One major problem for Islamic finance to grow in mostly developing Muslim majority countries is the outreach. This is because of the big population spread in urban and rural areas. This makes it difficult to reach the financial inclusion especially for the people who really in needs and causing bigger cost to perform. One of the solution for this outreach problem is the term FIntech.
FinTech or Financial technology is an industry composed of companies that use new technology and innovation with available resources in order to compete in the marketplace of traditional financial institutions and intermediaries in the delivery of financial services (wikipedia).
The fintech revolution started post 2007-2008 financial crisis. At that time, policymakers were busy supposedly making finance safer while financial institutions were investing heavily in the solutions for the newly introduced compliance requirements. In between, information technology “geeks” partnered with venture capitalists to introduce a solution that was set to disrupt traditional financial services. The financial solution was technology-based, more convenient, more accessible and more cost effective. 3)
What services provided by fintech?
FinTech is coming to represent technologies that are disrupting traditional financial services, including mobile payments, money transfers, loans, fundraising, and asset management. 2)
The main types of fintech services are peer-to-peer (P2P) lending, crowdfunding, money transfer, mobile payments and trading platforms. There are also fintech services for other sub-sectors such as wealth management, insurance, etc. Some names involved in fintech are Funding Circle, FundedByMe, TransferWise, TradeCrowd and Kantox. 3)
Challenges for Fintech
Generally fintech faces some problems: regulatory, data security, and marketing issue. Additional to this for Islamic finance is the sharia compliant.
Fintech for Islamic Finance
Fintech has also penetrated the Islamic finance space. A few prominent fintech companies that offer Shariah-compliant financial solutions are Dubai-based Beehive, Jakarta-based Blossom Finance, and Singapore-based KapitalBoost and ClubEthis. These fintechs are in the segments of P2P lending and crowdfunding.3)
Because we are talking about the industry of fintech, not simply the services, this of course brings more complex discussion. Financial technology in Islamic finance adds the requirement of Shari’ah compliance to the legal complexity of financial innovations.
“From our perspective, we welcome those opportunities, with focus on stability, resilience and regulatory issues. There are as yet unexamined issues that might have to be looked at more carefully.” said IFSB secretary-general Jaseem Ahmed.
A London-based Islamic financial technology start-up has become the first company of its kind to be given regulatory approval in the UK, as Britain seeks to position itself as a hub for both fintech and Islamic finance. Yielders, a firm that allows retail investors to get exposure to the property market with as little as 100 pounds, became the first Islamic fintech firm to be given full authorisation by Britain’s Financial Conduct Authority earlier this month (April 2017). Yielders also had to get approval from Britain’s Islamic Finance Council, which asked a sheikh, Abu Eesa, to certify that the company’s business practices were compliant with sharia law. That included certifying that there was no borrowing or nothing that could be construed as gambling involved. 4)
“That’s why we decided to start on this fintech journey, because we could mitigate against all of that by driving down the costs and removing all the back-office stuff by having a fintech solution,” said Yielders founding director Irfan Khan.