On their own, Islamic finance and fintech are two growing segments in global finance
- Islamic finance serves a core population of 1.8 billion Muslims world-wide and a broader audience of ethical finance consumers
- Technology and automation have been a key part of global financial services in the last century
As a whole, three key areas of opportunity have present in the current landscape for Islamic fintech:
Boosting the potential reach and impact of Islamic financial services
- Islamic financial institutions (IFIs) building digital-only banking and capital markets to cater to the digital-demographic
- Customer base targeting through artificial intelligence and big data analytics
- Facilitating cross-border trade and financing through P2P lending and trade financing
- Leveraging takaful-tech to provide coverage with low-cost premia
- Fostering greater collaboration between incumbent IFIs with startups and big tech companies
- Adopting open banking architecture that enables fintech to directly access banking platforms
Addressing financial inclusion gaps
- Fintech solutions can drive solutions for SMEs and unbanked retail users as well as reducing the cost of services
- Innovating payment solutions to improve market expansion
Delivering Islamic social financing to support global Sustainable Development Goals (SDGs): Islamic fintech can tap into the Islamic social financing pool to fund wider global social funding needs.
These opportunities, however, also open up new risks that require careful mitigation. Among them:
- Increased debt-fueled consumerism from more convenient borrowing facilities
- The emergence of new methods of scams and fraud
- Lacking financial infrastructure which may hinder unbanked populations
- The acquisition of products and services that aren’t necessary by customers due to a lack of consumer knowledge by AI models
- Stringent fintech regulations may stifle industry growth
- Mitigating these risks require ensuring adherence and compliance to Shari’a knowledge, values and vision. This includes newer products and services are aligned with the principles of Shari’a.
In driving these changes, industry stakeholders need to play their own parts:
- Governments and regulators need to play an active role in balancing customer protection and fintech growth. Besides fostering a healthy ecosystem, they must be one step ahead of the industry to balance customer protection.
- Investors should target large Muslim markets with their Islamic fintech services as well as acquiring developing Islamic fintech solutions to boost operations.