EICRI – Barely 10 years after the huge financial crisis of 2008 and the collapse of the Lehman Brothers investment institutions, global stockmarkets are reaching their all time highs (ATH). Although retail investors constitute just a relative small portion (<10%) of the total traders active on the stockmarket, easy to use trading apps like RobinHood (USA), eToro (Cyprus/Israël) and DeGiro (the Netherlands) have allowed more retailers to trade with ease. Part of the extreme growth in retail-traders are SPAC’s. A special purpose acquisition company (SPAC) is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. More and more muslims, especially in the West, are waiting for the next big step to take place.
- Retail investors have discovered the stockmarkets and are not leaving anytime soon
- A growing number of the retail investors have an Islamic background
- IPO’s with huge potential are more often lead the way by SPAC’s
- Muslim investors are looking for new opportunities, but the lack of an Islamic SPAC leaves a potential gap for these traders
- EICRI Institute is checking for the possibilities to launch the first Islamic SPAC in 2023
The need for an Islamic SPAC in Europe and the USA
Also known as “blank check companies,” SPACs have been around for decades. In recent years, they’ve become more popular, attracting big-name underwriters and investors and raising a record amount of IPO money in 2019. In 2020, as of the beginning of August, more than 50 SPACs have been formed in the U.S. which have raised some $21.5 billion.
SPACs are generally formed by investors, or sponsors, with expertise in a particular industry or business sector, with the intention of pursuing deals in that area. In creating a SPAC, the founders sometimes have at least one acquisition target in mind, but they don’t identify that target to avoid extensive disclosures during the IPO process. (This is why they are called “blank check companies.” IPO investors have no idea what company they ultimately will be investing in.) SPACs seek underwriters and institutional investors before offering shares to the public.
The money SPACs raise in an IPO is placed in a (haram) interest-bearing trust account. It’s forbidden for muslims to take part in activities that contain interest (riba).
Allah, may He be exalted, says (interpretation of the meaning):
“O you who believe! Fear Allah and give up what remains (due to you) from Riba (from now onward) if you are (really) believers.
And if you do not do it, then take a notice of war from Allah and His Messenger (blessings and peace of Allah be upon him) but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums)” [al-Baqarah 2:278-279].
More and more muslims feel the need for an Islamic SPAC because of the possible huge potentials and profits IPO’s usually bear with them.
The next “Tesla”, Lucid Motors, is owned by Muslims, but they can’t enjoy the smooth ride up with SPAC CCIV
Lucid Motors, one of the largest US-based carmaker of electric vehicles, is said to be near a deal to go public via Klein’s SPAC (CCIV, or Churchill Capital). Saudi Arabia’s sovereign wealth fund has invested more than $1bn in Lucid Motors and therefore is the largest shareholder with a stake of 51%.
Churchill Capital, the SPAC rumoured to arrange the IPO of Lucid Motors, has no Islamic dominance and is known to invest in multiple unislamic projects and companies. We have learned that Multiple Islamic investors call upon the muslim communities in the West to provide them with halal alternatives and/or the launch of an Islamic SPAC in the near future. The EICRI Institute is considering to partner with interested international sovereign wealth funds to achieve this goal through its investment services.
More brokers provide muslim (retail) traders with an “Islamic account”
Individual investors made their presence felt in 2020. According to Bloomberg Intelligence via The Wall Street Journal, individual investors made up an estimated 19.5% of U.S. equity trading volume. This was a jump of over 4% compared to 2019 and a doubling compared to 2010.
Due to the rise of muslim traders accross (retail) traders platforms, more and more brokers provide their islamic members to trade with a so called “islamic account”. eToro is one of the brokers to privide an “islamic account”, where trades take place without interest, no time limit and with real-time execution.
“eToro is committed to providing our Muslim clients with an excellent trading experience which is completely aligned with Islamic law”
Coverphoto: Lucid Motors Air Media Room, EPK, edited by EICRI