invited recently to be part of a panel on global payments at the “1st Islamic
FinTech Summit”, held at an international law firm in the City of London.
Alongside me on the panel were the CEOs of two FinTech companies that provide
technology to companies who want to set up their own banks.
the shortened version of the phrase ‘Financial Technology’, which is now used
to describe businesses that offer financial services using software and modern
technology. One of the questions asked to the panellists was: “Is FinTech the
solution to global inequality”?
to this is fairly complex, but with the right application FinTech has the
potential to empower individuals financially and offer new routes into
financial inclusion. Globally, 1.7 billion people still do not have access to a
bank account,  however, mobile penetration is increasing at a phenomenal
rate and the provision of banking services through mobile phones will give the
developing world even more access to financial services, and thus, a return to
integration of Islamic Financial Principles into FinTech help provide a
solution? I am to some degree sceptical about this, given that Islamic Finance
had a prime opportunity to challenge the conventional banking system in the
recent global recession, yet did not. The reason for this, is that in the wrong
hands, Islamic Finance can become another tool for purely making money. It can
be structured in an apparently Sharīʿah
compliant manner, failing to provide the outcomes that the Sharīʿah
intends to provide. The underlying Maqāṣid (objectives) of Islamic Finance is the fair and
equitable distribution of resources, which protects rights and ensures
obligations are fulfilled in a transparent manner, irrespective of economic
power. However, if it is the same players who are providing the same products,
albeit more quickly and more efficiently, then FinTech will merely support the
status quo, failing to achieve its full potential as a tool to increase access
to financial services.
FinTech has already shown promise in offering both investors, and those in need
of funding, an alternative. A prime example of this is the growth of crowd-funding,
a sector with a global annual growth rate of 167%. In 2014, the worldwide crowd-funding
volume reached $16.2bn and it is still accelerating. Whilst much of this growth
has been driven by lending-based platforms, which usually fall short of the
Islamic Ethical principles, what we are seeing now is an ethical investing
revolution, favouring equity-based platforms. This equity-based method has
Sharīʿah–compliant applications, boasting a
staggering growth rate of 182%, outperforming the sector as a whole, whilst
still fulfilling personal
religious or ethical obligations.
simple approach to understanding Islamic Finance is to consider it being made
up of two parts. The first consideration is the item or service being invested
in: investing in industries that profit from interest, alcohol, gambling, or
pornography are quite easy to filter out and are commonly known to be non-Sharīʿah
compliant. The second consideration, and perhaps more complicated one, is the
way in which the transaction takes place. There are clear boundaries that determine a transaction
impermissible – e.g. sale is not under duress; there is no fraudulent activity;
the buyer and seller both know what they are buying and what they are selling
respectively; there is real ownership; and so on. Unfortunately, even these are
open to abuse. I emphasise this point of outcomes that the Sharīʿah
provides consistently, because it goes beyond simple structures and looks
holistically at the different parties involved and can deem that even though a
particular product may be
‘Sharīʿah- compliant’, it may not be in the
benefit of a party.
of this is known as the Murābaḥah structure, defined by the Accounting and
Auditing Organisation for Islamic Finance Institutions (AAOFI) as “the sale of
goods at cost plus an agreed profit mark-up.”  In its simplest form the
“mark-up” is for deferred payments in instalments. The seller has the right to
charge what they want for the item they are selling and if both parties agree,
then this transaction is acceptable under the Sharīʿah:
it meets the letter of the law.
equivalent to a Murābaḥah transaction can be found in the UK, under the rent-to-own schemes
offered by some retailers. Rent-to-own schemes offer people the chance to buy
items they need for their home – such as TVs or washing machines – through
smaller, regular payments, instead of paying for the goods in one go.
to individuals taking advantage of rent-to-own schemes, from 1 April 2019, the
Financial Conduct Authority (FCA) in the UK introduced a price cap on
rent-to-own schemes.  The FCA found that once (interest/mark-up) charges
have been added, some rent-to-own consumers have ended up paying more than four
times the retail price they would have paid in normal shops.  Thus, it can
be argued that whilst such transactions might technically meet the letter of
the (Islamic) law, they have failed to provide a good outcome for one of the
parties, and therefore violate the Maqāṣid of the Sharīʿah.
Forward for Islamic Finance and FinTech
age provides an opportunity for confusion as well as clarity. In the global
markets, products can change digital hands multiple times and ownership can be
transferred within seconds, so it can be difficult to determine exactly what
the buyer and seller are transacting in. As a result, it can be difficult to
determine who has genuine ownership at the point of sale.
technological infrastructure offers numerous tools to help transact a deal
securely and quickly, such as digital security, unique referencing, and
instantaneous transfer. Financial transactions under the Sharīʿah
are highly regulated, requiring what is known as a ‘spot transfer’.
