by Dr. Moutaz Abojeib 
While the unbanked population comprises around 25 per cent of the world’s population, half of the global poverty resides in the Muslim world. Most of the Muslim population is also unbanked. Without the lower-income group having access to financing and basic financial services, reducing poverty in less-developed Muslim countries will be difficult. This highlights the need for fintech solutions in improving financial inclusion. Therefore, it is not surprising to see innovative electronic payment systems receiving increasing attention from regulators around the world. Electronic payment systems have successfully emerged decades ago and are still in continuous development. These systems, among other methods, include electronic payment cards, online banking transfers and e-wallets, where money is transferred from one party to another in a matter of seconds. These technologies reduced operational costs and positively contributed to societies. E-wallet refers to mobile app or online service that allows an individual to make payments and other financial transactions. This short article focuses on e-wallets, highlighting its positive impact on societies and discussing its modus operandi from Shariah perspective.
Social Impact of E-wallets
Making payments using mobile phones is not new, and the M-Pesa mobile-phone-based financial service in Kenya is a successful example. In essence, M-Pesa is a mobile network-based money transfer in 2007 by using mobile-phone minutes (mobile airtime) as a ‘currency’. It allowed people in remote areas to transact easily by providing them with safe and user-friendly way to pay for services and transfer money. This also allowed the development of some other financial services, leading to higher financial inclusion. According to some studies, digital payments had lifted at least 194,000 Kenyans out of extreme poverty and enabled 185,000 women to move from primary agriculture to selling (Suri & Jack 2016).
While the explained mobile network-based money transfer has provided impressive solutions in some countries, the past two years have witnessed an unprecedented increase in the number of e-wallets around the world. E-wallets are applications that enable the individuals to pay using their mobile phones wirelessly by simply scanning a QR Code or via near field communication (NFC). Statistics indicate that by 2019 the number of users of this technology increased over 30 per cent since 2017, reaching nearly 2.1 billion consumers around the world (The Business Times 2019). This is expected to have a significant positive impact on business and start-ups since QR code payments facilitated by e-wallets can drive additional consumer traffic for small businesses and new entrepreneurial ventures. In fact, it is confirmed that e-wallets can trigger a substantial increase in small transactions for small merchants. Furthermore, new entrepreneurs who have just started their businesses can benefit a lot from the low cost and convenience offered by e-wallets (NUS n.d.). As such, e-wallets offerings have a significant social impact, especially for economies that need to support the growth of small and micro enterprises to fight poverty and reduce income inequality.
The social impact of e-wallet can also be seen from a financial inclusion perspective. This is because opening an e-wallet is simple. It does not require going to a bank and the user is only required to scan a few documents and upload it on a mobile phone without incurring any costs. The requirements are much simpler as compared to opening an account at a bank, and the document screening process is almost automated. Small merchants, such as street sellers, can use e-wallet services to receive money with much lower commissions than the fees imposed by banks and giant credit and debit card providers such as VISA and Mastercard. Overall, the positive social impact of such digital payment is not limited to the financial inclusion of poor in remote areas only but also the reduction of crime rate in other largely cash-based societies.
E-wallet from Shariah Perspective
Though very few e-wallets are certified as Shariah compliant, many of them are deemed to be compliant. In fact, if the e-wallet is card-based such as ‘Samsung Pay’ or ‘Apple Pay’, then the Shariah ruling will follow the ruling of the cards used. A card-based e-wallets is a technical term that refers to the e-wallet which just provides a new way to connect users’ credit or debit cards to the payment network. Users insert their card information in the e-wallet app. They then use the app to perform any transaction using the NFC, QR code or other methods enabled by the e-wallet app. In any case, the flow of funds will be the same as using the embedded card. As such, the Shariah ruling on the card involved will dictate the ruling of the e-wallet. For instance, if the card used in the e-wallet is an interest-bearing conventional credit card, for instance, using the e-wallet will be Shariah non-compliant. On the other hand, using the same e-wallet connecting an Islamic debit card would be Shariah compliant.
