Islamic finance has taken great strides this century, with sharia-compliant financial assets forecast to total $3.8 trillion by 2022, according to a Thomson Reuters report. That’s up from $2.2 trillion in 2016, with around 1,400 Islamic financial institutions now operating across 80 countries.
As of December 2017, there were 116 fintech companies offering sharia-compliant products, according to industry body IFN FinTech. Of these, 21 were in Malaysia, 18 in Britain, 15 in Indonesia and 14 in the United States. Around two-thirds focus on providing financial services such as payments, remittances and crowdfunding.
“Successful deployment of blockchain-based fintech solutions by Islamic banks would greatly expand the number of SMEs that could be financed,” said Yousuf Mohamed Al-Jaida, chief executive of Qatar Financial Centre.
Other innovations include sharia-compliant robo-adviser platforms that provide financial services to retail investors. One such platform, New York’s Wahed Invest, in September launched two sharia compliant index-tracking funds. US firm Blossom Finance, meanwhile, will launch what it claims will be the first digital sukuk in late 2018.
Using the Ethereum blockchain, retail investors will be able to invest in the sukuk, which will then use the proceeds to fund sharia-compliant microfinance initiatives in Indonesia. Using a profit- and risk-sharing model, Blossom aims to provide an annual return of about 9% to investors.
Phone-based biometric identity applications – via the likes of eye scans, fingerprints and voice or facial recognition – can provide a digital identity for unbanked and undocumented people. Embedded in the blockchain, this digital identity can include immutable birth, education and health records, as well as voter registration and property titles, bringing holders into the financial system.
“Banking is about data and its management. Artificial Intelligence and blockchain will re-engineer Islamic finance,” said Rushdi Siddiqui, mentor, Islamic Economy, Quest Ventures (Singapore).
He predicts virtual assistants will replace call centers and many branches, with technology empowering customers to make better financial decisions, while fintech could provide a global fatwa database available in multiple languages.
“RegTech could help the industry achieve more compliance with general banking regulations and sharia-specific rules, assuming there are globally or regionally agreed sharia standards,” said Dr. Mohamed Damak, senior director and global head of Islamic Finance (Financial Services Research) at S&P Global Ratings.
“Using RegTech could minimize the reputation risk related to potential breaches of sharia requirements. It would also free up time for sharia scholars to innovate.”