Maliyya, a Sharia compliant P2P platform to finance ordinary people

Islamic finance is expected to surpass $3tr by 2020, and it can play a key role in helping to achieve the thirteen Sustainable Development Goals (SDGs) set up by United Nations Development Programme.

The SDGs seeking to alleviate poverty and hunger, improve health, education and access to water and sanitation, reduce inequality and protect the environment go on parallel with some Islamic values.

To achieve the SDGs in developing countries will require $4.5tr per year. The mobilization of private resources is fundamental to achieve the SDGs so finance flows up down to local businesses that can have social impact and generate profits in local communities.

Jafar Babayev and Ramil Muzaffarsky Maharramov are the cofounders of Maliyya, a startup with a special attention to the Islamic Finance.“We came up with an idea to establish a Shariah-complaint P2P financing and investment platform which will offer broad choice of Shariah-compliant investment & financing instruments and products, lower transaction cost by skipping intermediary financial service providers, full Shariah certification of financing & investment products by reputable scholars, small investment amount as low as $100, and access to the cross-border pool of investors and financiers through global availability and P2P nature of the platform,” says Jafar Babayev, Maliyya´s CEO.

“Maliyya’s value proposition is very simple.  We ask ourselves what kind of pains people feel when they decide to lend their money.  And those pains are very clear: low returns, limited investment options, and costly process.  Secondly, we found out that the borrowing process is cumbersome too.  Anybody willing to borrow will need to consider high rates, excruciating fees, and lengthy due diligence process,” explains Jafar Babayev. “In parallel, we discovered that both investment and borrowing process becomes more miserable if you are a Muslim and want to act in accordance with your religious beliefs.  For instance, although 25% of the global population is Muslim, Islamic banking industry accounts only for 1.3% of the global banking sector,” he continues.

“Muslims, based on their religious beliefs, invest and borrow differently.  Whenever a Muslim decides to invest or borrow, he or she must ensure that the transaction complies with religious laws forming the part of Islamic tradition.  Therefore, whenever we mention that a product offered via Maliyya is Shariah-compliant, we imply that Muslims following religious rules could safely use it.  However, we want to make it very clear that non-Muslims are not prohibited from investing or borrowing via Maliyya.  We never discriminate people on any ground,” he clarifies. “Maliyya was born to make finance inclusive and to provide access to those who were excluded from modern financial services either because of the cost of financing or because of beliefs. Therefore, Maliyya is and will remain an inclusive financial technology enabling affordable, fast and reliable investing and borrowing in all its markets. People from any religion, nationality or believe can access and use Maliyya,» he completes.

“Investors (lenders) are unhappy with profitability, financial products and the investment process offered by their banks.  Usually, our investors are mid-level tech-savvy managers having enough savings to invest but want to do so on their own terms.  On the other hand, our borrowers are either consumers or owners of small and medium enterprises looking for better borrowing rates and easy and quick process,” Jafar Babayev says.

The market expansion will happen from the UAE to the GCC and the MENA. “UAE is our primary target market for now. We believe that it is best option for testing such an innovative investing and funding technology as Maliyya. Our next target market is Bahrain which also comes with a very advanced and supportive regulatory framework for financial technology. Saudi Arabia, Jordan, Pakistan, Indonesia, Bangladesh are the next markets Maliyya plans to target for scaling up,” explain Ramil Muzzafarsky, Maliyya´s CFO.

From Azerbaijan to Dubai

One year ago, Jafar Babayev and Ramil Muzzafarsky, partners in Confidelity Partners, a management consultancy firm, were discussing restructuring a defaulted cross-border loan transaction with their clients.  “Defaults on foreign borrowings became usual to Azerbaijan after the local currency lost its value significantly in series of devaluations of 2015.  Azerbaijani banks started experiencing huge problems to pay back debt borrowed before 2015 when the economy was flourishing.  Some banks went bankrupt.  As a result, the cost of borrowing became enormous.  However, the economy started recovering in 2017, and demand for financing increased.  Banks were unable to meet the demand because the local population withdrew most of the deposits.  On the other hand, foreign banks were reluctant to lend to local banks due to risks,” explains Jafar Babayev.

