FinTech: a key to delivering Islamic Finance solutions?
Recent discussions at the Islamic Finance News Europe Forum, Luxembourg, focused on the potential for FinTech to become a new frontier for Islamic Finance. Digitalisation was said to be the key innovation that may be able to drive increasing adoption of Islamic Finance products.
Developments using FinTech in Malaysia have created a platform – using the foundations of crowd funding – to allow the top Malay Islamic banks to assess and rate projects and then use the platform to seek funding for those projects assessed to be suitable for financing. This works within the Shariah principles of risk sharing.
Fundamentally Islamic Finance institutions in the western world are vying for space in the overall finance market and sit amongst an array of conventional institutions. They have a large cross-over with ethical banking and so are likely to be of interest to a much wider market in society that just the Muslim population. However Islamic-compliant institutions struggle to gain traction and to clarify that they are open to Muslim and non-Muslim clients alike. Similarly the added complexities of the Shariah contracts can add to the costs of doing business.
FinTech therefore has the potential to have a big impact on the market. It may not change the products themselves but will widen availability; it could help develop cheaper, faster and more transparent access for the “unbanked” markets in jurisdictions that may not have bank branches on every corner. The added information collection that FinTech can provide may also allow for better risk analysis and so help assess the funding of small and medium sized enterprises that might otherwise be overlooked. FinTech does not have to change the underlying Shariah-based contracts but can be a key way to develop how those contracts are put into practice and made available to the wider population.