In the name God, the compassionate the merciful
Per the Global Islamic Fintech Report 2021, there are 250 plus Islamic Fintech companies around the globe. These fintech companies have collectively enabled the Islamic finance industry to be efficient, and effective, and also aided financial inclusion, and positive growth.
Fintech has and continues to play a significant role in assisting the growth of Islamic finance by leveraging technology to address the unique needs and challenges of this sector.
Islamic finance operates based on principles that adhere to Sharia, which prohibits certain financial activities such as interest (riba) and uncertainty (gharar). Here are some ways in which fintech has continued to assist Islamic finance to growth:
Digital Banking and Payments: Fintech has continued to facilitate digital banking services that comply with Islamic finance principles. Mobile banking apps, and digital payment platforms have been tailored to ensure compliance with Sharia, allowing customers to make transactions that are free from interest and conform to Islamic principles.
Blockchain and Smart Contracts: Blockchain technology has been used to create transparent and tamper-proof ledgers for Islamic financial transactions. Smart contracts have been and continue to be used to automate and enforce Sharia-compliant agreements, reducing the risk of gharar and ensuring that transactions adhere to Islamic principles.
Crowdfunding and Peer-to-peer (P2P) lending: Crowdfunding is a way of raising money to finance projects and businesses. It enables fundraisers to collect money from a large number of people via online platforms. Also, Peer-to-peer (P2P) lending enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman. Fintech platforms have continued to provide Sharia-compliant crowdfunding and peer-to-peer lending services. This has continued to connect individuals and businesses seeking financing with investors looking for Sharia-compliant investment opportunities.
Robo-Advisors: A robo-advisor is a type of automated financial advisor that provides algorithm-driven wealth management services with little to no human intervention. Robo-advisors have been used to create and manage investment portfolios that adhere to Islamic finance principles. They can screen investments for Sharia compliance, avoiding investments in sectors like alcohol, gambling, and interest-based banking.
Regulatory Compliance: Islamic finance institutions have continued to navigate complex regulatory requirements through the aid of fintech. Regtech (regulatory technology) solutions have been used to streamline compliance processes, ensuring that institutions meet regulatory standards while adhering to Islamic principles.
Takaful and Insurance: Distribution channels of Takaful (Islamic insurance) have been enhanced through the help of Fintech. This has helped the sector by improving automating claims processing and creating innovative Takaful products that cater to the needs of customers while complying with Sharia principles.
Financial Inclusion: Fintech has continued to help promote financial inclusion among unbanked and underbanked populations, which is in line with the inclusive and equitable principles of Islamic finance. This is very imperative.
Education and Awareness: Fintech platforms have also been used to provide educational resources and tools to raise awareness about Islamic finance principles, helping consumers make informed decisions.
Data Analytics: Islamic finance institutions have continued to utilize data analytics through fintech to better understand customer behavior and preferences, allowing Islamic financial institutions to tailor their products and services to meet the specific needs of their target market.
Global Outreach: through the medium of Fintech Islamic finance institutions have been expanding their reach and serving a global audience. Cross-border transactions and currency exchange have been facilitated in a Sharia-compliant manner, opening up new markets for Islamic finance.
By combining the principles of Islamic finance with the innovative capabilities of fintech, the industry has expanded its offerings, reached a broader customer base, and continued to provide more efficient and accessible financial services. However, it’s crucial that all Islamic Financial institutions insist that fintech solutions are developed in close consultation with Islamic scholars to ensure they adhere to Sharia principles, maintain transparency, and meet regulatory requirements.
And Allah knows best!
Praise be to Allah in Whose favor good things are accomplished (Ibn Maajah: 3803). may Allah offer us an Islamic Finance House in Ghana, Ameen!
YAHAYA ILIASU MUSTAPHA
The writer is an Islamic Banking and Finance patron and advocate in Ghana.
Email: yahaya0246873726@gmail.com
https://www.facebook.om/Yahaya.iliasu.94
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