A new robo-advisor called Algebra complies with Muslim practices

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Asia is about to get its first Sharia-compliant robo-advisor, according to Banking Technology.

Algebra will be launched by December 2016 by Malaysia-based Farringdon Group, a private wealth and investment manager. The service will be open to investors across all geographies, and will mandate a minimum investment of $263 per month. It will offer users one of five different risk-weighted strategies and create a portfolio of Sharia-compliant funds.

For many Muslims, their religious practice bars them from using conventional investment vehicles. Most adherents of Islam are not permitted to invest in firms that produce prohibited products, such as arms or alcohol, or those considered to take on excessive risk.

Their religion also prevents them from using many conventional investment approaches that involve baked-in risk — like hedging. And they cannot use any kind of financial product that involves the receipt or the paying of interest. As a result, there are relatively few options available for Muslims who want to invest their money.

This means there is significant demand for Sharia-compliant investment products. Stuart Yeomans, CEO of Farringdon Group, said that of the $15.11 trillion owned by Muslims, $12.48 trillion remains outside of Sharia-compliant financial products.

Historically, this has been because such products simply haven’t existed, or ones that did exist were prohibitively expensive for most consumers — particularly with regard to investment products. This suggests that there is a significant market for Sharia-compliant investment alternatives, and given the size of the potential customer base and the dearth of such products, we are likely to see many more Sharia-compliant investment vehicles emerge in the near future.

Robo-advisors are threatening to upend the enormous global wealth management industry in several ways, and they are likely to arrive in full force within the next few years.

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