Author: Mohamed Hamza Ghaouri
Islamic fintech is showing robust growth, especially in the 57 member states of the Organization of Islamic Cooperation (OIC), given its positive impact on increasing the reach of Islamic financial services, improving financial inclusion and the promotion of the UN Sustainable Development Goals (SDGs).
According to the Global Islamic Fintech Report 2021, the volume of transactions in the Islamic fintech sector in OIC countries is expected to reach $128 billion by 2025, at a compound annual growth rate of 21%. This growth rate of conventional Fintechs over the same period is only expected to increase by 15%. The report also estimates that the volume of Islamic fintech transactions in OIC countries was $ 49 billion in 2020, which is only 0.7% of the global figure.
In terms of Islamic FinTech transaction volumes within the OIC countries, the Global Islamic FinTech Report indicates that Saudi Arabia, Iran, United Arab Emirates, Malaysia and Indonesia are the leading countries. Besides Islamic fintech hubs based in Islamic countries, there is also a strong Islamic fintech presence in UK. The UK is considered one of the leaders due to the growing innovation in fintech, which has been extended to Islamic fintech. Africa is another region that can be a good market for Islamic fintech given the large Muslim population and so many underlying issues that can be solved using an innovative approach to Islamic finance. The Global Islamic Fintech Index in the Global Islamic Fintech Report shows that there are opportunities in the field of Islamic Fintech across the world, and not just in the OIC Member countries. The index shows that OIC countries dominate the top ten while non-OIC countries dominate the next 20.
While attention has focused on developments in the Arabian Gulf region, the birthplace of Islam, multiple factors point to Southeast Asia as a rising power in Islamic finance. For many years, Malaysia, the United Kingdom and Indonesia have led the race, ranking first, second and third respectively in the number of Islamic fintech startups. That’s mainly because of the high penetration rate of the internet penetration as well as the grater adoption of new technologies in these countries. However, fierce competition from Middle Eastern countries (mainly from UAE and Qatar) threatens this supremacy.
Southeast Asian Islamic fintech companies provide very attractive digital services. The main market in Southeast Asia is Indonesia, which is home to the world’s largest Muslim population, with over 230 million people. But some startups are already going global, as their online and mobile services have two notable advantages. The services, especially peer-to-peer and crowdfunding, can easily be used by the 1.9 billion Muslims around the world, and tech-savvy companies are able to compete with conventional Islamic banks.
Malaysia ranks third (after Iran and Saudi Arabia) in terms of Sharia-compliant assets. The country is home to prominent financial entities such as Bank Islam Malaysia and the Islamic branches of Maybank and CIMB Group, as well as Islamic-savvy law and accounting firms and the international Islamic Financial Services Board. Accordingly, Finterra has been a major actor in the Islamic fintech field, contributing to Malaysia’s efforts to become a global Islamic Fintech Hub.
FINTERRA, is a leading technology-based company providing blockchain-based Islamic applications. It is a technology provider company that connects various stakeholders using Blockchain and create smart contracts linked to specific Waqf projects. Its main role is to provide the technology and to link between different stakeholders.
Through Waqf Chain, a Waqf based Blockchain launched in 2019, FINTERRA is involving few Islamic Banks and the State Islamic Religious Council in managing Waqf funds in Malaysia. This initiative presents to the contributors in Waqf projects the opportunity to choose between different arrangements that can mainly be classified as making a charity Waqf or a Waqf-linked investment.
The Finterra Waqf Chain platform allows any participant in the world to offer the development of any project on top of Waqf properties that required capital. When the project is accepted and all the required elements are fulfilled, the project proposal will be allowed to enter the platform, individuals or financial institutions can join to finance these project proposals.
In this model, initiators can create project proposals to develop or redevelop endowment properties. Each waqf project has its own attached digital token and this token will be placed into a smart contract which can only be initiated once the project has passed all due diligence requirements. From their side, donors (quasi-investors) follow a regulatory procedure to make the investment. This financial arrangement allows individuals and institutions to contribute in the Waqf and, at the same time, generate income.
To sum up, Finterra has perfectly made the match between Blockchain technology and Islamic social finance. Their combination increases the social impact by improving trust, governance and transparency between stakeholders. When used in the Waqf sector, the impact of Blockchain technology is astounding.