Today there are more than 700 Islamic Finance Institutions (IFIs) operating in over 75 countries across the globe ranging from full-fledged Islamic banks, Insurance firms to the capital market. Islamic finance is expected to grow USD 5-8 Trillion globally in asset size by 2020 but the incorporation of high tech developments in the industry should result in multifold asset size much greater than expected.
Hence there is a need for the Islamic Banking and Finance Sector to keep up with the developments of the disruptive technology industry which has recorded exponential growth over recent years. In fact disruptive technology is fast becoming the key enabler for future businesses and banking with growing global competition and tech-savvy clients. Such technologies give customers an easy, safe and secure experience from any device they choose to use at any given time.
The world is fast moving towards unpredictable technological changes with disruptors and hi-tech entrepreneurs. Soon we may well be driven by electric and autonomous cars with zero accidents. The manufacturing industry and related jobs will be replaced by 3D printing which will be printing cars and equipment for flights. The software industry will disrupt traditional business models such as travel sector by AirBnB, taxi services by Uber and service industry by IBM Watson.
Think of the implications these developments will have. When autonomous cars are widely used with zero accident, it will invariably prompt the insurance industry to be innovative and find business opportunities to when there are no predictable accidents. Meanwhile, it is also predicted that people will no more be interested in owning a car, so this will leave a dent on the bank's lending products too. These technological changes must of necessity lead to a totally new way of banking.
New Way of Banking
The UAE’s Dubai Multi Commodities Centre (DMCC) Commodity Murabahah Trading Platform (CMTP) is one of the initiatives enabling the electronic transfer of ownership and possession through tradable warrants. This move approved by renowned Sharia scholars is a bold one and provides a holistic solution to the Islamic finance industry through a fully electronic commodity Murabahah trading platform with a complete transfer of ownership. This facilitates high efficiency and reduces operational costs in a Sharia compliant way. This is an inward technological innovation in Islamic banking.
Another important milestone is the technology advance outward to leave a better end-to-end customer experience when they are banking. Fintech has emerged over recent years replacing mainstream banking activity with a simple URL / Website. The necessity of this is largely attributable to internet penetration and smart phone users subject of course to the stringent regulatory environment of the financial industry. One of the latest moves by Malaysia is through www.iaplatform.com, a platform to facilitate channeling funds from investors to viable ventures and projects. IAP is backed by Islamic banking institutions which will facilitate the matching of investments with the identified ventures or projects that are in need of funding. The following diagram illustrates the mechanism of IAP.
The innovation in banking can range from delivery channels (ATMs no more require pin code or ATM cards), process innovation (DMCC illustrated above) and product innovations (IAplatform illustrated above). The followings are the innovators of 2016 as per the Global Finance magazine (June 2016).
Innovation & Creativity in Islamic Economy
In the recent report “State of the Global Islamic Economy” published by Thomson Reuters Islamic Finance Gateway, Islamic Economy includes Sharia-compliant Finance, Food, Fashion, Tourism, Media, Pharmaceuticals and Cosmetics. The different sectors within the Islamic economy have been widely recognized by the "50 most Innovative Global Muslim Start ups' report. For instance, Have Halal Will Travel mobile app has raised a $50,000 seed round from one angel investor in Singapore and www.ethiscrowd.com a FinTech site from Singapore raised $363,000 seed round / Key Traction - Crowd funded $2.6 Million dollars to build 5000 affordable homes in Indonesia.
These are few of the recent start ups employing technology in keeping with Islamic values to do business transactions in an ethical and moral way. The global Islamic economy is now becoming more interesting to the market and is in need of tech savvy entrepreneurs and professionals to explore current technologies and their application to different sectors of this growing industry, especially in ways that will make it more competitive and cost-effective.
About the Writer:
Muath Mubarak is a qualified CMA by profession and an Islamic Banker, Trainer and Writer by practices in the field of Islamic Banking & Finance industry. Currently, he is the Chief Executive of First Global Academy (FGA) – Sri Lanka. This article is originally published by the Islamic Finance Today in the December 2016 issue.