Islamic fintech: Revolutionising finance with ethical innovation
Md. Touhidul Alam Khan
Islamic fintech, a dynamic fusion of technology and Islamic finance principles, is rapidly transforming the global financial landscape. Offering inclusive, Shariah-compliant solutions addresses the needs of millions of unbanked and underbanked individuals worldwide.
Rooted in the ethical and moral framework of Islamic law, this innovative sector is leveraging cutting-edge technologies such as blockchain, artificial intelligence (AI), and cloud computing to enhance transparency, efficiency, and accessibility in financial services.
A year of remarkable growth
The year 2024 marked a significant milestone for Islamic fintech, with the global market valued at nearly $100 billion, accounting for 0.9% of total fintech transactions worldwide. This growth underscores the sector’s increasing relevance and potential to reshape the financial industry.
One of the most notable developments was the investment by Qatar Development Bank in Wahed, a global Islamic fintech provider offering Shariah-compliant investment solutions.
This investment not only validated the potential of Islamic fintech but also signaled growing confidence in its ability to deliver ethical and innovative financial products.
In the Gulf Cooperation Council (GCC) countries, blockchain technology was utilized for Sukuk issuances and cross-border payments, showcasing the sector’s ability to integrate advanced technologies while adhering to Islamic principles.
Kazakhstan’s Astana International Financial Centre (AIFC) also made significant strides by expanding its product line to include Islamic financial services. By reducing minimum authorized capital requirements for Islamic banks and offering tax exemptions to attract businesses, the AIFC positioned itself as a hub for Islamic finance in the region.
Pioneering initiatives
In November 2024, Pakistan witnessed the launch of its first Islamic nano-financing product, Hakeem, by Walee Financial Services. This Riba-free solution, based on a unique commodity trade structure, aimed to promote financial inclusion among underserved communities. By providing small-scale financing options aligned with Islamic principles, Hakeem addressed the financial needs of individuals and small businesses that were previously excluded from traditional banking systems.
Another groundbreaking development was the launch of the world’s first embedded Islamic digital finance platform by Blade Labs. Unveiled at the Singapore FinTech Festival 2024, this platform is powered by Hedera’s enterprise-grade public distributed ledger technology. It promises to deliver seamless, Shariah-compliant digital financial services with enhanced transparency and efficiency.
By integrating advanced blockchain technology, the platform ensures that all transactions are conducted within the ambit of Shariah compliance, offering a frictionless experience for users while maintaining ethical standards.
Tuum, a next-generation core banking provider, also made significant strides by introducing foundational Islamic banking and finance solutions.
This strategic move is expected to support the growing global demand for Shariah-compliant financial products. By leveraging its expertise in core banking, Tuum enables financial institutions to offer a wide range of ethical services, from Islamic banking to Takaful (Islamic insurance).
This development underscores the importance of association between traditional financial institutions and fintech innovators to meet the evolving needs of consumers.
Future projections and challenges
Malaysia and the UAE are leveraging their robust Islamic fintech ecosystems to set benchmarks for other nations. These countries have established regulatory frameworks and innovation hubs that foster the development and adoption of Shariah-compliant financial products.
However, the sector faces several challenges that must be addressed to sustain its growth momentum. Access to capital remains a critical hurdle for startups, as securing funding for innovative projects can be challenging in a competitive market.
Consumer education is another pressing issue, as awareness and understanding of Islamic fintech products are essential to drive adoption. By educating consumers about the benefits and principles of Islamic finance, the sector can foster greater acceptance and trust in its offerings.
Attracting skilled talent is also necessary for the sustainable growth of Islamic fintech. The sector requires expertise in both technology and Islamic finance to develop innovative solutions that comply with Shariah principles. Teamwork between educational institutions, industry stakeholders, and policymakers can help bridge the talent gap and ensure a steady pipeline of skilled professionals.
Islamic Fintech in Bangladesh
The adoption of Islamic Fintech in Bangladesh’s Islamic banking system holds transformative potential, promising enhanced financial inclusion, innovation, and global competitiveness. By leveraging technologies like digital wallets, mobile banking, and blockchain, Islamic banks in Bangladesh can reach underserved populations, streamline operations, and ensure Shariah-compliant transactions. However, successful integration requires robust regulatory frameworks, skilled talent, cybersecurity measures, and public awareness campaigns to address cultural and operational challenges.
The alliance between stakeholders, including banks, Fintech firms, and regulators, is essential to overcome interoperability issues and align innovations with Islamic principles. If these challenges are addressed, Islamic Fintech can drive economic growth, expand customer bases, and position Bangladesh as a hub for ethical and innovative financial solutions.
Harnessing AI and global collaboration
By integrating AI and blockchain, Islamic fintech can scale its offerings globally, ensuring ethical standards while addressing financial inclusion gaps. The sector can also benefit from global collaboration and knowledge-sharing initiatives. By partnering with international organizations, fintech innovators, and regulatory bodies, Islamic fintech can access the expertise and resources needed to drive innovation and growth.
Islamic fintech is poised to transform global finance by merging ethical principles with innovative technology. By addressing challenges like regulation, talent gaps, and cybersecurity, and fostering collaboration and education, the sector can drive financial inclusion and sustainability. As digital transformation grows, Islamic fintech offers a model prioritizing ethics and inclusivity, setting a new standard for the future of finance.
(Md Touhidul Alam Khan, FCMA, CSRA, is a seasoned banking professional with expertise in financial management, corporate governance, sustainable banking, Islamic banking, and strategic planning. He also holds a Postgraduate Diploma in Islamic Banking and Insurance from the Institute of Islamic Banking & Insurance (IIBI) in the United Kingdom).