Fintech is an amalgamation of the words finance and technology and has caused an evolution in the financial industry. It aims to revolutionize the primitive methodologies followed by the financial institutions replacing them with improved and advanced use of technology. The result is that the financial world is now in a better position reaching new targets and places using technology.
The biggest advantage of fintech is that it has created new avenues and opportunities for the customers making them feel at ease. Fintech has enabled customers to operate things with a single tap of their smartphone or any other gadget to make payments, making international money transfers, use mobile banking, and avail any other service which they want to.
Simply said fintech has made financial matters easier with a wider reach to more segments of the society including the unbanked or under-banked. Apart from this it has also provided an edge to financial institutions to offer more and improved services at low costs since the use of technology is involved,
The difference between Fintech and Islamic Fintech
The fundamental aspect of fintech stays the same however the only differentiating aspect in Islamic fintech is the presence of Shariah. In Islamic laws, the basic rules of Shariah must be followed. Fintech is permissible in Islamic law but it becomes strictly prohibited if it goes against Shariah rules.
In Islamic fintech, there must be digital delivery of Islamic finance. It involves usage of know your customer (KYC), anti-money laundering guidelines (AML) cyber payments big data, and machine learning as per the guidelines of Islamic finance. Further, it is here to address the unmet financial needs along with financial inclusion.
Currently, the Islamic banking and finance industry (IBF) reaches almost 100 million consumers at a global level while the potential is at six times the current number. This gap can be filled by using fintech.
Types of services offered in Islamic Fintech
The following services are being offered in Islamic fintech:
- Peer-to-peer (P2P) lending
- Money transfer
- Mobile payments and
- Trading platforms
Prominent Islamic Fintech companies
Although at present there are a few Islamic fintech companies such as Ethis Crowd and Kapital Boost based in Singapore, Wahed Investment LLC which is a US-based company, and UK based Yielders dealing in segments of P2P lending, crowd-funding, and investment Robo-advisory.
Some new companies are also emerging whose contribution is worth-mentioning such as Ovamba US-based company which is an Islamic trade finance platform. The company also plans to launch Shariah-compliant initial Coin Offering (ICO) which will introduce fees and risk-sharing backed by halal instruments. This will be achieved by using a token and CBX units which can be defined as the Shariah compliant universal system backed by grains.
Islamic fintech addressing financial inclusion
The presence of fintech will make it easier for the current two billion underbanked population to have access to financial solutions in the Southeast Asian Region. It also serves as an impetus for Islamic fintech to address the issue of financial inclusion. With the Shariah-compliant crowd-funding and P2P financing tools, it creates opportunities for individuals and SMEs which require financing but are unable to obtain it from traditional Islamic banking institutions (IBIs) due to credit scoring.
Islamic fintech institutions are here to address the issues of entrepreneurs and small businesses with no previous records to obtain financing to gain access to finance and start their business. Along with this Islamic fintech will be able to benefit customers which now have more options to choose along with being assured that these are against the Islamic rules. Moreover, they will be able to gain access to better services at reduced costs which will make banking convenient for all.
Article Author Madeeha Kauser, she can be reached at email@example.com.