Qardus Review – New Ethical Sharia-Compliant Investments

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Summary of Qardus Review
Qardus is a new platform and is the first UK-based sharia-compliant one for small business loans. At present there are very few loans on the platform which makes diversification difficult, but this is something worth keeping an eye on for the future.

Here is how Qardus compares to standard business investments. Due to the slightly different nature of their loans they are not directly comparable.

PlatformLinkTarget Rate (%)My XIRR (%)StatusLive Rating
ReviewUp to 15%11.36%OPEN4/5
ReviewUp to 7%5.68%OPEN2.5/5
ReviewUp to 5.3%5.04%CLOSED3/5
http://www.huddlecapital.comReviewUp to 16%8.0%OPEN3/5

What is Qardus?

There are few sharia-compliant investment only platforms. In the past you could have ETFs which invested solely in these businesses. More recently firms such as Wahed Invest have offered a managed solution. Qardus boasts that it is the first ethical and sharia compliant business financing platform in the UK. By this, we can see it not only finances businesses, but also allows investors a chance to specifically choose what businesses to invest in. This has its own appeal to those users who want to appraise businesses before they invest in them as opposed to a black box.

The reasons why Sharia-compliant financing platforms are rare are pretty plain. Qardus explain this themselves in the FAQs: ‘Any product or structure certified as Sharia compliant means that the product has been reviewed by a Sharia scholar and that the product and structure end-to-end meet Sharia requirements.’ We can see that many small businesses will not qualify for this.

Additionally, for those that do there may be a shortage of financing options, as many of the existing options are not compatible with the Islamic finance principles. Therefore, Qardus seeks to solve a problem at both the supply and demand ends, as investors themselves do not need to obey this requirement.

Qardus was is a new platform, having been setup in 2019 and becoming live on the market in 2020.

Here is a list of Qardus features:

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Qardus Sign Up Offer

Currently, Qardus offer a ‘CashBoost’ for new investors. This simply raises the interest rate on your investments. Amounts from £1,000-£4,999 gain a 1% boost, from £5,000-£9,999 it’s 2% and from £10,000+ it is 3%.

Is Qardus profitable?

Qardus are a new company and have not filed accounts at the time of writing. Their FCA authorisation is not their own, but uses another companies – Share In Ltd. This introduces some risk in that Qardus are reliant on their continued good standing. It appears that Share In offer services for many other sites, most of which have similar looking webpages.

Qardus Operating Model

Signing up to Qardus is not too much different from signing up to any other platform. You give your details, and upload some verification such as a passport or driving licence. You then need to categorise yourself as an investor type and take a short quiz. This should present very few difficulties if you have signed up to a platform before.

After this you can browse the platform. Currently the options here are few. Uploading money to your account can only be done by bank transfer, and this may take a few days to clear into your account. Additionally, the only type of account possible here is a manual one. It is not possible to hold your investment in an ISA, and neither are there any options such as auto invest.

The ‘Investments’ page will give the details of all the current opportunities. Typically these will be small businesses, very much like the ones seen on sites such as Funding Circle. Clicking one will bring up further details of the business. Most importantly, you can see the loan term and interest rates. The minimum investment into each loan is £100.

One of the features of Islamic finance is that the payment of interest is prohibited. The solution for this is that the business pays a share of profits. The profit share together with the loan repayment is repaid to your account every month. In this sense it is similar to an amortising business loan as opposed to one which only repays interest with all the capital at the end.

A consequence of this is also that Qardus are not technically peer-to-peer, even though the capital is crowdfunded. Investors monies goes towards owning a slice of a SPV (special purpose vehicle) which then distributes the money. Therefore receipts from this SPV are treated as dividends instead of interest. Depending on your financial situation this may or may not be desirable – please seek additional advice if unsure.

How are funds protected?

There are no provision funds or automatic diversification attached to investments in these SPVs. Additionally there is also no secondary market for investments. A quirk of the platform is that a manual transfer can be made at par to a willing purchaser if you forward Qardus their details.

Monies invested into the SPVs are not covered by the Financial Services Compensation Scheme (FSCS). Qardus’ provider Share In are covered and it should be the case that uninvested cash falls under the protections. This is not a green light to simply store cash on a platform though: in the case of insolvency the final result may take years to conclude.

Qardus Review Pros:

  • As far as this type of lending goes, it is one of the few sites where you can self-select your investments. You are free to invest (or not) based on the underlying merits of the business.
  • Interest, or profit share rates tend to be much higher than personal loans. This reflects the greater risk, but 10-12% is quite common here.
  • Repayments of loans are of the amortising type. As capital is paid back, the loans are less risky in some senses as time goes by. This is compared to non-amortising loans where the whole capital is due at the end.
  • Minimum investment amounts are relatively low at £100 per loan.

Qardus Review Cons:

  • The site is relatively new and there is no track record. Currently there are very few opportunities, which is perhaps not surprising given the smaller target market of businesses. The reality is though a certain amount of deals will be required to keep the site viable.
  • Businesses are on the smaller side. The high imputed interest rates imply that there is plenty of risk. It is often the case that a business failure means that investors lose most of their cash as there are fewer assets.
  • The platform has few loans at present, so diversification is difficult. There are also a quite limited number of ways in which you can invest.
  • Income is received as dividends, which may be taxed differently to income depending on tax jurisdiction.

Qardus Review Conclusion

Qardus is a new platform and has no track record as yet. It is also not easy to judge if they may get the number of loans required to be successful in future. But with a relatively low minimum investment, it offers a slightly different class of investment that may be of interest to investors.

Disclaimer: This Qardus review represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm. Typically P2P investments are not covered by the Financial Services Compensation Scheme (FSCS) in the way bank deposits are, and there are no guarantees that you will receive the returns advertised (or even a return at all).

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