Challenger bank Fair pitches its banking, investing and lending services as ethical, socially responsible and interest-free. That’s the type of language that could appeal to many consumers, but Muslims who adhere to sharia law will recognize the challenger bank as sharia-compliant as well.
Sharia, or Islamic religious law, prohibits interest (or “riba”) charged on loans and deposits. The demand for Islamic financing products could grow as the Muslim population increases. There were 3.45 million Muslims living in the U.S. in 2017, according to the
At the same time, banks that offer Islamic financing in the U.S. are few and far between. Bank of Whittier in Whittier, Calif., Devon Bank in Chicago and University Bancorp in Ann Arbor, Mich., are a few that advertise these services.
Founder and CEO Khalid Parekh is implementing Islamic finance practices such as equity-based lending, where Fair and the customer will acquire a home in partnership and the customer will buy back shares over time. He will also restrict customer investments to socially responsible products, eschewing those related to alcohol, pornography and more. Still, Parekh emphasizes that Fair is meant for customers of all backgrounds.
For a membership fee, the Houston-based Fair offers a checking account and international money transfers to its members as part of its soft launch; it will introduce early wage access, a debit card for kids, a robo adviser and loans over time. Toward the end of the year, Fair will launch business accounts. The lifetime membership fee for the first million customers is $99 (discounted to $79 for a limited time), and will transition to a $9.99 monthly fee thereafter. Coastal Community Bank, a $1.8 billion-asset institution in Everett, Wash., holds the deposits.
Parekh is also the founder and CEO of Amsys Group, which owns a number of technology and health care firms, including Fair. In an interview, he explained how his challenger bank will operate within sharia guidelines and why there is demand for such a service. The interview has been edited for length and clarity.
How does Fair adhere to sharia principles?
KHALID PAREKH: There are three ways. One, we don’t leverage your deposits and earn interest on those funds. Two, we don’t give out any loans that are interest-related. Instead, we are launching home loans this summer that are equity-based. Three, we are launching a robo investing platform where we will ask questions about your age, what kind of return you want and what risks you want to take. We will only recommend investments that are sharia-compliant, meaning we don’t allow you to invest in companies [involving] alcohol, cigarettes, pornography, pork or gambling.
But I want to be very clear that Fair is a platform for all religions, for people from all backgrounds. We conform to strict SRI [socially responsible investing] principles where we are all about people over profits. Fair is for everybody.
How will interest-free loans work?
For home lending, Fair will partner with members to provide a no-interest alternative. Say you want to buy a house. You and Fair will contribute your portions into a joint purchasing behavior, like an LLC, that buys the house. You pay rent to the LLC and you have an option every month to buy shares from Fair so you are buying your equity back.
What do you do with your customer’s money if you’re not lending it out?
Nothing. We leave it there. But we will be launching a dividend savings account where, as a member of Fair, you park your money and we give you a 2% dividend paid monthly. That money comes from funds we have invested in halal sharia products. When you make money on money, that’s interest. But you own the dividend account, so instead of getting interest we are sharing the profits with you and giving you dividends.
Why was it important to you to adhere to sharia law?
When we asked Muslims why they bank with Chase versus an Islamic bank that offers sharia-compliant products, their answer was, "We don’t have a choice." Fair launched to give people an alternative to traditional finance that follows strict sharia guidelines. There are some lenders out there that do [compliant] home loans but there is not one institution that allows you to do banking, lending, investments and retirement.
Is this compliance something you are making clear to your customers, or using as a marketing tactic?
It’s more of us wanting to be universal versus catering to one specific audience. We call it ethical banking. It will come up in messaging that we are a halal bank but not specifically that we are a sharia-based or Islamic finance-based bank. That’s why we are using those words — ethical, people-first, no-interest or interest-free. Someone who sees the term “interest free” on our website will know that is Islamic finance.
How will you make money?
The majority will come from the subscription fee and we will make some money from interchange. We have a Costco model — you pay us a membership fee and we curate the best products for you. We don’t charge ATM fees, international money transfer fees or nonsufficient-funds fees.
I’m not doing Fair because I want to make money. I’m independently wealthy. I want to launch Fair as people over profits.
