Islamic lenders adopting fintech, recognising advantages

Indonesia has the highest number of Islamic fintech start-ups, followed by the US, UAE and the UK


The United Arab Emirates (UAE) leads the Gulf in halal financial technology (fintech) with Bahrain on close pursuit in a space that has the potential to bring better standardisation and transparency to the Islamic finance industry.

Blockchain-based smart contracts, insurtech, big data and artificial intelligence (AI) all offer opportunities, with signs of Islamic banks adopting the technologies, according to a recent Bloomberg Intelligence (BI) report.

Indonesia has the highest number of Islamic fintech start-ups, followed by the US, UAE and the UK, according to the report, quoting an analysis by UAE-based research and advisory firm DinarStandard.

It noted that from the 93 Shariah-compliant fintech start-ups identified globally, 70% were focused on peer-to-peer solutions to facilitate consumer and business financing.

While blockchain-based solutions made up 14% of the identified group, this was largely made up of cryptocurrencies versus smart contracts. The UAE is a leading hub in the Middle East for Islamic fintech companies by number of start-ups, with Bahrain putting in place initiatives to boost its presence, BI reported.

“A greater focus on blockchain smart contracts will support the growth of Islamic fintech, in our view, as this technology improves product standardisation, efficiencies and competitiveness against conventional peers,” the report added.

The report added that takaful technology is a “promising area” that offers the ability to enhance claims handling, pricing, product design and distribution channels.

There has been high adoption within Islamic fintech start-ups of peer-to-peer crowdfunding that targets real estate, and small and medium enterprises, it said.

Yet, the use of big data and AI for Islamic financial services, as well as blockchain solutions in areas such as trade finance, are untapped opportunities, based on DinarStandard analysis.

On blockchain in Islamic banking, the report noted that blockchain-based smart contracts allow for better transparency and standardisation of Islamic banks’ services, with tangible signs of these lenders embracing the technology.

Al Hilal Bank PJSC was the first Islamic bank to use blockchain-based technology for the resale and settlement of sukuk bonds.

“This could be the way to transform the sukuk market into digitalised platforms, which come at lower costs to investors, and give greater transparency and standardisation versus the traditional trading methods,” according to the report.

In a statement in November 2018, Al Hilal Bank CEO Alex Coelho said: “The advantages of using smart contracts range from safer transactions with robust Shariah compliance, to the unlocking of new opportunities.”

In its report, BI also noted that Saudi Arabia’s Islamic Corporation for the Development of the Private Sector seeks to introduce blockchain-based solutions to help Islamic banks manage liquidity. Al Rajhi Bank continues to perform cross-border money transfers using ripple blockchain technology, which lowers costs and transfer time for customers. — TMR