Technological innovations Islamic finance are a necessity, but their development may get hampered by regulatory concerns, Fitch Ratings said in a commentary.
Fintech is necessary for Islamic finance to maintain and grow its market share as failure to keep pace with such developments could impact the competitiveness of its players, Fitch Ratings said, adding that it could also help in promoting standardization, harmonization of Islamic finance products and integration.
However, the regulatory environment remains a challenge. “The industry already has moving targets, be it standardization, developing Islamic finance regulation and innovating new products,” said Bashar Al Natoor, global head of Islamic finance, Fitch Ratings. “Regulatory limitations and concerns could hinder the ability of Islamic finance institutions like Islamic banks, Takaful, and fintech companies to forge ahead in adopting new models linked to various fintech themes such as P2P, crowdfunding and big data.”
He added that there is uncertainty in whether existing Islamic finance institutions will succeed in transforming their operating models to incorporate the necessary changes with fintech analytics before disruptors like innovation, standardization and the changing regulatory environment get a foothold in the market. “A notable irony in a sector that continues to rapidly evolve, this could put Islamic finance at a competitive disadvantage over conventional institutions and forms of finance in the foreseeable future,” Natoor noted.
Industry players spoke at length on the need for standardization of Islamic finance norms at the ongoing World Islamic Banking Conference (WIBC) in Bahrain today. Uniformity, once achieved, could pave way for more fintech innovations in the area.
“Uniformity in regulations is evolving. Bahrain has been very progressive in addressing the issues faced by the Islamic finance industry. In general, the Islamic finance industry from the product perspective is maturing and we are seeing more acceptability in the market,” said Delwar Hossain, senior associate, Baker & McKenzie. “More risk issues are being analyzed and people are expressing more confidence in it,” he added.