Despite his advanced age of 93 years, Malaysia’s Prime Minister Mahathir Mohamad has a great understanding of modern technology.
Speaking at the 15th Kuala Lumpur Islamic Finance Forum earlier this month, the prime minister said that the potential of financial technology, or fintech, should be taken seriously as smart technology within the financial industry has enabled a lot of new services such as mobile payments, instant money transfers, loans and fundraising or automated asset management.
Mahathir urged the country’s Islamic banks and financial institutions to invest in new technologies in order to transform the way they conduct banking and make their services more efficient, rightly adding that the combination of Internet, mobile devices, social media, big data analytics and artificial intelligence makes financial transactions more user-friendly and convenient. This should not be underestimated neither by the conventional nor by the Islamic banking and finance industry, he said.
A similar conclusion was drawn at the recent Islamic Finance Awards 2019 by World Finance magazine, which noted in its April edition that fintech has grown to a substantial enabler of Islamic finance around the world and spurred a dynamic transformation of financial offerings across regional markets. It contributed to financial inclusion with mobile, digital-only financial services to give unbanked people access to apps or websites that allow them to transfer money, raise money through crowdfunding and instantly pay for goods and services.
The emergence of digital Islamic banks and other online Islamic finance services has further helped expand the reach of Islamic finance beyond its traditional markets, while several countries in the Muslim world have created incubators and accelerators to help get innovative fintech start-ups up and running.
According to IFN Fintech, a business intelligence portal focusing on Islamic finance technology, there are currently 115 Islamic fintech companies active in 26 countries around the world, from Southeast Asia over the GCC to Europe and the US. Those companies meanwhile operate in 11 Islamic fintech verticals, including digital banking, robo-advisory, alternative asset marketplaces, crypto currencies and blockchain, crowdfunding, P2P finance, instant payments, artificial intelligence and data analytics and in a completely new segment, takaful technology, or takatech.
One of the latest examples of the world-spanning potential for Islamic fintech is the expansion of Robocash Group, an alternative lending and funding online marketplace headquartered in Latvia, into Indonesia where the company partnered with the local branch of India’s Reliance Finance to offer a digital personal financing tool in full compliance with Shariah law called “Reliance Shariah” or, in local language, “Penyaluran Dana Syariah.”
The innovative service works with an automated application process which requires only an identity card and a selfie. When the application is approved after artificial intelligence has applied scoring and fraud detection filters to the client’s background data, the service provides interest-free loans up to 10mn rupiah ($712) in a few minutes. The money can be paid directly to a bank account or e-wallet, or withdrawn as cash in one of the participating outlets.
“There is a potential addressable market for this service amounting to millions of Indonesian who live according to Shariah principles but cannot access standard financial services,” said Robocash CEO Sergey Sedov, who noted he was “very positive” about the future of fintech in Indonesia.
“The overall digital adoption and initiatives supporting the Islamic finance industry will surely allow the country to see further exponential market growth,” he added.
This illustrates the enormous potential Islamic fintech has for the entire industry across borders. However, as Malaysia’s Mahathir wisely stated, disruptions of the industry can swing both ways, positively for innovators, but negatively for established businesses which do not adapt, for example in the multi-billion money transfer industry or in digitised retail banking.
