Challenges and opportunities faced by Muslim communities
One of the crucial issues being faced by Muslims in the USA and Canada is how to run their financial and economic affairs in an interest based financial system. Islam prohibits any financial transaction which involves even a small fraction of interest as it is against the true spirit of Islamic social justice and welfare. Is there any way to compromise between the interests of Muslims and the state system?
A similar situation is prevailing among Canadian Muslims, who consider Canada as a welcoming, law-based country that promotes liberty, democracy and supports diversification of its people. Despite having general community support, several concerns are faced by a relatively small religious minority of Muslims in Canada. Muslims comprise about 3.7 percent of Canada’s total population which holds diverse pluralism, when it comes to their perspectives, associations, degree of integration into the state order. The most important issues faced by Muslims in their local community, include the challenge of cultural integration, groupings within the Muslim community, violent extremism and radicalization, unemployment, financial issues and influences on youth. Muslims are struggling in building a Canadian identity which can facilitate harmonious integration, to resolve their local problems.
The prevalent conventional commercial banking system and related challenges for Muslim communities
Muslims in the USA and Canada often utilize prevalent financial and banking services to meet their business and non-business obligations and transactions, however, they are also diligently endeavoring to find alternate solutions that are in accordance with the principles of Islam. Commercial Banks in the USA and Canada provide a wide range of services ranging from general functions (receiving deposits, accommodation of loans and advances, creation of loan deposits, creation of a medium of exchange, creating investment opportunities), public utility functions to the agency functions (collecting payments, sale, and purchase on behalf of a customer, acting as a trustee and participating in welfare activities). However, this crucially important lifeblood of the economy, which circulates in each sector of the economy, and is involved in almost daily life transactions is governed by the principles of the interest rate. The interest rate is the ultimate benchmark of the system. While on the other hand, it is clearly known and acknowledged in Islam that interest-based practices are strictly prohibited. Islam disapproves of interest in all financial obligations and returns. Also, Qur’an and Hadith strongly condemn interest in all possible terms. So, it has become extremely difficult for Muslims to carry out their financial operations including savings, investments, granting or receiving loans (housing loans, mortgage loans, and business loans) credit based purchases in the real economy and real estate and to manage their wealth and finances. They are actively looking for alternate solutions that are not in contradiction with Islam.
Similarly, in today’s financial system, owning a credit card has become a necessity. It makes it easy to manage the process of financial payments. Conventional credit cards are mostly based on interest, which has hindered more than 5 million Muslims living in North America and Canada to avail of this service. Resultantly, they either have opted to stick to shariah lines and avoid its utilization or have made a compromise with the prevailing system.
- Islamic banking and financial system
- Inclusion of Fintech in Islamic banking and financial system
Islamic banking and financial system
Retail Islamic financial services in the USA incepted in the 1980s with the introduction of Amana funds and later by the Shariah compliant house financing and small businesses by American finance house LARIBA, California. It moved to a major advancement in 2001, after LARIBA was given consent for financing from the Federal Home Loan Mortgage Corporation. North American Muslims are utilizing shariah compliant financial products and services i.e. murabaha, musharaka, ijara, sukuk, and takaful. Interest free islamic financial services have gained popularity worldwide and Muslims across the world are adopting it as an alternative to the conventional banking system. However, the growth in the United States and Canada, differs from its growth in other areas of the world, in the primarily retail focus of the products, receiving the most attention. In most cases, Islamic financial products were introduced and promoted in response to the demands of Muslim communities instead of developments within the financial markets of the USA and Canada.
Recently, a new evolution in the banking sector is revolutionizing the corporate and financial industry around the world called “Fintech”, a combination of financial and technology. Islamic banks and financial institutions i.e. Saudi Arabian Islamic development bank (IDB) and Emirate islamic bank are also incorporating AI and Cognitive computing in their Shariah compliant financial products. However, the share of global Fintech investments is very limited towards the North American region.
The emergence of AI and machine learning
Artificial Intelligence (AI) and machine learning utilization and applications have been around since the 1950s, but it’s only in the past few years that it became ubiquitous and revolutionized the universal tech industry. Companies, all over the world including Amazon, Facebook, and Google have fully adopted AI, and each day, tech giants are launching new products by employing AI encompassing new features. The critical importance, and role of AI and machine learning in all spheres of life have made it clear that future businesses can’t survive without embracing these new challenges.