During their discussions, they tried to find a way to decrease the cost of financing and at the same time to increase returns for lenders.  “Moreover, we wanted to make all that in compliance with Shariah because the majority of Azerbaijani are followers of Islam.  Consequently, we concluded that there are significant legal and technological fundamentals for ordinary people to finance other ordinary people,” says Jafar Babayev, and continues: “It was a joint decision, but the core of the idea came from me. We take all decision unanimously.” 

Startups must faces competition and difficulties, but their field is even more complicated due to tax implications and regulatory environment, but they keep a realistic vision. “Tax implications for investors using Maliyya’s marketplace could wipe out several percentage points from their expected profits. Capital requirements on crowd financing technology increase financing needs of Maliyya. Unfortunately, the regulatory environment for Islamic Financial Technology remains a challenging area for Maliyya. This is true for most of the countries with majority Muslim populations. Regulations are quite cumbersome for a Shariah-compliant investing and borrowing marketplace, such as Maliyya,” tells Ramil Muzzafarsky.

The ecosystem is still peaking up and it is still not mature enough, so convincing investors is a challenging task. “Despite the hype, the Venture Capital industry is still underdeveloped, and the risk capital is severely limited in the broader Middle East region,” describes Ramil Muzzafarsky. “We underestimated the limited availability of the risk capital in the Middle East region. We thought that a great idea, vision and team would be enough for take-off and fundraising,” completes Jafar Babayev.

Both are MBA graduates from Sloan MIT and IE, and think that Islamic finance still have a long way in the western institutions, although in the old continent it starts to take off slowly. “As a graduate of MIT Sloan School of Management, I can say that Islamic Finance remains largely unknown in leading academic and business circles of the USA. Europe is doing much better in this regard. Some business schools in Europe offer Islamic Finance specializations, which is mostly non-existent in the USA. The reason for limited knowledge of the Islamic Finance is mainly due to the smaller market share of Islamic Finance. Islamic Banks account for only 2% of global bank assets,” explains Ramil Muzzafarsky.

Maliyya got shortlisted from 100 applications to be part of the inaugural batch of DIFC Fintech Hive, the accelerator program launched in partnership with Accenture that brought together the next generation of technology leaders and entrepreneurs to address the needs of the region’s financial services industry. During the three-month program Maliyya had the opportunity to be mentored by leading executives from Citi, Emirates NBD, Emirates Islamic, ADIB, HSBC, Mashreq, RAKBANK, Standard Chartered, and Visa, as well as senior representatives from DIFC Authority, Accenture, and IFC. “Technology support will be available on Facebook and Envestnet | Yodlee.  Dubai Islamic Economy Development Center (DIEDC) provided special mentorship from Islamic banking and finance perspective.  Clyde & Co, Simmons & Simmons, as well as Support Legal, will help Maliyya to cope with legal and regulatory issues. It was a great 3-month experience.  The success of the Fintech Hive is related to Raja Al Mazrouei, the Executive Vice President of DIFC Fintech Hive.  She herself is a great person and a big enthusiast of fintech.  She provided huge support for all participants including Maliyya,” explains Jafar Babayev.

Soon after having participated in the DIFC FinTech Hive, Maliyya got into the MetLife Foundation & Village Capital Financial Health Forum last December. Another 10 startups were selected out of 150 applicants from around the world. “It was a great experience to have the chance to present Maliyya in front of a dozen of investors, stakeholders, and MetLife’s global staff. We learned a lot,” Ramil Muzzafarsky says.

Right now, the startup is on its seed phase for investment. “We are looking for a seed investment of $ 250,000 US dollars. This investment would enable us to make Maliyya fully operational, and to execute full integration with a payment system, with our select financial custodian service providers, and with select partner commercial banks”, says Ramil Muzzafarsky. “We have pitched more than five times. We believe that $2 million would be sufficient to take Maliyya to breakeven point and eventually to profitability in five years. Maliyya’s technology has minimal marginal cost after the launch of the platform. We plan to capitalize on that”, he completes.

Both cofounders are from Azerbaijan, where the wave of startups has not yet developed. “Azerbaijan does not have a developed startup ecosystem.  However, there are some organizations and communities which try to organize various networking events,” comments Jafar Babayev.

“We are confident in the value proposition and business model of Maliyya. We would be happy to operate Maliyya for a long time without considering an exit. However, to enable some of our investors to exit and to cash on their investment, Maliyya would consider IPO or partial sale of its shares to a strategic buyer, most likely in the next 10 years,” concludes Ramil Mufazzarsky.