The results of the inaugural World Islamic Fintech Awards, a new competition organised by industry platform IFN Fintech held in Manama, Bahrain last month, showed a clear trend of innovative financial technologies advancing into a number of sectors of the Shariah-compliant finance industry.
The event received 135 nominations from all over the world in 16 different categories of Islamic finance, including data analytics, crowdfunding, robo-advisory, peer-to-peer financing and digital banking. There were some renowned names among the winners, for example Indonesia’s Blossom Finance which won the award for the “most innovative use of blockchain in Islamic Finance,” US-based Wahed Invest for the best robo-advisory platform in the industry, Germany’s Insha for the best digital bank, Malaysia’s HelloGold for the best wealth management fintech and the UK’s Yielders for the best crowdfunding platform. Insha was also chosen in an overall vote as “best Islamic fintech company of the year,” while the UAE’s OneGram won the people’s choice award and the UK’s ethical home finance firm Primary Finance was named the “most promising Islamic fintech startup of the year.”
The awards indeed shed a light on the growing importance of Islamic fintech for the industry.
Globally, the Islamic fintech community is growing steadily, namely in Malaysia, Indonesia, the GCC, in the US, UK and in Germany. The fintech startups are focusing on improving and digitising a broad range of Islamic banking and finance services and processes and bring new, innovative solutions to the table. For example, Wahed has launched Islamic robo-advisory solutions which give access to Shariah-compliant Exchange Traded Funds for the first time, while Yielders has developed a halal investment marketplace for property based on crowdfunding.
A growing number of fintechs are working on simplifying otherwise complex Islamic finance contracts by using blockchain, while others are developing universal payments systems backed by halal interpretations of cryptocurrencies. This immediately translates into costs savings, in the first case by using smart contracts which enables cuts of operating cost of services by up to 95%, while at the same time providing an unalterable and precise record of ownership and assets, and in the second case by simplifying and accelerating banking transactions and cutting out intermediaries.
All this implicates obvious challenges for established brick-and-mortar Islamic banks, at least those which are missing out on the fintech trend, but also brings strong opportunities for the industry.
Most of all, Islamic fintech is expected to broadly enhance the accessibility of Islamic banking through digital delivery of services. Because high transaction costs in the past made it unattractive and uneconomical for Islamic banks to offer fully-fledged bank services to low-income groups – which make for a large segment of the population in many developing Muslim countries –, banking services provided by smartphones or other digital channels and through digital wallets are the low-cost solution for unbanked population groups and should greatly contribute to financial inclusion.
Moreover, virtual assistants or robo-advisers in Islamic finance have the potential to reach out to more customers and replace call centres or entire bank branches, disrupting the traditional structures of the entire industry. Combined with artificial intelligence-based self-learning, such virtual helpers could address a much higher number of banking customers to make better financial decisions or entice those who didn’t participate in the financial market before to profitably invest their assets in Shariah-compliant financial products.
From a regulatory perspective, Islamic fintech is also seen to improve governance, for example by providing a database for fatwas specific for the industry or by automatically governing Shariah-specific rules to ensure compliance to recognised Islamic banking regulations or regionally defined standards, relieving Shariah boards from complex workload. And the innovations won’t stop there.