Fintech that complies with Sharia law is known as Islamic Fintech. Islamic Fintech is the progression of already-existing Islamic financial services that may now be provided swiftly and with more efficiency thanks to recent technological developments. Islamic finance’s fundamental tenets, known as riba in Arabic, which means avoiding interest and risky transactions (gharar), have been around for centuries. Following a rise in oil prices at the same time, as well as the development of the financial infrastructure in nations with a predominance of Muslims, financial products centered on these concepts became widely used internationally in the 1960s and 1970s. Traditional financial institutions may not be Sharia compatible owing to practices like interest-based lending and saving and involvement in contentious sectors like the pork or arms industries. As an alternative, Islamic Fintech offers sharia-compliant services and guarantees that services and products are open and transparent for the consumer.
Challenges of Islamic Fintech
Islamic Fintech does come with a lot of difficulties. Lack of laws, ignorance of the nature of the sector, and other issues are only a few of the challenges. For instance, regarding regulations, some Fintech businesses could not even be aware of the requirements they must meet, which might result in the chance of receiving hefty penalties.
Moving on to the issue of the fintech industry’s lack of knowledge, there appears to be a great deal of misunderstanding and uncertainty regarding the precise workings of the sector. One of the most common misconceptions is that the fintech sector is not safe and secure. Unfortunately, uncertainty and misunderstanding will keep the sector from realizing its full potential unless it is adequately cleared up and possibly worsen things. For instance, Ripple Labs, a fintech startup, was fined $700,000 in May 2015 for failing to create and maintain a sufficient anti-money laundering (AML) program and registering as a money services business (MSB). Although help is accessible through organizations like the FCA, regulatory structures were not created to support Islamic Fintech. Experts and gatekeepers have also frequently been found to be insufficiently knowledgeable about sharia compliance.
Another issue was the limited availability of venture funding for Islamic Fintech. Since many venture capital opportunities do not adhere to sharia law, it is challenging for new business owners to develop their concepts. It is believed that Islamic Fintech participants would present new financial alternatives to advance the sector. In conclusion, Islamic Fintech has a few unique hurdles compared to other popular Fintech sectors. Still, new legal frameworks and heightened public awareness of the sector’s potential will spur rapid expansion.
Prospects for Islamic Fintech
Islamic Fintech offers a beautiful chance to boost competition and innovation in the financial services sector, much like the broader fintech sector. Sharia laws may be more onerous for larger banks, which gives Islamic Fintech startups an advantage in spotting market gaps and providing customers with more responsive, customized services. Muslims may use financial services that align with their faith thanks to Islamic Fintech, which helps banks with previously unbanked people.
Islamic fintech services are available to everyone and are not only for Muslims. According to reports, interest in the budgeting software Kestrel has grown, especially among younger users concerned about how their money is used globally. It is especially seen in the case of Minted, a gold investment firm that seeks to draw investor capital from Environmental, Social, and Governance (ESG) portfolios to gold bullion. Other shariah-based Fintech applications include Yielders, a property crowdfunding platform that targets all consumers with a straightforward yet competitive property investment offering; 25% of its members are not Muslims.
Conclusion
Even if there are certain obstacles in the Islamic Fintech sector, overall, it has a lot of positive aspects. For instance, efficiency and transparency, which are fundamental qualities of Fintech, will help customers attain more convenience and, more crucially, develop public trust and confidence in the broader system. Efficiency and transparency are also intrinsic qualities of Fintech. Islamic Fintech has increased recently and will do so in the future. Companies are reshaping the broader financial services industry more broadly as well as Islamic Fintech specifically.
