The Garden of Knowledge

بسم الله الرحمن الرحيم

 13 Ramadan 1446/14 March 2025

All praise is due to Allah, the Cherisher, Sustainer, Nourisher and Provider of the entire creation.

With the advancing of technology, we live in a world that is now overcome by digital communication, interaction and trade. With the development in digital communication, we witnessed the development of Fintech. With all the development of technology and finance happening in the conventional world, there seems to be a lack of Shariah alternatives available. Over the past 5 years we have noticed significant development in Islamic Finance. When we talk about the development and future of Islamic Finance, it is without a doubt that Fintech comes to mind.

The greatest irony about Fintech is that it exists all around us and we engage with it on a daily basis without even realizing it. (Adam, 2020) Fintech is one of the most widespread term used for research in finance industry in present time. (Rabbani et al., 2020a) Islamic Fintech is composed of two terms: “Islamic” and “Fintech”. It is important that we have an understanding of both these terms before Islamic Fintech can explained.

“Islamic” is an adjective of the Arabic noun “Islam”. As we already know, Islam is the universal system and order of commitment to the Almighty and it is the manifestation of one’s submission to God in all aspects and facets of life. When the adjective “Islamic” is used it usually denotes that the subsequent noun has an Islamic application and there is a distinction from alternative frameworks. It refers to a unique paradigm which advocates a particular world view and philosophy which sets it apart from the mainstream conventional paradigm. (Adam, 2020)

Fintech is a relatively recent term which has no unanimous definition however the online version of the Oxford dictionary defines Fintech as: “Computer programs and other technology used to provide banking and financial services.” Fintech can be broken down further. It comprises of the term “Finance” which refers to the management and flow of money and is inclusive of all money activities, whilst at the same time it comprises of the term “Technology” which in this context refers to the usage of digital processes to enhance service delivery, development and design. Hence Fintech refers to activities of money management such as investments, lending and movement of money through digital processes and applications. Fintech is a term that is often used in today’s world to describe platforms and businesses that provide products and services through digital media using extremely inventive and pioneering methods.

The Islamic financial system has an in-built and inherent character of risk sharing and rule-compliance. Islamic Fintech is a further development in the Islamic Finance Sector. It is the use of financial technologies in delivering products and services that are Shariah-compliant through digital platforms with innovative user experiences and interfaces. In order to provide Islamic Financial services in a more complex and transparent manner, Islamic Fintech tends to utilize innovative technologies such as Artificial Intelligence (AI), blockchain, extensive cloud computing and Internet of Things (IoT) devices. Islamic Fintech offers the potential to provide more cost-effective access to Islamic Financial services, resulting in more opportunities for financing, payments, and investments that are consistent with Shariah objectives and principles. Islamic Fintech can be considered as “A digital delivery of Islamic Finance” and as such, it is an extension of Islamic Finance. (Adam, 2020)

Services-based Fintech solutions such as mobile payments, money transfer and trading platforms are universally applicable for both conventional and Islamic Finance, and require very little modification for Shariah compliance. However financing platforms such as Crowdfunding and peer-to-peer (P2P) need to ensure Shariah protocols are in place and just like every other Islamic Institution a Shariah Advisory Board should be appointed to oversee the financing and investment processes and to ensure that they comply with the prevailing Shariah standards and acceptable practices. (Billah, 2021)

Islamic FinTech is based on the Sharia ethos and values, and it has the potential to lead the global finance industry. Like every upcoming and niche sector, we find within many opportunities as well as challenges. The most significant advantage of Islamic Fintech is that it is transparent, accessible, and easy to use. Amongst the other opportunities we find that Islamic Fintech companies can gain the trust and confidence of Muslim investors as it is in accordance with the Shariah however not restricting the use and benefits of Islamic Fintech to Muslims alone but rather to the all of humankind at large. Islamic Fintech can provide a cost-effective alternative for financial services and allow conventional Islamic banks an opportunity to go digital and deliver low-cost financial services. Islamic Fintech also provides an option to the customers to use both traditional financial services as well as new and innovative services which are free from usury, and uncertainty of any kind. (Rabbani et al., 2020a)

Reduced Costs is another major opportunity for adoption of Fintech. Efficient and cost-effective service solutions like software as-a-service (SaaS) are shifting the structure from physical channels to digital and mobile delivery. Islamic Financial Institutions (IFIs) partnership with Fintech companies can improve, rationalize, and streamline the operations of IFIs with less operational costs. Fintech solutions for IFIs can also improve customer engagement by providing more touch points and more frequent contacts, resulting in better relationships. This would have a direct positive impact on client loyalty. (Irum Saba et al., 2019)

