Germany’s first Islamic fintech company is launching a crowdfunding platform based on Sharia standards and certification.
Germany’s first Islamic financial technology (fintech) company, INAIA, has put the finishing touches on the launch of Sharia-compliant real estate crowdfunding platform Sukuuk.
The structure of the sukuk is based on the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Sharia standards and certified by Dubai-based Minhaj Shariah Financial Advisory.
The non-profit organization AAOIFI prepares accounting, auditing, governance, ethics and Sharia standards for Islamic institutions and industry. INAIA develops innovative and sustainable solutions for principled clients, thereby building a future to meet the demands of people with special ethical needs.
Salaam Gateway spoke with INAIA CEOs Bilgehan Akbiyik and Emre Akyel on building customer-centric real estate finance.
Salaam Gateway (SG): What motivated you to develop the SUKUUK platform?
Bilgehan Akbiyik: An Islamic-compliant real estate financing platform for clients wishing to buy property privately has been close to our hearts for years. Customers and investors want a solution they understand and understand; something plausible about funding costs and adjusting their value system. The opportunity to democratize investment participation has been a driving force. It was the idea of designing a solution that underpins equality between lender and borrower.
SG: Could you explain the concept in a few words?
Emre Akiel: We have been working for more than five years on this innovative concept to make it a Sharia-compliant, tax-efficient and customer-oriented offer. The prospective buyer of the property brings equity into a special purpose vehicle (SPV) – a subsidiary formed between the buyer and the investors to undertake a specific business objective – for each project. It will be an independent security trustee registering property rights and registering in the land register. When the project is finalized, the SPV is dissolved.
For the investor’s part, the buyer pays a market value rent, which is fully numerically and individually defined for each property according to certain variables. The buyer gets shares of the property every month until they become the owner. It is basically a traditional descending musharaka, fully digitized for processing.
SG: What differentiates SUKUUK from traditional real estate financing?
Bilgehan Akbiyik: SUKUUK was designed as a practical and efficient digital product. Anyone living and working in Germany can use SUKUUK’s digital application process. We check the creditworthiness of the customer and evaluate the property the customer wishes to buy; determination of the local rental value according to the location and the property. We can achieve this in seconds and without paperwork. This allows us to set up a financing plan for the client and, in a next step, to decide whether the client’s property can be published on SUKUUK as a financing project.
SG: Who carries out these checks and evaluations?
Bilgehan Akbiyik: We use independent experts who provide real estate data and rental and property prices, connected to SUKUUK via a digital interface. These suppliers are certified by the competent German authorities in their respective fields. Using algorithms, we process their data alongside our historical and current information.
The same goes for transactions. Payments are not processed via our platform, but by a payment service provider registered and certified by the German financial regulatory authority. From fiduciary accounts, the service provider carries out transactions on a fiduciary basis.
SG: How does SUKUUK differ from other real estate crowdfunding platforms?
Bilgehan Akbiyik: Platforms generally focus on commercial and construction projects. However, SUKUUK finances existing properties for private households where the landlord is also the tenant. This solution eliminates construction risks, including incompleteness. We do not believe that there is currently an equivalent offer in the German private sector.
SG: How do investors benefit from your solution?
Bilgehan Akbiyik: For investors, we address the global market. German real estate is attractive because, from a market, regulatory and political point of view, it is safe. Crowdfunding in real estate is popular, especially among new investors and middle income earners. Considering that apartments in Germany’s smaller urban areas range from €150,000 ($165,000) to €200,000 ($220,000), the ability to invest small sums in multiple properties creates a diverse portfolio and generates rental income. The minimum investment is €250 ($275).
SG: Will SUKUUK only be available in Germany?
Bilgehan Akbiyik: We will start in Germany and expand to Europe. From an infrastructure perspective, France and Austria are target markets, but we are open to the global market on the investor side.
SG: How does SUKUUK generate revenue?
Bilgehan Akbiyik: We charge a platform fee to cover administrative and stakeholder expenses. In addition, we collect a management fee if we successfully arrange financing, guaranteeing the buyer the capital needed to purchase the property. We haven’t fully finalized the terms yet, but the fees will likely be tiered, depending on the value of the property and the amount of financing.
SG: What was the biggest surprise you had while developing the offer?
Bilgehan Akbiyik: On crowdfunding platforms, subordinated loans raising funds from investors for projects are often used. Subordination means that the loan is not repaid until all credit obligations have been paid and is often tied to the payment of interest. Germany has a mechanism that excludes an interest transaction and offers profit sharing, the definition of which may vary. This suited us perfectly because we offer our investors rental income in line with their units; Yet our solution eliminates all activity of interest while emphasizing partnership.
SG: What was the main obstacle to developing the solution?
Bilgehan Akbiyik: The German tax landscape, in particular property transfer taxes, is difficult. In this country, anyone who acquires land or real estate must be registered as the new owner in the land register. This goes hand in hand with paying between 3.5% and 6.5% real estate transfer tax on the purchase price, depending on your federal state.
This large amount is optimized with the SPV structure. We are currently auditing and evaluating this unique structure for tax purposes. However, I can already say that we have found a way around double taxation when it comes to property transfer taxes.
Adapting a complex and bureaucratic product such as real estate finance consumed our technical and design experience to develop a unique concept that provides a smooth user experience.
SG: When will SUKUUK be launched?
Bilgehan Akbiyik: Technically, we are ready to go with a list of interested parties, buyers and investors, in the pipeline. However, we do not want to leave anything to chance when it comes to taxation. We are awaiting the final report from one of the big four accounting firms and SUKUUK will be launched once this matter is settled – probably within three to four months.
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