging that uses Islam or faith, the word halal, as a means to attract them to a product, I feel that is doing the product a disservice, because that product should sell itself, and it is positioning the Muslim community into a space that they start feeling cornered and that they have no other choice but to take what is being put in front of them. And so if I come to you and say I am a halal bank and I offer current accounts and there is no other current account available, that is halal. What does that say?
Speaker 3:That what you're doing right now is haram and you should feel very guilty about it.
Speaker 1:And if you have no other choice, you know your arm is twisted. Yes. And I've just used faith. It's very hard now for you to argue, because I'm coming to you as an individual that has knowledge and I've just positioned and marketed that to you and you're now feeling pretty bad and you feel like you have no choice but to. Okay, you know what? What?
Speaker 3:I'll open account with muslim bank limited or you fight back and you say are you really hello?
Speaker 1:right and that's where I think there's so much skepticism and suspicion and so now, both of the both of the results of that approach, in my mind, is negative. If you're introducing a conversation that forces someone to argue with you not really a nice space to be to as your opening gambit to right and and if you're forcing someone towards your product, um, because you know, through faith, again, I think that's a little disingenuous. Right, let your product talk. Yeah, we spent all of our years at the start, before launching nesta, focusing on the product, focusing on ensuring that we had the best product for our customers.
Speaker 1:If you look at any successful business, you know many, many people quote people like steve jobs. But you know, if you look at any successful business, you know many, many people quote people like steve jobs. But you know, if you look at any successful business, the focus is always the customer. Right, the focus is always ensuring best delivery of your product for the customer, and so that's what we focused on. We don't find ways to you know position why someone must use our product. It's very dangerous and especially if you're in the same community, I think it's just a dangerous concept.
Speaker 3:So tell me about the product. Now, imagine I'm coming to you, to Nesta. I want maybe I own a restaurant or a dentistry and I, like you said there was a gap for people who wanted more than, say, like £100,000, but less than £5 million to fund some sort of project. Maybe I want £1 million to expand my dentistry my dentist's office. I can come to your platform, and what kind of due diligence would you do on me?
Speaker 1:So the starting point would be you would come to the Nesta platform, you'd log in. You'll be presented with a finance request form. That form will take some basic information that gets fed into our team. That commences what is effectively a first wave of due diligence, unlikely to have all the information there. So we'll pick up the phone and actually speak to the individual, have a conversation and within 48 hours we'll probably have enough information to be able to deliver you a what's termed a term sheet. And what that term sheet has is information in respect of the proposed financing. And so you know we can provide a financing for a term of 12 months. The profit rate associated with the financing will be 10. There's a two percent arrangement fee. The security that we'll need to take on it is a first fixed legal charge, a debenture over the corporate vehicle. You'll need to provide a personal guarantee. We'll expect you to perform the following milestones They'll be documented into the agreement and so on and so forth. Okay, yeah, that that's that.
Speaker 1:That's delivered within 48 hours, that's crazy 48 hours for all of that yeah, yeah, because this is quite a standard package, right, this is something that's quite normal. Um, what we're doing is we're looking at it from the perspective of what? What is, what is the strategy at that point? It's just identifying what is the strategy At that point. It's just identifying what is the strategy of this property. Does that strategy make sense? What is the expected value? Does that value make sense?
Speaker 1:Which translates to the borrower knows what they're talking about. If you're dealing with a borrower that knows what they're talking about, there is a deal there to be done, there is a structure there to be created, and so that's all you're trying to achieve. After that, and if those terms are accepted, that's a trigger for us to start proper due diligence, and that process takes us through to an application to credit committee, and that means that we're speaking to local agents. We're understanding what the market is like around the property. We're going out to visit the property, see what the actual bricks and mortar look like. We will probably meet the buyer to understand his strategy or her strategy better. Get some documentation to support that strategy. Build out an understanding as to who that buyer is or who's behind the buyer.
Speaker 3:How long does this take, because this sounds like.
