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KUALA LUMPUR, The Edge Malaysia, 29 August 2016 – Malaysia will see the launch of its first shariah-compliant gold savings platform in October. Unlike other trading platforms and investment accounts, HelloGold is aimed at the man in the street, allowing investors to start saving in gold for as little as RM50.

The launch of the mobile app — the brainchild of CEO Robin Lee — is seen as timely in this uncertain global economy that is making it harder for investors to get returns. “Events such as Brexit, China’s slowdown and the waning effectiveness of monetary policy have spooked investors in the past few months, resulting in a flight of capital to safe-haven assets such as gold,” says Lee.

“The intensifying political and policy uncertainties in the global economy, which is enough to keep growth subdued in the medium term and leave investors in a high-risk, low-return world, have led to calls for a more pragmatic investment approach. Investors will need to figure out what mix of assets offers the best chance of surviving a global event.”

For many, gold serves that purpose. When disasters occur and the global economy collapses, gold always seems to rise. Last year, the ringgit weakened 20% after oil prices plunged, but gold prices went up. In the past 12 months, gold has shot up 15%.

“The man in the street who holds a huge amount of cash in the local currency needs something comfortable and secure to diversify and save their money with.”

The local scene presents a challenge though. Lee is launching the platform at a time when savings are being squeezed and investors are wary of gold investments, amid unresolved issues following the alleged gold scam involving Genneva Malaysia Sdn Bhd that saw many investors get burnt.

Genneva, which promised investors a yearly return of 21% to 30%, raised as much as US$3 billion from the Malaysian public before it was shut down in 2012 by the authorities. In July 2014, 1,065 gold traders filed suit against the company for breach of contract for the RM146 million in gold products and money owed to them. At press time, the case is still ongoing.

How does Lee intend to convince the public that HelloGold will be different from such schemes? He says the company adheres to the international best practices adopted by gold bullion providers to ensure transparency for the general public who buy gold.

For starters, Lee is working with renowned third-party international auditors such as Bureau Veritas to conduct daily audits on the company’s physical gold holdings held in a vault in Singapore. The company will also insure the gold and allow its investors to visit and audit their gold holdings in the vault (see accompanying story on “Stringent auditing process”).

“We have proper documentation to show you the gold we have bought. We have an audit trail to show that we are very transparent. Our users will also have product fact sheets, just like any other financial products they buy or invest in,” he says.

Lee, who quit his job in the UK and returned to Malaysia last year to start HelloGold, aims to restore the public trust in gold savings and provide them easy and secure access to owning this precious metal. The app will be the first platform in the world that allows users to obtain loans using gold as collateral.

“For the wealthy, buying gold is very easy. But the mass market does not have such easy access as they are exposed to risks such as scams. We are here to solve this problem by allowing the general public to save their money using gold 24/7, with a minimum initial investment of RM50 via the mobile app,” he says.

Lee emphasises that HelloGold does not guarantee or promote any returns. Instead, it is an easy savings option for the man in the street. “All we say is that gold has provided 7% returns on average in ringgit terms from 1992 to 2015, which makes it a good tool to hedge against inflation and a safe haven [in the current economic conditions],” he says.

Lee should know about turbulent economic conditions. He saw how the Asian financial crisis in 1997/98 and global financial crisis in 2008 wreaked havoc on the middle-income group who had saved their money in bank accounts. This gave him the idea for HelloGold.

“During the Asian crisis, the ringgit went from RM2.50 to RM4.70 against the US dollar. Suddenly, the middle class who saved cash in the bank saw their money worth a lot less. It was devastating and it was not through any fault of their own,” he says.

“Every developing country has this problem where the mass market, the people who can least afford to have bad things happen to them, are also the most exposed [to these currency devaluation risks]. This has been a problem for a long time. So, my vision is to find a vehicle to solve that.”

Lee’s previous role as chief financial officer of the World Gold Council (WGC) — an international market development organisation for the gold industry based in the UK — stands him in good stead to helm HelloGold.

“When the role at the WGC came along, I saw the opportunity to do something about this problem. I spent five years working there. Two years ago, my CEO allowed me to resign to come back to Asia to do this [start HelloGold].”

During his five-year tenure there, he was the principal accounting officer for the SPDR Gold Trust Fund, overseeing accounting functions of the world’s largest non-government gold fund. The fund, with US$40 billion in gold under management, was developed by the WGC in 2004. Besides his involvement with the SPDR Gold Trust Fund, he also developed a new concept for sovereign gold-backed bonds for governments to lower their sovereign debt yields through the securitisation of central bank gold reserves.

