Islamic FinTech

Islamic finance has taken great strides this century, with Shariah-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.

DiversiTech Hub spoke to Ahmad Sabree, an independent FinTech consultant and specialist in Shariah Law, about his insights into what this means for IFT (Islamic FinTech)...

What do you believe is the reason behind this huge growth (in Islamic finance)? 

This is a prediction based on the historical growth of the industry and consideration for several factors that will affect the industry in the future. In general, there is a growing interest globally toward Islamic finance. The primary places are in OIC countries and developing nations. However, some highly developed countries like the UK do have Islamic financial services for two reasons: One is to serve the local Muslim population with basic banking and wealth management services that are "Halal" (the word for permissible in Islam), and the second reason is catering to high net worth Muslim individuals and countries who want investment banking level services that are structured in a "Shariah compliant" manner. Since Islamic finance is still a young industry compared to conventional banking, there are still a lot of potential customers yet to be acquired.


The largest transactions in Islamic finance are in the Sukuk market, where the notes can be valued into the hundreds of millions. These alternatives for bonds are popular with large companies and also governments. A large amount of the future growth will come from that branch of Islamic finance first, and then after that retail banking and other activities. I am very hopeful that by the time the 2022 target is reached, Islamic FinTech will be contributing a larger percentage of the total value of Assets under management for the Islamic finance industry.


Does FinTech enable Sharia Law in finance, in a way that was not possible pre-technology? And if so, how?

FinTech has a major potential to be a platform that opens up a whole new world of possibilities in terms of products and services in the Islamic finance industry. The reason being is that it offers a huge range of freedom for innovation and customization in the offering of products that was not available "pre-technology". The birth of Islamic banking was unique because the nature of the banking industry is to generate income through interest on loans, and in stark contrast to charge or receive interest is completely forbidden in Islam. But at the same time, Muslims also need financial services in order to preserve and grow their wealth in the modern world, so it was a big conundrum for the pioneers. So, in the beginning, some exceptions had to be made in order to get Islamic banking off the ground and with time the experts innovated and created Shariah compliant products within the narrow limitations of the banking industry which is known to be highly regulated. Much of this was by restructuring existing banking products to be more in line with Shariah. But now with FinTech, products and services can be built from the ground up in a Shariah compliant way. Fintech allows us to be creative and innovative and tailor products to the Muslim customer base. These factors give me a lot of hope for the future and they are also the reason why I chose FinTech as my research area in my post-graduate studies and later also for the beginning of my career.


Can you give an example from your own career where you have seen FinTech and Sharia Law working together harmoniously?

Yes, I have seen this harmony since the beginning of my career. While working on my thesis on adapting crowdfunding for SME financing during my Master's degree, I interviewed the founder of a company calledEthis Crowd that was using a combination of FinTech and Islamic finance to help people invest in the development of low-income housing in Indonesia. After graduating I was the first hire in the Kuala Lumpur office of Ethis. There I helped refine and educate others on the financial models that are now termed as "Islamic fintech". Islamic fintech is basically combining the principles and structures for financial services in Islamic finance theory with any of the modern technologies being used in FinTech. So currently we have robo-advisors within Islamic FinTech as well as P2P and equity crowdfunding platforms and more. The greatest potential going forward for Islamic FinTech is to reach the millions of unbanked people around the world who either cannot get access to banks or do not trust banks due to religious beliefs or misalignment between the nature of the products with their values.   


Diversity and inclusion are huge topics in the FinTech industry at the moment. Do you feel that the industry is inclusive? 

I think it is very inclusive from what I have seen. Because IFT is more of a startup scene than a banking scene, you can see men and women from a plethora of nationalities involved and most are youth. I believe it is less exclusive than the Islamic banking industry, but still very small so the opportunities are limited but will grow as the industry grows.

Do you feel that FinTech companies are inclusive of consultants who wish to follow Sharia Law?

That's a good question. Most of my work has been in the Muslim world so far, so I have not done a lot of interacting with mainstream FinTech companies. But I did talk to one player in Singapore and he was interested in how to make a branch of his company and brand it fully Islamic. So yes, some non-Muslims are looking to Islamic FinTech as a niche brand and are interested to tap the 1.8 billion and growing Muslim community. Of course, there are others who would like to engage a consultant but here the "Islamic" word and then become a bit silent. But that is something that I think we can remedy with interviews like these that just allow people to get to know one another more. Fear will disappear when understanding and respect are present. 

Is there something that non-Islamic banks can do to make these consultants feel more inclusive in a working environment?

I think engagement is key. Just building bridges and having conversations to share knowledge and experiences is the first step to break the ice. This can be done by attending events or even a chat over tea, or even on Skype. After that, the opportunities should become more clear and if there are any fears and worries they should disappear. After that, the collaboration can begin.


Inclusion is about listening to everyone's ideas... Given that, what could the non-Islamic FinTech world learn from Islamic Banking?

I think Islamic banking has an enormous amount to offer in terms of new perspectives on business ethics. Particularly in terms of finance. One of the goals of Islamic finance is to keep financial activity within the limits of certain ethical boundaries. These boundaries are of course inspired by the principles of Islam, and it is important for Muslims to adhere to them because it has an impact on the lawfulness of income in this life and the judgment by God in the next life. 

Risk sharing is a principle in Islamic finance that pervades all activities. We believe that the right to earn profit is gained from taking risk in business. Therefore, risk transferring deals or unfair balancing of risks is not allowed. Also, highly speculative transactions and structures are not allowed. If the speculation of a deal makes it resemble gambling, it will not be allowed in Islamic finance. Lastly, controlling ambiguity and uncertainty in contracts and structures. Whatever kind of product or service is being structured, the terms should be clear, the goods or services being exchanged should be clear, and the rights of all parties throughout the deal should be clear. The topic is quite large but I will leave you with these points, and perhaps in another session we can go into more detail...

FinTech consultant and specialist in Shariah Law

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