Speaker 1:So this next, yes, yeah, it's intense but it doesn't take a lot of time because most people again expect that level of um uh, due diligence and they'll have that information available, and so that may take a week or two, and then that allows us to submit to credit committee, which means that the team will present. The team will then present to committee through a paper submission and they'll also present in person and the presentation is their cell in respect of that transaction?
Speaker 3:the people who are coming to you, do they tend to be muslim business owners looking for some sort of sharia compliant financing, or is it?
Speaker 1:absolutely, no, absolutely majority of muslim. We we have done a number of transactions with non-muslims that have come through the platform, both directly and through brokers, but the majority are Muslims.
Speaker 3:So, as a Muslim business owner, I'm coming to you. I'm looking for a project to finance specifically something in property, because that's what you guys specialize in some sort of renovation to my property. I'm credit worthy the reason I'm not going to an Islamic bank is that the amount I'm asking for is probably too low to be of interest to them is that. Is that right?
Speaker 1:yeah, correct, or the sector that your property is in is not supported what sectors are those? So, for example, the, the islamic banks find it very difficult to lend where there is a property that has a retail premises with um residential units on top, so that, as as a sector a mixed-use property, is difficult for an Islamic bank to lend against. Islamic banks, probably not lend against certain office accommodation or against retail premises. Why is?
Speaker 1:that Because their risk appetite is very different to ours. Why is that? And speaking to the borrower, looking at the locality and making sure that what the proposal and strategy is makes sense. Now, that level of time, commitment and resource does not make sense for a bank that has a focus on doing transactions in excess of £5 pounds. Um, it's just a. It's just an inefficient use of time not interesting to them?
Speaker 3:and is that? Why do you think the criticism against islamic banks in this country that they really don't seem to care about the local muslim population? They're more interested in helping wealthy people from the gcc, southeast asia places like that, to find financing or to save their money.
Speaker 1:Yeah, I mean, I'm not sure I can answer that question on behalf of the islamic banks, right, my experience um, which was, you know, some time ago now um, was that the islamic banks that I worked at were focused on delivering for, um, uh, you know, gcc nationals principally very diplomatic answer okay we had horace in the other day.
Speaker 3:He was a lot less diplomatic I'm sure he was yeah, okay, okay. So on the other side of this equation now, people who are storing money under the mattress or they're putting all their money into current accounts they are presumably where you are funding these properties from yeah right. So how are you reaching out to them?
Speaker 1:at the very beginning, word of mouth, okay, we, I, I reached out to um friends, uh, muhammad did the same, um, by that time we had a few people that were working with us and we, slowly, we, we, we did the, we did some of this kind of outreach, right, um, but we've never been very proactive in, you know, really big marketing campaigns or chasing sponsorships of events as hard as maybe others.
Speaker 1:Right, our focus has always been, you know, bring it back in, let's improve the product, let's, you know, improve this element, make it more efficient, make it more effective, and we let the business grow quite naturally, and alhamdulillah, that has, you know, maybe that hasn't resulted in us having 5,000 users within the first year of our operation, of our operation, um, but it's meant that every single person that we have on the nesta platform is active and is deploying funds. And it's very interesting, very early on um, the the um first investor that invested in nesta and supported us with a significant investment purely into the real estate transactions Was a friend of mine who is a non-Muslim, who I worked with through a connection from my days in Anglo-Irish Anglo-Irish and the level of support she gave us exceeded our capital by three times Wow. And you know she's not part of the business, she doesn't have shares and you know the focus was very much, you know, just the returns and in having that conversation.
Speaker 3:What did the returns look like?
Speaker 1:So we're. We're delivering returns of between eight and nine percent at the moment, and that's a you know. So that's a return that's secured on uk real estate, that benefits from a number of other security elements, such as personal guarantees and so on. We're positioning people now to effectively step into the shoes of being a bank and do you fund each project by project?