Before WGC, Lee spent 15 years in the financial services industry. “I worked as a consultant with the Boston Consulting Group, specialising in corporate finance and strategy, and as head of research and strategy at the Securities Commission Malaysia before leaving for the UK. [SC chairman] Tan Sri Ranjit Ajit Singh was my manager at the time,”he recalls.

At the launch of HelloGold, the company will announce a partnership with a financial institution to market the product to its five million customers, says Lee. This partnership with the financial institution, which is listed on Bursa Malaysia, will speed up the distribution of the product to the public. “More importantly, it will boost public confidence in the product and strengthen its credibility,” he adds.

Lee says HelloGold will be ready for regulation by Bank Negara Malaysia in the future. In mid-July, the central bank issued a discussion paper on the regulatory sandbox approach for financial technology (fintech), which will allow financial institutions and fintech firms to experiment with fintech solutions subject to appropriate safeguards and regulatory requirements.

“We will apply the regulatory sandbox approach when the rules and regulations have been finalised by Bank Negara,”he says.

According to Lee, in the unlikely event that the company folds, investors will still own their gold deposited in its vault. “Yes, if we get shut down and liquidators come in, the creditors will not be able to get the gold. The gold is still yours [referring to HelloGold investors] and no one can touch it because it does not belong to the company [and is not on its balance sheet],” he says.


Targeting the middle class


Lee and his partners approached friends and family for seed capital to set up HelloGold. The money was used to get the management team in place and develop the mobile app. The company is now at the Series A stage of funding.

“The round of funding will allow us to demonstrate our value proposition to the world. We are not prepared to declare the valuation of the company and how much we are aiming to raise in the next round of funding yet. We will announce it at the right time. We are focusing on getting the product ready for launch,” says Lee.

He adds that the company is targeting those who earn between RM30,000 and RM90,000 a year. This group tends to be young urbanites who are relatively tech savvy and comfortable performing transactions with their smartphones. They prefer to get things done virtually but lack the internet and technological access to gold investments.

Lee says he has chosen the fintech route because it is the best way to reach the mass market. “With the internet and technology, there are fewer limitations in reaching out to people. They just need to have a smartphone.”

Further details of the company, such as the total value of the gold bullion it possesses in Singapore and its funders, will be revealed when the HelloGold app is launched, he adds.

“What I can say now is that the company is currently funded by high-net-worth investors. We buy our gold from PAMP and store it through an agent called BullionStar [which provides the vault]. For now, we can have direct access to between 30kg and 100kg worth of gold bullion [depending on demand],” says Lee.

PAMP, which stands for Produits Artistiques de Métaux Précieux, is one of the world’s leading bullion brands, refiners and fabricators of precious metals.

BullionStar is a Singapore-based bullion dealer.


Using gold to obtain secured loans


Besides allowing investors to buy and sell gold via the HelloGold app, the company aims to solve another problem faced by the middle class — the lack of access to personal credit.

Lee says that according to a World Bank report, less than 20% of the total loans globally are disbursed by financial institutions to individuals and that between 15% and 25% of the total loans globally are unsecured loans. The statistics indicate that the middle and lower middle class, who earn moderate salaries and have car loans and mortgages to pay, are facing difficulties in borrowing from banks for investment, business or emergency purposes, he adds.

“Based on my understanding, six out of 10 people in Malaysia apply for a loan and most of them are not successful. The rejection rate is very high. You can get a car loan and mortgage. But if you want to get a loan for other things, it is very difficult,” says Lee.

“The strict credit scoring itself has disallowed many from borrowing even though their credit history is not poor. So, they have to resort to legal moneylenders with 15% to 20% interest rates. And if you are unlucky, you have to resort to illegal lenders.”

HelloGold allows investors who buy gold using the mobile app to use it as collateral when taking out a loan from banks it has partnered with. They could borrow up to 70% of the gold’s value depending on their income level, credit history and other parameters that the banks set. “So if you have RM1,000 worth of gold, you can borrow RM700 without having to sell your position in gold,” says Lee.

He says HelloGold app users will be able to borrow from the bank because it is provided assurance that the company holds gold bullion in Singapore. And if the borrower defaults on payments, the bank can sell the gold on the international gold market.

“When you borrow, the bank knows that the gold is stored by us in Singapore, and it knows that the gold is safe and not going anywhere. And because gold prices generally go up over time, they can give you better interest rates compared with money lenders or unsecured loans,” he adds.

“This is unlike hire purchase loans where you buy a motorcycle and the value of the bike depreciates over time. And if you cannot pay them, they will probably have to take your motorcycle back and there is an actual cost [in doing so]. However, the bank also looks at the borrower’s credit history to decide the loan amount and interest rate.”

