The growth of Islamic fintech
Sultan Choudhury is chairman of Offa
While fintech has been around for several decades, it has rapidly evolved through technological advances.
The industry is calling the current era ‘Fintech 4.0’, which involves artificial intelligence, application programme interfaces (APIs), blockchain, automation, cloud and XaaS (anything-as-a-service). Fintech 3.0 was about the smartphone, and the digitalisation of financial services.
Fintech 2.0 was the deployment of the internet in the financial markets. Fintech 1.0 was reflective of infrastructure and international communications in the financial markets.
Thus, when something is termed as fintech in this era, it generally refers to a product or service in the financial sector, which uses a lean business model and with disrupting and enabling technology underpinning operations.
Fintech enables greater access to financial services, innovative products and alternative modes of finance and investments.
Islamic fintechs are using the same underpinnings of lean business models and enabling technology, but with one greater value add – that is, Shariah compliance and the ethical nature of the Islamic fintech.
Islamic fintechs are not involved in what are ‘sin industries’. An Islamic fintech will not be involved in alcohol, tobacco, conventional financial services or illicit adult content.
Islamic fintechs are, instead, focused on enabling and making financial services and products more accessible and efficient.
Islamic fintech is a further development of the Islamic finance sector. Just like Islamic finance refers to financing methods aligned with principles of Islam and a paradigm reflecting the values embedded in Islam, Islamic fintech refers to the use of financial technologies, with a modus operandi and worldview stemming from Islam.
Islamic fintech is the amalgamation of technology and Islamic finance, which means that any product or service that spawns from fintech, must abide by the Shariah principles in terms of ethos, vision, mission, form, structure, contracts, processes, marketing, delivery, and communications.
Further, the adjective ‘Islamic’ defines the essence of the product or service; it belongs to a distinct worldview and philosophy. Hence, the practices and operations are structured and developed in a manner to realise those ideals and values engendered by this worldview and belief.
True to its fintech label, Islamic fintech facilitates the digital distribution of Shariah-compliant financial products and services. Islamic fintech platforms tend to adopt revolutionary technologies like Artificial Intelligence (AI), blockchain, big data, extensive cloud computing and the Internet of Things (IoT) devices in providing Islamic financial services, in a more sophisticated and transparent way.
Its activities will involve deploying new tech-based business models to promote economic, environmental, financial, and social goals, including the betterment of all Islamic financial services, product performance, and broader benefits like financial inclusion, poverty alleviation, and social justice.
Islamic fintech can be considered to be ‘a digital delivery of Islamic finance’ and, as such, is an extension of Islamic finance.
The 2021 Global Islamic Fintech (GIF) Report – produced by Dinar Standard and Elipses – highlighted Saudi Arabia, Iran, the UAE, Malaysia, and Indonesia as the sector’s leading markets.
The survey shows that 56% of surveyed Islamic fintechs expect to raise an equity funding round of at least $5m.
However, there still remain three core challenges facing the industry: lack of capital; consumer education; and talent acquisition.
The global Islamic fintech market is estimated to reach $128bn by 2025, a 161% increase from the 2020 figure, according to recent data from Dinar Standard.
Hence, Islamic fintech has a huge potential and offers a promising suite of products and services for those seeking a wider range of Shariah compliant products.