Speaker 3:so if I log into nesta I'll see okay, this dentistry is raising or this office is raising and I have to pick each project on its own and fund. Or do you collect money into a pool and then you just distribute as you see fit?
Speaker 1:so no well, our, um, our platform, does not pool investments. So individuals are given a selection of uh opportunities that are available to invest, um they're provided with details of the underlying risks and um some investment details the structure, the security package, the return and they choose the investments that they want to invest in. They're able to diversify based on their own risk appetite, and that may include demographic geography, it may include type of asset. People are very free to invest where they choose. It's not pooled, um it doesn't have any kind of association to that kind of fund type investment.
Speaker 3:Now I I want to talk to you about a couple of things. I want to talk to you about licensing, because I know your journey was super interesting, but I also want to talk to you about the forbidden words in islamic finance, the big cm commodity, marabaha, because I think it's been quite contentious recently. Some people have come out very strongly for and against. I'd love to get your take on that.
Speaker 3:Could you maybe explain to people who don't know what is commodity marabaha and why some people may have an issue with it or may not?
Speaker 1:So commodity marabaha is a structure that's used, um within islamic finance, to create a debt obligation between two parties and an obligation to pay profit. Um, it's all. It's also termed a cost plus structure, sometimes um, and the reason why commodities are introduced is that an asset is required to trade between two parties to create the surplus profit that, then, is effectively the profit payable in respect of the financing element. And so, if I explain it very quickly, in terms of the movement of of the commodity um and where the obligation is created, so um metals will be purchased.
Speaker 1:typically it's metals um metals will be purchased from a broker um and and those metals are truly acquired through the LMA, the London Metal Exchange, and those commodities are, let's say, purchased for £100. And this is in respect of £100 financing. So purchased commodities for £100. Those commodities are then sold to the borrower for £110. Now the borrower has commodities for £110 and owes the investor or the lender £100.
Speaker 1:But he has commodities. So that first obligation has been created, in that the borrower has to pay back £110 to the investor. But the borrower has commodities, has no use for metals, obviously right. And so they then approach another broker to sell those commodities back into the LME. And because that's done on the same day at a very, very swift pace, the second broker will sell it back into the LME at cost price.
Speaker 3:Okay, understood. So it seems like this is a structure that was created to fit within existing conventional financial structures, to kind of move towards something that looked and felt free of interest.
Speaker 1:Correct.
Speaker 3:But a criticism that's often levied against this structure is that it looks and feels and sounds a little bit like a loophole or interest by another name.
Speaker 1:The situation that we're in and I'm sure this is probably the response that you get quite typically for anyone that is using commodity, moreover, within the Islamic finance industry is that it's the only product that is available to certain institutions.
Speaker 3:Because of the licensing issue.
Speaker 1:Correct. Because of the licensing, If you are not an Islamic bank, you are unable to use the underlying products associated with HBP loans. So Ijala and diminishing mishalaka type products, you can't do that because it is tax inefficient. You can't do that because it is tax inefficient and the parties will not be able to benefit from the SDLT or the double charging of SDLT in the movement of the property.
Speaker 3:SDLT.
Speaker 1:Stamp duty, land tax, yeah, so you know, if you're not a bank, you're not able to provide that. If you're not a bank, an Islamic bank, if you don't have a banking license, you won't be able to benefit from that relief. And so even for us, our journey with Commodity in Malabar was extremely difficult to get the FCA to understand it within the world of peer-to-peer lending because they'd only ever seen it in the context of banks correct for them it would have been the pra anyway, not correct financial conduct authority.
Speaker 3:So how did? What was that journey like?
Speaker 1:very, very difficult right. So when we first identified that we needed a license, we were lucky enough to be accepted into the FCA's innovation sandbox yeah, we're in that now Okay.
Speaker 1:So we were part of that in our first six months, okay, and they were very, very helpful. That process was useful because it directed us into being able to build an application that we thought was very strong and so on, and also brought the right people in and gave us access to various departments within the FCA. So it gave us access to their legal team. It gave us access to us all. So that was fantastic.