Cloud Computing and Blockchain technology
Blockchain technology has altered modern day life and has reshaped its operations. The introduction of BitCoin in 2008 has evolved it greatly and led to new business opportunities for the world due to its transparent, decentralized, efficient, and easily traceable mechanism. Blockchain is a distributed public ledger of immutable transactions, using cryptography to secure transactions and blocks. The elimination of third party or the middle man in transactions and omission of associated cost can transform banks into unchartered territory with distributed ledger technology (DLT). The world is moving towards Web 3.0 using blockchain technology to create new business models.
Why Canada is one of the most suitable and appropriate countries for development of the Fintech industry?
Over the past decade, Toronto and its neighboring areas to the western side known as the Toronto-Waterloo Corridor have experienced remarkable growth in the tech industry. Its development is evident from the fact that it is currently supporting 5,200 startups and 15,000 tech companies, and with the inflow of foreign tech capital from big corporations i.e. Amazon and Uber, it has become the second largest tech hub in North America. Technological progress has extended its arms into the financial sector as well. The fintech industry is flourishing at a very fast pace with a workforce of 60,000 Fintech workers, equipped with the latest tech knowledge and is putting pressure on the traditional mode of services of Canadian banks. The competitive pressure has led the banks to introduce a wide range of new automated and cloud based data services including, insurance, wealth management, investments, mortgage, peer to peer payments between individuals and enterprises, money transfer with minimal cost. Toronto is also hosting Don Tapscott, the world’s leading authority on blockchain and cryptocurrency, bringing a major paradigm shift in the Fintech industry.
The integration of machine learning and AI has enabled FinTechs to better understand and process customer and market behavior at a time when tech giants i.e. Google and Facebook are coalescing into the traditional banking services to introduce AI based financial products and services in Toronto, transitioning it into a Fintech Hub and a bellwether in the finance sector. Fintech helps in Maintaining legal documentation through deployment of smart contracts on the blockchain with the reduced processing times of transactions and no longer need for Manual reconciliation of transactions. Customer outreach and financial inclusion in remote areas have also become possible. The problem of volatility in prices of various products and services has been resolved with predictive risk modeling techniques and financial statements of Fintech, in the commercial banking system. Even, US banking authorities have recognized its importance in the words, “It is shaking the banking system”, and one of the leading banks has vowed to introduce the “WePay” payment system, based on AI and blockchain.
The amalgamation of Islamic Financial System and Technology
However, with the emergence of the new technology of AI, the Internet of things and blockchain, islamic financial markets worldwide have taken a new turn with the adoption of these technologies. Malaysia in 2017, introduced new legislation to regulate cryptocurrencies in the country. New ideas of Fintech applications are taking place within the general scope of the Islamic financial services industry. In financial transactions, Fintech based Islamic finance holds all features of different stages of negotiation, credit checking, documentation, managing defaults, and enforcement of contractual conditions. Also, product structures based on fintech can efficiently complete financial transactions. However, standardization of Shariah principles needs to be strictly followed in structures and functioning of islamic financial products to eradicate non compliance risk. Fintech can achieve economies of scale and economies of scope through technology and efficient transparent and secure delivery services of financial products and services. Fintech based islamic financial institution has started taking its roots in the USA and Canada financial markets.
Development of ShariCard and its benefits
ShariCard is the recent development in the credit services of Islamic banks. This card is backed by blockchain technology and complies with Shariah to provide interest free services. The purpose of launching a ShariCard is to facilitate all the Muslims and Non-Muslims alike residing in the USA and Canada to make day to day expenditures and payments without worrying about the aversion of interest. Through its automated management system, ShariCard is available for any kind of legal and Halal transaction. But it cannot be used against any illegal or Haram products or transactions i.e. gambling and pornography.
This ShariCard can help local muslims and immigrants to build and maintain their social and cultural identities. Their credit profile could be strengthened with this premium high reward shariah compliant credit card. They can equally participate and can mark their share in one of the biggest worlds’ financial markets, without indulging in interest based practices.
Reshaping Muslims’ individual and social identity
Islamic economic and financial model has its foundation on the principles of social justice, social welfare, and equity. Muslims by promoting and implementing this system can also help Americans and Canadian masses to get rid of the unjust interest based economic system.
A few important points are worth considering. First, Muslims and Non-Muslims alike in North America and Canada must fully acknowledge the fact that they have a very consequential opportunity to transform the economic system, from injustice and inequality to the one that serves equally for the prosperity of people of the state. Second, the majority of the Americans are completely exhausted by this interest based system. Muslims can avail of this opportunity to come up with a financial solution, aiming to the benefit of the society as a whole and promotion of social justice, welfare, and prosperity of all communities.
Written by Staff