Fintech to play bigger role in Islamic finance

Innovation and dynamic of fintech are advantageous for Islamic finance growth, says expert


THE financial technology (fintech) segment is poised to contribute more in growing the Islamic finance sector to a wider reach and fulfil more Shariah objectives while Islamic banking’s contributions are constrained.

International Shariah Research Academy for Islamic Finance fintech expert and researcher Dr Moutaz Abojeib said the innovation and dynamic of fintech are advantageous for Islamic finance growth.

He said the focus of Islamic finance initially was mainly on the banking sector, representing 77% of Islamic finance globally today.

However, he said Islamic banking has to work under a conventional framework, which is not an easy task, despite promising a significant enhancement and sustainability to conventional finance.

“There are a lot of restrictions faced, and for this reason, it has some limitations, which is why we could always hear critics towards Islamic finance that it did not really achieve its promises to bring higher Shariah objectives,” Moutaz said after a virtual launch of FIKRA Islamic Fintech Accelerator Programme on Tuesday.

He said fintech by nature has fewer constraints and thus could strengthen and grow the Islamic finance sector.

He also noted the advantages of fintech in managing sukuk, representing 90% of Islamic finance in the global market today.

Moutaz said retail participation in sukuk is still very limited due to the complex and costly processes, although the Islamic bonds are an important sector in Islamic finance.

He said blockchain would make the framework more efficient and less costly for retail sukuk to facilitate a smart structure.

“You can structure Shariah-compliant sukuk with risk-sharing elements and manage it efficiently through blockchain,” he added.

The Securities Commission Malaysia (SC) and the United Nations Capital Development Fund launched the innovation programme FIKRA to develop a vibrant Islamic fintech innovation ecosystem in Malaysia’s Islamic capital market (ICM).

It is dubbed as the first accelerator programme focusing on fintech for the ICM in Malaysia.

FIKRA aims to identify and scale relevant and innovative Islamic fintech solutions that can help address three main challenge areas: New ICM offerings, accessibility and social finance integration.

SC chairman Datuk Syed Zaid Albar said meaningful adoption of fintech is critical, especially when everyone is battling a pandemic that has adversely impacted communities on a global scale.

“Given Islamic finance’s shared prosperity, social responsibility and inclusive participation, it is well-placed to lead transformation through Islamic fintech and instil greater purpose in addressing socio-economic issues, thereby raising its societal role,” he said at the launch on Tuesday.

For new ICM offerings, he said FIKRA’s first task is to solicit ideas on new products designed with Islamic principles and values.

He added that FIKRA would also prioritise innovations that enhance accessibility for participation in the ICM.

“A significant challenge would be to breach the funding gap for the underserved segments, as well as attracting issuers and investors into the relatively nascent, sustainable and responsible investment space.

“Given concerns in managing and growing hard-earned savings, it is also clear that we require solutions to address the lack of financial literacy and investors’ ability to initiate and retain long-term investments,” he said.

FIKRA’s participants would have the opportunity to work closely with its industry partners, such as Bank Islam Malaysia Bhd, Gobi Partners, Kenanga Investment Bank Bhd and Permodalan Nasional Bhd.

The programme is open for registration and is scheduled to commence in July 2021 for three months, culminating in a public virtual demo day during the annual SCxSC Fintech Conference 2021.