Speaker 1:The first six months very, very positive and we submitted the application and then it got serious because we moved from that team that was very, very proactive to a team that was very focused on, you know and this is their role right Risk management, understanding the underlying products. Fundamentally, this is a product that will be exposed to retail customers. We need to ensure that this product is watertight. We need to ensure that the customers are going to understand this product. I've very briefly explained commodity more about how, but the, the um, the documentation and and the work that we put into um building that contract is not easy and it's very complicated so you couldn't do anything until you had this license?
Speaker 1:no, absolutely yeah and it took and we went to. So the fca have an sla service level agreement with um applicants of 12 months. We went to the last week of that 12 months.
Speaker 3:I've heard that's what often happens.
Speaker 1:In back and forth with the. Fca yeah, and we got to that stage and the FCA typically, if you are, or if they feel that your application is probably not going to proceed, they would prefer, obviously, for you to withdraw and reapply as opposed to giving you a negative outcome yeah and we went through that process twice two years. No, as in, we went through the process of them suggesting that the application should be withdrawn twice um how many years was this?
Speaker 1:no, no, it was within a year, so within the same year, we secured our, our license in february 2021 um and we applied I think it was january the year before.
Speaker 3:This must have been really expensive from a legal perspective, or is that where muhammad paraja came in?
Speaker 1:muhammad provided guidance, right, but, um, we had a suite of law firms and, yes, it was very expensive. How were you funding this? We went out, um, we did a couple of, uh, friend and family raises. Um, we, we haven't done any. We haven't done any institutional raises um as yet. Uh, and we've those friends and family raises have expanded, if you like, um, and so we've. We've done a couple of investment rounds, um, we did actually do a small um investment round, uh, and reached out to customers, um, maybe 18 months ago, and said you know, if you're interested in investing in this journey, um, and we raised a bit was it that was a crowdfunding one was that through like a cedars or crowd cube yeah, yeah, it was through one of those platforms.
Speaker 1:Yeah, we did that back in the day as well.
Speaker 3:Yeah how did you find that process difficult? Yeah, I was gonna say because I feel like I would never do it again.
Speaker 1:Yeah, yeah, no, difficult, difficult, but look know, an interesting journey for us, for sure, very, very interesting journey and loads to come. You know Loads to come.
Speaker 3:So 2021, you got the license. That's when you started going full steam ahead, onboarding all these different real estate projects.
Speaker 1:Yeah, so we secured that license in February 2021. We did our first deal in May may, which was to test the platform 431 000 pounds and we our next deal what was that deal?
Speaker 1:it was, um, it was I'm trying to remember the name but it was a property in, uh, walthamstow. Okay, that was a refurbishment. Um, when you knew someone, absolutely yeah, the first deal, that of the you know platform that I've been creating for three years. I wasn't going to test it on um anyone, but someone that I knew and someone that you know. Obviously, if they, if they tried to play around with, with, with the money, would go and knock on his door, and if he didn't answer, I'll knock on his mom's door and we just keep on going right, um, but joking aside.
Speaker 1:But joking aside, we had to be very careful. I wanted to be very careful with how we first deployed, and so that was our first transaction £431,000 refurbishment Performed fantastic, fantastic, really good um. And then, when we were comfortable, profits were being paid out um on a monthly basis. Those profits were being pulled out of the system. Alhamdulillah, we said all right, okay, we're ready now and we did our first transaction, first real transaction, um in december how does it work for the investor?
Speaker 3:because do you pay out um at the very end, or they know?
Speaker 1:they pay monthly. So both the borrower, the buyer, pays on a monthly basis and the investor earns on a monthly basis.
Speaker 3:Okay, gosh, it's really like a bank savings account without being a bank, and obviously you can't guarantee it's an investment.