Another advantage of the HelloGold app is that users will be able to transfer gold to other users of the app fast and free of charge, says Lee. “This is another thing you cannot do by opening a gold investment account with banks. You would have to sell your gold position, get the cash and buy again in another account.”

Having seen how SPDR Gold Trust Fund, the world’s first gold-backed exchange-traded fund (ETF), has taken off globally, Lee is confident that HelloGold will be a success. He believes the innovation will not only attract the younger generation to put some of their money in gold but also appeal to older investors who usually buy gold through banks and jewellers.

“Everyone bought gold the traditional way before the first gold-backed ETF was launched. They bought it through banks and jewellers. Many financial services firms did not believe the ETF would be successful. Very few retail investors had even heard of the WGC when it was launched in 2004. However, it raised US$1 billion worth of gold under management by the second day. Today, it has US$40 billion,” says Lee.

“In total, the gold-backed ETF industry now holds about US$70 billion worth of gold on behalf of investors. This shows how innovation has and will continue to drive people’s demand for gold.”

Lee chose Malaysia as the first market in Asia for HelloGold because it is a key Islamic financial hub that allows the company to structure its shariah-compliant business properly and be familiar with Islamic finance rules and regulations.

He says the country also has the right demographics and income profile. “There are seven million people who match the income profile we are looking at. We are targeting 31,000 of them to buy gold with us.”

Once the mobile app takes off in Malaysia, Lee will set his sights on other Asian countries such as Indonesia, Thailand, Vietnam, China and India. His ultimate goal is to enable the global mass market to save with gold through the HelloGold app.

How does the HelloGold app work?


Before HelloGold mobile app users are able to buy investment-grade gold via their smartphones, they will have to register by snapping a photo of their identification card, uploading it through the app and providing some personal information.

“It will not take more than five minutes and the users will be able to trade gold anytime, anywhere, through the app,”says CEO Robin Lee.

He adds that the gold will be bought from and sold to users directly by HelloGold Sdn Bhd. The minimum investment amount will be RM50 and capped at RM10,000.

How much gold will the users be able to own with RM50? Lee says this is determined by the exchange rate of spot gold to the US dollar. For instance, the gold price was US$1,332.92 per ounce, or about RM172 per gram, on Aug 20. Hence, HelloGold users who buy RM50 worth of gold on this date will own 0.29g of the precious metal and its value will depend on the prevailing spot gold price.

Lee says the company also charges a percentage of the spread on top of the spot gold-to-US dollar exchange rate. “The spread we charge depends on the volume of gold we buy from the bullion providers. The spread will be lower if the volume is larger,” he says, adding that the spread charged will be competitive compared with those charged by local banks for their gold investment accounts.

Chris Gan, senior vice-president of the Singapore Precious Metals Exchange, says local banks charge about 3% spread for their gold investment accounts on top of the spot gold-to-US dollar exchange rate. “Banks also usually earn another 3% to 4% spread on the currency exchange side as they are also in the business of foreign exchange.”

HelloGold also charges a 2% annual fee, mainly for the storage of gold.

Those who want to redeem physical gold will need to have at least one gram of gold in their holdings. For instance, if a user buys RM50 worth of gold as at Aug 20, he will have to buy another RM122 worth of gold to claim one gram of physical gold from the company. The user will also have to pay for the postage, packaging and insurance fees.

Stringent auditing process

To assure HelloGold app users of its credibility, the company will adhere to international best practices when managing its gold bullion stored in Singapore. Robin Lee, CEO of HelloGold Sdn Bhd, says Bureau Veritas — the London Bullion Market Association-approved third-party auditor — will audit its gold bars annually. The auditor will ensure that the gold bars held in the vault tally with the records of the company.

The auditor will also conduct random tests on individual gold bars to verify the bar number and refiner codes. “On top of that, a random sample of gold bars will be weighed and tested to ensure that the bars are 100% gold,” says Lee.

HelloGold users will also be allowed to inspect their gold in the vault owned by third-party bullion dealer and storage provider BullionStar in Singapore. The users can opt to pay an audit fee of S$99 to have direct access to the documentation of the gold bars and see the physical gold in person.

Lee says users will have product fact sheets that include the daily bar list that details the individual bars held by the company. “Our customers can compare this bar list with HelloGold’s own daily custody list that shows the gold owned by each of our customers. This will provide them assurance that we have sufficient gold held in the vault. Our customers can also see their customer ID and the record of gold held under that ID.”

He adds that the gold held by the company is currently insured up to US$150 million. The insured amount will be increased if the business takes off.

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