By Tasnim Nazeer,
Islamic FinTech is a rapidly growing sector which is spurring economic advancement and lucrative opportunities across the Middle East and around the world. The Islamic finance industry can truly prosper from the launch of Islamic FinTech services and cater to Muslims wishing to use Shariah compliant financing options, whilst adhering to their faith. The Islamic finance industry assets as a whole has been reported as being estimated to reach $3.8 trillion by 2022, according to a report by Thomson Reuters.
What is Islamic FinTech?
The definition of Islamic FinTech is essentially financial technology which complies with Islamic financial regulations and principles governed by Shariah law. Financial technology or FinTech as it is widely known as, is the service of applications and technology that can aid with the delivery of financial services. The industry is made up of businesses and organisations that use technology to create financial solutions. There are many tools that have been developed for the FinTech industry ranging from smartphones that enable mobile banking to online international money transfers. The industry is growing at an unprecedented rate with more and more countries tapping into the sector.
How does Islamic FinTech work?
There have been many countries who are implementing Islamic FinTech solutions but the most predominant demand for the industry has been from the Middle East. Islamic FinTech generally works by the delivery of a digital product or service which complies to Islamic financial principles. The usage of a variety of FinTech utilities such as blockchain, payments and learning hubs for FinTech are spurring the sector forward. The way in which Islamic FinTech is implemented into society is that it can be developed by a Shariah compliant FinTech fund which invests in digital financial infrastructure. In addition, Islamic FinTech can be implemented in predominantly Muslim countries to deliver a financial need or objective such as a service which eradicates the use of interest as interest is prohibited according to the principles of Islam.
Key trends in the industry
There are many emerging trends that are developing within the Islamic financial industry which can be beneficial to entrepreneurs who run a halal business. The demand for products that meet the needs of Muslims and that provide ethical ways of managing wealth are enabling start-ups to focus on this innovative sector.
Halal Incorp Director Maj Hussain said “The enhancement of technology has now made it much more accessible for financial companies and institutions to increase the effectiveness of their services across the global Islamic economy and banking sectors. The Islamic Fintech sector is allowing for the emergence of a new generation of startups and ventures operating in this genre”
The lucrative future of Islamic FinTech
There are many developments and economic profitability for the rising sector as start-ups can benefit from the rise of FinTech hubs in the Middle East and room for growth. According to a report by Forbes the Islamic FinTech industry will enable Murabaha (asset backed interest free loan) instruments. In addition, it will also enable the use of Takaful (insurance) and digital tools for the buying and selling of assets. Bahrain has been spearheading the Islamic FinTech sector and has created incubators and ecosystems to support the growth of the sector.
ALGO Bahrain also opened up the world’s first FinTech consortium of Islamic banks. The banks which make up the consortium include Kuwait Finance House Bahrain, Al Baraka Banking Group and Bahrain Development Bank. The UAE and Bahrain are positioning themselves as regional FinTech hubs and with the rise of Islamic finance the industry looks set to evolve to benefit the wider society.