Speaker 1:Yeah, but the way it's interesting because this whole conversation about commodity murabaha, we're in the process, inshallah. We're in the process, inshallah, of expanding that product offering and we feel that we've found a solution that will allow us to introduce a new product and there'll be more um the more told um once we get closer. But that will be a bit of that's a bit of a.
Speaker 3:You can't share any more details about it.
Speaker 1:Not not yet, can we guess I'm sure, I'm sure you can guess, but I won't. Uh, I heard, you're looking at Saudi, we are.
Speaker 3:Is that from an?
Speaker 1:investor base or projects financing. Yeah, saudi is a very interesting market because number one very active population and a population that is extremely interested in tech and finance, a population that is extremely interested in tech and finance, um and uh, where where we are able to introduce potentially um, the nesta underlying asset ie our investment opportunities, asa, uk sterling asset and for saudi individuals to invest in to earn an eight or nine percent return could be quite powerful market.
Speaker 1:Yeah, whenever I'm in saudi yeah that's all they're asking us to do yeah like can you give us some sort of route, some sort of channel, yeah, to invest in and so for us it's um, you know it's a, it's a journey that we're looking at, you know, completing soon, inshallah, and if we, you know, we get to open and unlock that market, that will be extremely powerful.
Speaker 3:Would you have to start that journey again with the licensing, because your license that you have right now did not exist in the UK until you got it? Yeah, correct.
Speaker 1:Yeah, yes, but I think when you come to look at the region, the GCC, much of their regulation is very closely associated with our regulation here in the UK and they know that. I mean, I would say a lot of it is very, very similar. So the fact that the business that Nesta, has the FCA authorization here going over to KSA and transferring that, ie transferring the business and our processes and our controls and presenting that to Samba or whoever it may be to provide us with the relevant authority, I think that will go a long way in fast-tracking that conversation.
Speaker 3:The British brand does go a long way. It does open doors, rightly or wrongly. How important is the licensing to you? Because there are other people in the space who've gone it without a license yeah, you know like razza was here on the podcast. They're not directly regulated by by the fca because, um, they say, they didn't really know what to do with them, with their product I can, and we've had the conversation, aziz and I, about his journey as well.
Speaker 1:I think his is more interesting and I'd suggest he's had a harder time than I did, if I'm being very, very honest. And they've worked tremendously hard to get to where they are now. Um, mashallah, mashallah and and um, and that's because we've presented to the fca the the closest understandable product, that um can be related to a financing arrangement and that's what the commodity mohabha is. It's the only one that they understand that the FCA understand that they're open for use outside of Islamic banks Because the likes of Ijana as much as we've. We were said we were told no and there are reasons for that.
Speaker 1:it's quite technical um, but it's effectively restricting the use of that product okay whereas with um fida they're introducing something that's, you know, very, very innovative, mashallah, you know, and that's, and getting the fca to understand that, I think is quite difficult.
Speaker 3:What is there on the horizon for your future? I mean, you talked about things that you can't talk about, but it sounds almost like going back to that idea where your friend's father, that uncle, spoke to you about his specific need. You're trying to slot into this missing section, which islamic banks sort of left people behind. Is becoming a bank on the horizon for you, or is that?
Speaker 1:inshallah, why not on? You know, becoming a bank would be, would be fantastic. Long way off, though, um you know, looking at we spoke about saudi, but looking, but looking at other jurisdictions, I think the US is a very, very interesting market.
Speaker 1:A very interesting market to introduce, you know, something as powerful and as liquid as the Nesta product. You know, and that's definitely something that we're very, very focused on. But you know if I stand back. We've answered the question related to real estate, but there are so many other asset classes. There are so many other needs for products. Needs for products, um, I mean, even we, we could. We, we could be replicated 50 times over and there is a very high barrier to entry because of the regulation. We've spoken about that. But we could be replicated 50 times over and they'll still be barricade risk in the market.
Speaker 3:There is still demand I was going to say, because people have created. Now that you created or pushed for the creation of this license here in the UK, what's stopping someone else coming in and using that?