Historically, these types of transfers have been difficult to execute; standard
settlement terms tend to take two or three days. Being able to enter into a monetary exchange
without time-delay is proving revolutionary to the Islamic Finance industry,
increasing the both the availability and scalability of Islamic financial
As of 2014,
the market for Islamic financial assets was estimated to be worth $1,814
billion and is projected to increase to a valuation of $3,247 billion by next
year.  The combination of a young tech-savvy population who want products
aligned to their faith provides an opportunity for FinTech as an enabler, to
provide products that not only meet the letter of the law when it come to the
Sharīʿah, but also the spirit of the law in a
manner that reflects their lifestyles and tastes. Regarding performance, Islamic financial
products have a solid
track record. Research from the International Monetary Fund (IMF) shows that
“Islamic banks, on average, showed stronger resilience during the global
financial crisis”.  Thus, it is clear that the opportunities associated with
this growing market are not to be underestimated.
of platforms that allow investment directly from an app or web browser has
exploded in recent years, and so has the opportunity for similar Sharīʿah-compliant
services. Recent government regulatory activity in the UK, US, and EU permit the marketing of
investment products to accredited and non-accredited investors alike, spurring
a wave of innovation in the marketing and availability of Islamic financial
of some of the companies in this new wave of Islamic Finance opportunities
found in the UK are:
a property crowd-funding platform that is Sharīʿah-compliant
and FCA authorised. They have successfully taken a simple model and enhanced it
for the digital age.
Again, they have a low starting investment amount, but also cater for the more
sophisticated investor too. Their
equity-based model forgoes involvement with debt, interest, banks, or
mortgages, whilst still being competitive and investing in tangible physical
assets that everyone understands.
you would have seen some form of advertising from Wahed Invest over the last
few months. Wahed Invest is an online Sharīʿah-compliant
investment platform that allows you to invest in one of a number of pre-set investment portfolios
that vary based on risk appetite. They have a low investment amount for entry
and can cater for larger investors too. It allows people to invest in Sharīʿah-compliant
funds without having to individually check each fund. Wahed Invest is FCA registered.
is an ethical start-up and a FinTech enabler. Primary-Finance came about from a
desire to provide a genuinely Sharīʿah-compliant
Home Purchase Plan, that was competitive and did not subject the purchaser to the same terms that
conventional mortgages gave, as well as existing players in the Sharīʿah-compliant
Mortgage space. Their aim is to provide a better home purchasing finance
product, and by better they mean ḥalāl and quicker. Primary-Finance is currently
going through FCA approval.
charity space, we also have Muslim Giving,  and Jumah Pay,  which
further exemplifies that there is not a lack of talent in this space.
believe that FinTech presents an opportunity to redress global inequality if it
is managed the right way, and with the right players at the helm. It is already
opening opportunities for banking services without bricks and mortar, as well
as giving individuals access to markets that were previously only for big
players, such as hedge funds and asset managers. FinTech needs to be a tool for
solving real-world problems and democratising financial power, rather than
monetising old-world greed. How do we do
this? There is no easy answer, but the regulators have a role to play. They
need to engender a market in which FinTech companies do not need to be snapped
up by the large banks to be viable or devote their innovation to service the
banks’ needs. The regulators also need to be clear on the application of rules
to FinTech organisations, particularly the balance between being a financial
institution and a technology company.
offers a key solution to the predominant challenge for existing Islamic Finance
Institutions, being that they had to operate within an existing banking
framework, making it difficult to implement a comprehensive application of
Sharīʿah, thereby limiting their freedom to be creative. This is why
the Islamic Finance industry is filled with a dearth of Sharīʿah-compliant
products as opposed to Sharīʿah-based products. FinTech, itself
being disruptive, is an opportunity for the market to innovate and produce Sharīʿah-based
products that democratise opportunities for enterprise.
retrospect, it appears that the more developed economies are set to benefit
from the opportunities for financial inclusion and liberalisation that FinTech
technology is offering. However, for Islamic Fintech to be a real solution to
financial exclusion and global inequality worldwide, there is a real need for
innovation of better products from a Sharīʿah
perspective that are delivered in a more people-centric manner.
(Financial Accounting Standard No. 2: Murabaha and Murabaha to the Purchase
Orderer, Appendix B, Item 1/1)
State of the Global Islamic Economy Report 2015/2016, p.40.