In a 2017 article for Forbes, Harris Irfan, author of ‘Heaven’s Bankers: Inside the Hidden World of Islamic Finance’ describes money as it is understood within the context of Islamic Finance as follows:
“Money is to be treated as a medium of exchange and not a commodity to be traded. In theory this means that wealth cannot be created merely by the act of owning money: it must be invested in real industry, and share equitably in the risks and rewards. The financial economy is the real economy”.
He argues that the world economy would benefit greatly through a more common understanding of money as not a commodity to be hoarded but as the real economy’s fuel, as it is in Islamic Finance. However, he also highlights what he sees as a fundamental problem for contemporary Islamic Finance. That, Irfan believes, is the tendency to ‘reverse engineer’ debt-based finance products to fit Sharia law. The result of this, argues Irfan, is British-based Islamic Finance banks struggling to find a viable commercial model. He further argues that it is through embracing Fintech that Islamic Finance banks and other financial institutions will regain their competitive edge.
The global Fintech revolution is providing the platform for non-bank finance to offer products from loans to savings and investment products in a way that does not solely rely on reverse engineering traditional banking products. And that approach aligns perfectly with the principles of Islamic finance. Irfan comments on how Fintech and Islamic Finance complement each other in the way both inherently seek ways to “democratise” finance. In his words they both:
“…make it (finance) inclusive and enabling for all of society and thus bring people of all faiths or none closer together. Banks will always have a role in the provision of finance, but as non-bank financing and financial technology increase in influence”.
But what is it exactly about Fintech finance products that make them particularly compatible with the principles of Islamic Finance?
Peer-to-peer lending and crowdfunding are two kinds of finance the Fintech revolution has brought about huge growth in. Because products and platforms can, and often are, structured in a way that means the user and provider share risk and profits, as well as enabling those who would struggle to access regular banking finance, they fit perfectly into the philosophy of Islamic Finance.
Digital wealth management platforms are another Fintech-powered area of finance that is considered to hold particular promise in Islamic Finance. Wahed Invest, a New York-based Islamic Finance tech-focused investment platform, has already launched a RoboAdvice product that creates a portfolio of Sharia compliant ETFs based on a user’s investor profile and financial situation and targets.
Sharia compliant insurance products are also inherently based on the kind of risk and profit sharing model that many startup InsurTech models are starting to use, also often based on P2P principles.
Cryptocurrencies also fit nicely into the Islamic Finance philosophy. The fact that cryptocurrencies only exist in digital format as lines of code, are intended as purely a means of value exchange and have ‘intrinsic’ value due to their finite nature. As Matthew J Martin, the CEO of Indonesian Fintech start-up Blossom Finance puts it:
“Bitcoin guarantees that the money invested into small Islamic businesses is not done on margin, and that its existence as a real asset is publicly verifiable using the blockchain. Bitcoin ensures ownership of underlying assets with 100% mathematical certainty.”
Cryptocurrencies are characterised by being ‘asset based’, while fiat currency is mainly debt based as it is created through loans within the banking system, originating with a central bank. Cryptocurrencies, on the other hand, have capped volume, are created through a ‘mining’ process that uses computer power and not debt creation and are often referred to as ‘digital gold’. As such, they fit within the principles of Islamic finance.
The Pakistan market is ripe for the kind of Islamic Finance-compatible Fintech products that have already had success on other international markets. A huge population and strong digital infrastructure combine to offer the perfect environment for the Fintech revolution to gather pace. Huge opportunities exist for those who are first to market with quality consumer-facing Fintech finance products.
Mawazna.com and Fintech-Powered Islamic Finance Products
By listing consumer-facing Fintech-powered finance products on Mawazna.com, financial services sector companies (retail banks, life and non-life insurance companies, investments & asset management providers) have a fast and reliable route to market that is in keeping with the ‘agile’ philosophy of Fintech development. Our new Fintech channel can help you bring products to the mass market as soon as they are ready and place them alongside competitor products in our comparison engine.
“Mawazna Karein Apne Liye, Apno key Liye”.