By Arno Maierbrugger/Gulf Times Correspondent/Bangkok
The upcoming Global Islamic Finance Forum 2016 to be held in Malaysia’s capital Kuala Lumpur from May 10 to 12 – one of the most renowned global events in the sector – will see a special competition for financial technology, the Asean Fintech Challenge organised by credit card company Visa and the Association of Islamic Banking Institutions Malaysia, or AIBIM, one of the first of its kind in the Islamic finance world.
The challenge aims at bringing the “best and most innovative fintech startups” to compete at the forum, with teams having the opportunity to present their ideas to over 500 Islamic finance delegates from all over the world, which makes it, of course, also interesting for the growing Islamic finance sector in the Gulf Cooperation Council countries.
“The Global Islamic Finance Forum presents a great opportunity for fintech startups to showcase their offerings for Islamic finance, which is rapidly gaining traction in Muslim-majority nations and international financial centers,” says AIBIM executive director Yusry Yusoff.
In fact, the combination of fintech innovations and Islamic finance is not just a dictate of the moment to enhance the offers in the Shariah-compliant finance sector, it has implications that go beyond that as there is big potential to disrupt the way conventional finance industry works.
In particular, fintech startups are increasingly venturing into areas such as mobile payments, money transfers, loans, fundraising and asset management, making financial services more convenient, more accessible and more cost-effective, which is especially interesting for developing countries and for those who were previously unbanked for logistical or religious reasons. Given the ability of fintechs to provide access to financial solutions for the roughly 2bn adults who are currently unbanked as per World Bank figures, and many of whom are in Muslim countries, the potential is certainly enormous.
Furthermore, Islamic fintechs open a new and easy form of Islamic finance-compliant risk sharing with regards to financing themselves. Crowdfunding and peer-to-peer lending as alternative financing options for fintech startups are in fact methods that replicate musharakah and mudharabah, both structures with profit-loss sharing implications used in Islamic finance instead of interest-bearing loans.
Given the fact that, particularly in Islamic economies, startup financing and financing of small and medium companies are still in their infancy, this is another disruptive potential for traditional banks as Muslim and non-Muslim investors alike can directly invest into new business ventures through online financing marketplaces and, at the same time, expect higher potential returns.
Looking back, what is today perceived as the “fintech revolution” started after the 2007-08 financial crisis when institutions were investing heavily in new solutions for compliance requirements. Since then, information technology startups partnered with venture capitalists to develop solutions set to disrupt traditional financial services. Therefore, and particularly in the rapidly growing Islamic finance sector which is constantly on the lookout for new services and solutions, the potential of fintechs should not be underestimated. From an Islamic finance consumer perspective, its disruptions are largely seen as a positive driver for the entire segment, even though they are somehow opposed by more established players, i.e. large Islamic banks, because of their potential to create more intense competition, which puts pressure on profit margins and service fees. On the other hand, Islamic fintechs also specialise on business segments that cannot be easily replicated by traditional players and reach out to more customers through the Internet and mobile platforms. There are certainly big opportunities ahead in the future Islamic finance world.
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