Islamic fintech has emerged as a promising segment that has not only overhauled traditional methods of offering financial services but also transformed business models, operational models, and, above everything else, customer experience.
The implementation of financial technology (fintech) in Islamic finance has increased over the last few years, largely supported by the digitalization of Islamic financial services and the issuance of fintech-related products and services.
Partnerships and collaborations with fintech have continued to grow as Islamic financial institutions are leveraging the avenue to expand their market presence, according to the latest report on Islamic Finance and Wealth Management, released by Alpen Capital (ME) Limited and Alpen Asset Advisors Limited.
Tala Al Jabri, Partner at HOF Capital, said: “Shariah Finance has taken off in the technology sphere over the past five years. There has been considerable focus on Robo-advisory for example, but there remains significant white space in other sectors of Shariah fintech”.
These include Islamic insurance (Takaful), and platforms supporting the issuance of Islamic assets such as Sukuk.
Business Opportunities For Islamic Fintechs
There is a considerable business opportunity for Shariah-focused digital banks to start serving Muslims and mainstream consumers around the world.
In the OIC countries, Islamic fintech has become the fastest-growing segment of financial technology, with the UAE, Saudi Arabia, Indonesia, and Malaysia leading in terms of transaction volume.
As of 2020, Islamic fintech in OIC countries accounted for $49 billion in transaction volume, constituting 0.7 percent of global fintech transactions. Governments across the globe have taken measures to support the Islamic fintech ecosystem, encourage digitalization of banks, boost tokenization of sukuks, and bolster markets that are rising in prominences such as Islamic social finance and ESGs.
Such measures are likely to enhance the Islamic finance market and drive growth.
The rise in Islamic fintech’s popularity is also prompting a surge in fintech-focused investment funds, which are likely to accentuate the market and create opportunities for Islamic fintech to expand services.
The Alpen Capital report was launched at Nasdaq Dubai over a panel discussion featuring Dr. Amin Fateh, general manager, Minhaj Advisory and Member, Shariah Board, Alpen Capital, and Alpen Asset Advisors; and Hameed Noor Mohamed, executive director, Alpen Capital (ME) Limited, which was moderated by Tahir Mahmood, head of business development of Nasdaq Dubai and DFM.
“Islamic finance and wealth management industry faced the dual shocks of adjusting to the pandemic and historically low oil prices in 2020.
While the industry slowed down during the year after experiencing record growth in 2019, it showed resilience and total Islamic finance assets in 2020 are estimated to match the previous year’s figures.
Technology adoption has become one of the most critical drivers of survival. The adoption and integration of new and emerging technologies are likely to streamline the Islamic finance market and broaden the service offerings.
An optimistic outlook by the IMF on global economic recovery is expected to spur a recovery within the sector,” said Sameena Ahmad, managing director, Alpen Capital.
The total Islamic finance assets are estimated to have reached $2.9 trillion by the end of 2020, matching last year’s figures.
Thus, a speedy and effective response has now become crucial to ensure profitability, as well as spur recovery and growth in the industry.
The rise in technology adoption, digital solutions, data-driven decision-making, and data sharing across the banking, finance, capital markets, and microfinance domains, are likely to quicken this recovery and cement the industry’s overall resilience.
“Sukuk is expected to maintain its position as a major growth driver for the Islamic finance industry. Sukuk has witnessed record-breaking issuances over the past year, and this is likely to continue.
Concepts such as ESG/sustainable investing, and green Sukuk are also rising in prominence and gaining investor interest. The sector has also seen strong M&A activity in both banking and takaful sectors, and consolidation is expected to continue amid weak economic conditions,” said Hameed Noor Mohamed, executive director, Alpen Capital.
The outbreak of Covid-19 has disrupted global financial markets at an unprecedented scale, and the impact has tested the resilience of Islamic finance markets in equal measure.
Factors like the growing Muslim population seeking Shariah-compliant financial instruments, rising adoption of technology, and the industry’s ability to demonstrate a higher level of ethical credibility have been driving growth.