If the e-wallet involves e-money issuer who receives money from users in return for issuing e-money to the user, then a Shariah analysis of the operations and flow of funds is required to examine its compliance. E-money, in essence, is an electronic token representing monetary value guaranteed by the issuer. In simple term, e-money is the digital numbers or units in the e-wallet. In a nutshell, e-money issuer receives funds from users in advance and get digital units into their e-wallets. These units are called e-money. Users are then enabled by the issuer to use their e-money to pay merchants. The merchants then claim the equivalent monetary value from the funds advanced to the issuer. As such, the essence of this operation is providing payment services, though the e-money issuer may invest the funds advanced by users. While different Shariah characterisation (takyif fiqhi) could be suggested, the relationship between the user and e-money issuer could be naturally structured based on wakalah (agency). Upon opening the e-wallet, the user is appointing the e-money issuer as an agent to facilitate the transfer of payments to the merchants upon request. This wakalah contract between the user and e-money issuer is also accompanied with money advanced by the user to the e-money issuer upon reloading (top-up). E-money issuers may invest these funds, but they guarantee the value before the users. This is similar to the Islamic bank in terms of investing or using the funds in current accounts while guaranteeing the value before the accounts’ owners. Current accounts are usually structured based on qard (interest-free loan). Similarly, the money advanced upon reloading (top-up) could be treated as qard as well.
As far as placement of funds advanced by users is concerned, regulators usually request e-money issuers to keep these funds in trust account to ensure the robustness of the system. Yet, they are often allowed to invest them in low-risk highly liquid assets. Such investment may or may not be made in accordance with the Shariah rules. In principle, users may not be held responsible for any Shariah non-compliant placement of funds because users are just creditors based on the suggested Shariah characterisation. The responsibility before Allah (SWT) is on the debtor who is the issuer in the e-money setup. However, based on many Shariah views, the creditor shall refrain from helping a debtor who is using the advanced money in a Shariah non-compliant manner. So, to ensure end-to-end Shariah compliance of e-money as an instrument, users would expect e-money issuers to place the funds advanced in a Shariah compliant manner.
The other key Shariah issue would be on rewards. Rewards given by e-money issuers to users, if any, shall not be attached to the balance or duration of the money deposited in the e-wallets otherwise such reward could be deemed as riba (interest). In practice, these rewards are not common, while most of the rewards offered by issuers are attached with purchases using the e-money. Rewards attached to the usage of e-money (i.e. purchases) might be allowed on the basis that it is not related to creditor-debtor relationship between the user and the e-money issuer. Such rewards are very similar to the discounts or points given by Islamic banks upon using their debit cards in specific stores or for specific products.
Overall, an e-wallet is an economically useful innovation with potential benefits for small merchants. It is a permissible instrument as far as certain Shariah rules are observed. Shariah scholars shall be invited to provide a Shariah opinion on individual e-wallets. For this purpose, e-wallets that choose to be Shariah compliant shall be encouraged to establish their own Shariah committee or at least appoint a Shariah advisor to ensure its end-to-end Shariah compliance. Finally, it shall be noted that while this article highlighted some of the key requirements, the ongoing development of e-wallets requires further analysis. ISRA, in collaboration with BNM, had conducted fundamental research to examine the matter in detail. The research is expected to be published soon in I-FIKR.
NUS (n.d) ‘NUS Business School study: Introduction of PayLah! boosts mobile wallet usage; may foster business growth for small, entrepreneurial firms’, available at: https://bschool.nus.edu.sg/media/press-release-details/385/
Suri, T. & Jack, W. (2016) ‘The long-run poverty and gender impacts of mobile money’, Science, Vol. 354 No. 6317, pp. 1288-1292, available at: https://science.sciencemag.org/content/354/6317/1288.full
The Business Times (2019) ‘Mobile payments have positive impact on business growth’, available at: https://www.businesstimes.com.sg/opinion/mobile-payments-have-positive-impact-on-business-growth
 Disclaimer: The views and opinions expressed in this article do not necessarily represent the official views of the International Shari’ah Research Academy for Islamic Finance (ISRA).
 Note that this ruling applies to the basic common structure, while some card-based e-wallets started to offer new features that require further Shariah analysis.