Social and ethical impacts of financial services are also one of the key promises and opportunities of Islamic Fintech. For example, the financing for of welfare project is often not possible through traditional banking and financial institutions, however now through crowdfunding it is possible for individuals and small businesses of any sector to get funding for their social impact projects, for example: LaunchGood and Skola Fund. (Mohamed, 2019)

There are many challenges with regards to Islamic Fintech and one of the most significant challenge is the need for Islamic Fintech to keep up with the rapid pace of growth in the conventional financial world. Another possible challenge is Islamic Fintech needs to ensure stability and possess the ability to protect investors and institutions from fraudulent activities. Currently, this issue is very important. The adequacy of current security standards and protocols is questioned considering high number of cyber security events in recent years. In the scenario where Islamic Fintech attracts investors, there arises a short term challenge where investors are unsure of the worth of investing in Islamic FIntech. (Rabbani et al., 2020a)

One of the major threats or challenges arising from the revolution of FinTech includes regulatory risks, downward pressure on margins and information security. Risks associated with complying (or not complying) with the rules or guidelines that are sanctioned by the regulatory authorities in the jurisdictions in which they operate. If the regulatory aspect is ignored, it could lead to missed opportunities in Fintech investments.

Regulating Islamic Fintech is a challenge, the industry has already made a target for the standardizing and developing the Islamic Fintech regulation (Natoor, 2019). As the rapid growth of fintech and Islamic Fintech continues, it provides both opportunities and threat to the policymakers and regulators. The policymakers and regulators must take into account the adoption and acceptance of Islamic Fintech by making the proper balance between the benefit it brings as well as the threat it poses in terms of increased risk as the Shariah-based contracts are more complex than the conventional finance contracts. (Rabbani et al., 2020a)

The promise of blockchain and fintech creates the possibility of coordinating our transactional activities through a multi-strength mechanism of trust and transparency within the now globalized economy. Fintech will eventually overcome conventional ways of banking/finance/insurance in the coming years and if Islamic economies do not embrace it and develop their own technological ecosystem, they will lose the unprecedented opportunity to level up a 450-year gap in finance that has long suppressed them. The adoption of all forms of financial technology will allow Islamic finance to adapt to the changing landscape of modern economic transactions and carve its own niche in the future digital economy.

In conclusion, Islamic Fintech is currently in its infancy, however there is a lot of growth opportunities. Some of the areas in which we can expect to witness growth are in: Shariah-compliant Halal Crowdfunding and P2P financing, Shariah-compliant Wealthtech, Shariah-complaint Paytech, Shariah Data Analytics, Shariah-compliant Digital Money Managers, Tradetech, Cryptocurrencies, Takafultech and Zakattech. Each of these areas are continuously growing rapidly.

In this modern era which we reside, we notice a trend that Islamic sectors are usually much slower and much more behind the conventional world in terms of growth and implementation of modern products and services. The Islamic Financial sector is already years behind the Conventional Banking sector and if things continue the way they are going, the Islamic Financial sector will find itself lost. On top of that, Muslim communities will find themselves ignorant of many of the developing products and services on the basis that there are no Shariah alternatives.

This will lead to people investing and purchasing these products and services which could possibly include usury, gambling or uncertainty. Hence it is of utmost importance for there to be an awakening and realization in our community, especially amongst the youth about the importance and development of Islamic Fintech and other niche and upcoming products.

May Allah accept our efforts from us and grant us understanding In Sha Allah!

References
Adam, F. (2020). Introduction to Islamic Fintech. Amanah Advisors Press.
Rabbani, Mustafa, et al. “FinTech, Blockchain and Islamic Finance: An Extensive Literature Review.” International Journal of Economics and Business Administration, vol. VIII, no. 2, 2020, pp. 65–86. Accessed 11 Nov. 2021.

“Fintech Noun – Definition, Pictures, Pronunciation and Usage Notes | Oxford Advanced Learner’s Dictionary at OxfordLearnersDictionaries.com.” http://Www.oxfordlearnersdictionaries.com, http://www.oxfordlearnersdictionaries.com/definition/english/fintech?q=Fintech.

Billah, Mohd Ma’Sum. Islamic FinTech Insights and Solutions. Palgrave MacMillan, 2021.

Irum Saba, Rehana Kouser, & Imran Sharif Chaudhry. (2019). Fintech and Islamic Finance-challenges and Opportunities. Review of Economics and Development Studies, 5(4), 581–590. https://doi.org/10.26710/reads.v5i4.887

Mohamed, H. (2019). Hazik Mohamed and Hassnian Ali Blockchain, Fintech, and Islamic Finance. de Gruyter.