Speaker 1:You know, absolutely. I mean, I can tell you it's still not easy and it's a long journey with the FCA. But yes, anyone can and we would welcome it.
Speaker 3:You've heard it here first. If you are sitting there and you have an idea, you're doing it, why not?
Speaker 1:The market needs it, the community needs it. There is demand out there for more products and there is an opportunity for new people with innovative ideas to bring different elements or different guises of what we're delivering that may improve that marketplace. But there is other opportunities to tap into trade finance. There's opportunities to look at business finance.
Speaker 3:And I think we're seeing that happen right, like with what Horace was on talking about, with what he's doing with Cordoba Capital Markets, he's really looking at the trade financing element. You've got the guys at Curate Capital slash IFG who've done everything from the VC investing side a bit of trade financing, a bit of property now as well, the Wahid guys doing the same thing. What's your take on the Islamic finance scene in the UK? What are you most interested in worried about?
Speaker 1:Customer satisfaction. I think the community still doesn't understand the Islamic finance sector well enough. I think there is knowledge that needs to be shared and I think the Islamic finance practitioners, as we've kind of coined them, myself included, should come together to identify how we can improve that space, because if we don't, we'll be faced with, you know, disgruntled customers on the other side that don't understand what we're doing, why we're doing it, the reason and rationale for some of the decisions that we make, the reason and rationale for some of the decisions that we make, and I think, sharing that and trying to expand those that are looking to enter the space and support them, I think that's very, very important.
Speaker 3:Do you think a lot of that confusion comes from? I think a lack of collaboration amongst the Islamic fintech players, the larger Islamic finance players out there. Right now we're all kind of I don't know, trying to figure things out on our own. There's been this debate around commodity marabaha Is it right or is it wrong? And from a retail perspective, a lot of people aren't really equipped to understand the nuances of that. People aren't and you're there feeling like they can opine on that matter. Do you think it's really just noise?
Speaker 1:I don't think it's noise. I mean, you know, these are our customers speaking. I think we should be listening, um, and I don't think we should take it as, um, an attack. I think we should. We should listen to those opinions and either try and you and help them understand why we're doing certain things and it's okay for them to not to agree with that but I think the difficulty for us is that there are some pre-existing opinions of the sector and we're carrying that baggage and we're trying to do things very, very differently. You know, the IBB application form for a business account was 15, 20 pages long. You could set up a business account at the time with the likes of Monzo and it'd take you 30 seconds.
Speaker 3:God, I forgot Rayon Bank was doing that alongside Monzo. Gosh, what a dichotomy.
Speaker 1:And so you know we're moving right Ourselves. Our onboarding process is, you know, quite slick, alhamdulillah. Others have a very, very accelerated and electronic onboarding process, also in the Islamic finance sector, that performs very, very well, and so we're moving in the right direction. But there's definitely a lot of work to be done, and a lot of that, in my opinion, is education.
Speaker 3:Amazing, we're running short on time, Eunice but I wanted to ask you one last question.
Speaker 1:What legacy do you want to leave behind? I think Nesta can continue to grow and become a hub, so not just a bank, but a hub for the type of learning that I've just described. I'd like Nesta, inshallah, to continue giving to the community, not just through its service but, you know, through other means, shall we say, and I think that's for me, you know, being someone who likes to solve problems and likes to help people, likes to help people, nesta, for me, has been incredible because it's, you know, that one, you know, it's that one part of my, my life that, you know, ticks those boxes quite quite fully and that's why we do it right, using your abilities to serve the community absolutely amazing, eunice.
Speaker 1:Thank you so much, no problem at all thank you for listening to.
Speaker 3:No problem at all, as-salamu alaykum Wa-salam, thank you for listening to the Muslim Money Talk podcast. If you like what you heard, then please subscribe to Muslim Money Talk. Wherever you might have been listening to this, give us a like and share it with someone who you think might be interested. It really, really helps us out. Thank you, as-salamu alay.