Islamic finance has been disrupting the fintech sector, building an enormous economic powerhouse in the MENA region. The growth is further backed by a survey that has claimed that Islamic finance is projected to grow to US$3.02 billion with an annual CAGR of 10.2%.
If you turn the pages of history and look at the growth of Islamic finance, it all dates back to 1970. Currently, the sector caters to almost 1.9 billion Muslim populations around the globe. It is primarily distributed across Africa, the Middle East and Asia, which has been the core reason for the emergence of popular Islamic fintech companies around the MENA region.
Before diving deep into the world of Islamic finance, let us give you a brief overview of what Islamic finance is.
Islamic finance, also known as Sharia-compliant finance, refers to financial activities adhering to Sharia (Islamic) law. Of many, the two fundamental principles of Islamic banking are the prohibition of the collection & payment of interest called “Riba” and participation in the sharing of profit and loss, i.e., “Mudarabah” and “Musharakah”.
Islamic finance has been flourishing around the globe based on data compiled by the Union of Arab Banks, where only 10 countries account for almost 95% of the world’s Sharia-compliant assets. Iran leads the market with 29% of the global share, followed by Saudi Arabia, Malaysia, UAE, Kuwait, Qatar, Turkey, Bangladesh, Indonesia and Bahrain.
Impact of Islamic fintech
As per Global Islamic Fintech Report 2022, the Islamic Fintech market stood at $79 billion in transactional volume and is projected to grow to $179 billion by 2026. This depicts that Shariah-compliant finance influence has been capturing the attention of millions of young Muslims for its state-of-the-art financial services to the unbanked populations.
Islamic Fintech has only one core purpose, i.e., to simplify the transaction process and create a safe, reliable and transparent financial ecosystem. It has been serving the financial requirements of Muslims for over five decades and effectively serving the ever-changing needs of customers looking for ethical banking solutions.
As per the Islamic Financial Services Board, a significant share of Islamic finance assets is saturated in Asia, GCC, and MENA regions. These regions collectively make up the globe, and the impact of fintech on the Islamic banking industry has been quite promising.
The emergence of new technological solutions for the finance industry has been the root cause of the popularisation of Islamic fintech. New fintech startups have been leveraging technology to offer world-class financial solutions while adhering to Shariah laws, leading to a competitive fintech landscape.
Islamic Fintech and Islamic Banking: Solution for the Future
The Islamic fintech has brought about positive changes in the landscape of Islamic banking.
Let’s have a look at some of the impact of it:
1. Digital Accessibility
The introduction of consumer-pleasant digital platforms has made Islamic banking services available to a broader target market. Customers can now interact with the self-control of their accounts and perform any Shariah-compliant transactions quite simply from any part of the world.
2. Financial Inclusion
Fintech has been the driving pressure in promoting financial inclusion by serving underserved populations. It has extended Islamic banking services to those sections that did not have access to traditional banking.
3. Automated Shariah Compliance
Islamic fintech solutions include automated Shariah compliance tools to ensure financial products and services adhere to Islamic ideas, mitigate non-compliance risks, and impart transparent financial solutions.
4. Crowdfunding Platforms
The creation of Islamic fintech corporations has facilitated the growth of crowdfunding structures primarily based on Islamic finance standards. These structures assist initiatives and businesses in a Shariah-compliant way, constructing customer trust and security.
5. Halal Investment Platforms
The onset of fintech has led to Halal funding platforms catering to Islamic investors to provide opportunities for moral and Shariah-compliant investment, prompting them to grow their wealth even while following Islamic financial principles.
93% of Islamic fintech companies are serving customers with robust fintech solutions and catering to the needs of young Muslims. Moreover, with the rise of P2P platforms, Islamic fintech is portraying Islamic finance's essence and shaping the future for the upcoming generation.