The technology has persisted in disrupting the conventional models, and Islamic banking and finance are no longer an exception to this. Fintech stands for financial technology, which is an anthological term that combines technology and financial services. It assists the banks and other financial institutions in delivering the services at a much faster pace and in an effective way. In modern times, everything from cryptocurrency to the online payment gateway is under the realm of Fintech.
What is Islamic Fintech?
It refers to the segment of financial technology that has its basis set from the Islamic principles of Shariah. These principles prohibit the businesses from the concept of debt, and interest payments. Besides, the Shariah principles refrain the businesses from investing in the Haram sector, which covers the spectrum of alcohol, tobacco and gambling.
Therefore, Islamic Fintech comprises ethical investments, which embrace the idea of environmental, social and corporate governance (ECG) factors. It sheds light that Islamic Fintech is a type of ECG Fintech along with an extra layer added. The layers tend to be faith-centric one, catering to the needs of the Muslim market. Thus, Islamic Fintech is an investment for those who prefer ethical or ECG compliance.
Blending Islamic Finance with Fintech technologies
One of the key features of the Islamic financial system is that it motivates the idea of asset-based financing, which assures financial stability. The financial system emphasizes quality of life, social justice, and fair trade relations. Islamic finance refrains Muslims from transactions that incorporate excessive risks. Moreover, it forbids unwarranted speculations and uncertain situations that could protect and safeguard the interests of the common man.
When it comes to the Fintech solutions offered in Islamic finance, the compliance of the Sharia is paramount, and it can be based on the principles offered in the commercial transactions. The transactions must be in particular reference to the forbidden elements mentioned in the Shariah laws. Similarly, some of the principles apply to specific instances. There must be a legal adaptation which is termed the Takyif Fiqhi. It addresses the particularities of Fintech, as there have been no precedents to disruptive innovations.
Capitalizing on the features of Islamic finance, the Fintech industry has amalgamated the principles with the digital transformations, especially after the pandemic situation. The Islamic Fintech industry has seized the opportunity and has warmly embraced the Fintech-based innovative model, adding 150 million new customers to Islamic banking this year. The government has initiated efforts to make Fintech in Islamic Finance more inclusive, transparent, and ethical. Fintech has directed the efforts to provide benefits to both parties, complying with Shariah.
Is Fintech in Islamic Finance growing?
Fintech in Islamic finance is measured to experience vigorous growth, specifically across the 57 countries of Organizations of Islamic Countries (OIC). It depicts that it has an affirmative impact on the growth and reach of the service of Islamic finance. Besides, there has been an evident growth in improving the financial inclusivity and promoting the growth of the UN’s Sustainable Development Goals (UN SDG).
As per the findings of the Global Islamic Fintech Report of 2021, prepared by the DinarStandard and Ellipses, the volumes of the transactions in the Islamic finance sector are anticipated to grow by $128bn by 2025. The growth surges by the compound annual growth rate of 21%. On the contrary, the compound annual growth rate of conventional Fintech is estimated to rise by 15% only. The report further highlights the estimates of the Islamic fintech transactional volumes, which reached $49bn last year in OIC countries only. It represents a small proportion of 0.7% of the global numbers.
Islamic Fintech has turned out to be one of the fastest-growing financial technological segments in the OIC countries. The application of Fintech not only provides access to Shariah-compliant products and services but it helps the companies to cater to the issues that are related to the Islamic market. These issues naturally require adherence to the principles of Shariah. The prime problems of banks are the core financial challenges in the form of cross-border remittance payments. In terms of the traditional approach, facilitating the transactions is a long, costly and complicated issue. However, through technology, there is a creative deployment of Islamic fintech services. Thus, it streamlined the remittance payments in most of the banks of Central Asia, through Fintech apps.
Product Portfolio in Islamic Fintech
The financial institutions have taken a bold step by including Fintech-based financial models such as data analytics, machine learning, and blockchain in the portfolio. Another vital area of development where the Islamic Fintech services are heading towards is P2P, crowdfunding, digital payments, online authentication, and Shariah-compliant cryptocurrencies.
Many Fintech startups are springing up and playing a significant role in the integration of financial institutions. Moreover, the Fintech developers are offering new and innovative ideas to cater to the existing products. It utilizes big data analytics, cloud computing, and the advent of cryptocurrency. The financial consumers, along with organizations, government and regulators are playing a vital role in developing the ecosystem of Islamic Fintech. Thus, a strong need has been created for the government and regulatory authorities to imply the legislation. The regulations will foster the growth of innovative Fintech products rather than curbing innovations.
With new products in the Fintech segment, Caizcoin is one of the innovative additions to the Islamic finance industry. The First Islamic compliant cryptocurrency is already making headlines with its excellence and trusted solutions to the audience.
The fintech companies in the Islamic finance sector have portrayed the applications of the product. These products can drastically improve all the aspects of the financial sectors, from personal finance to retail investors. Up till now, Fintech in Islamic finance has shown a rapid progression in terms of growth compared to conventional Fintech. Over time, the innovations have paved the way for catering to the specific needs of the communities and groups. The rise of Fintech will promote market awareness, encouraging the audience to use the technology to their advantage. The evolving space will continue to add the products to the portfolio and shall require developing expertise and knowledge in the sector.
Frequently Asked Questions
The four broad categories of the users of the Fintech are 1) Business-to-business for banks 2) Corporate Clients 3) Business-to-Customers for small businesses, and 4) Individual Consumers
IFIS (Islamic Finance Information Service) refers to the most comprehensive online Islamic portal for information that offers global coverage.
The Fintech firms offer effective screen browsing in the financial markets, with the help of statistical models. These are based purely on big data and can mortgage risks and discriminate prices. The Fintech companies combine the past data with the future anticipation. They use different dimensional data, which the traditional banks cannot access.
Fintech offers low-cost offerings that cater to non-bank customers. The Fintech companies reduce the transactional costs and rely heavily on digital transformation. Fintech is essential in bringing financial services to individuals, which similarly benefits the consumers and businesses.