"There is a clear need to understand not only the basic principles of Islamic finance, but also the rise of Islamic fintech companies and how they differ from established fintech brands."
Fintech’s ability to maintain consistently high growth demonstrates the long-term scalability of the sector. Challenger banks have demonstrated how technology can be leveraged to enhance the delivery of financial services for consumers, investors, and banks. While these challenger entities command a growing market share, big banks are also embracing the advantages of digital transformations to ensure they can meet the changing demands of their clients.
Core to fintech’s success has been its rate of adoption. In 2020, the global adoption rate for fintech products was 64%. Importantly, uptake has not been confined to one specific region or sector; rather, adoption rates have been notably high in both advanced and emerging markets.
Amidst this setting, Islamic fintech is one subsector of fintech geared for significant growth in the coming years. Based on the latest figures we have from Dinar Standard and Elipses, the Islamic fintech market size in the Organization for Islamic Cooperation (OIC) was $49 billion in 2020. While this might seem like a standout figure, the reality is that this accounted for only 0.72% of the global fintech market size.
Looking at projections, the Islamic fintech market size for the OIC is anticipated to grow at 21% CAGR to reach $128 billion by 2025. To put this into perspective, the CAGR for global fintech growth during the same period is projected to be 15%. Evidently, investors and businesses are keenly watching the evolution of Islamic fintech and its ability to empower a new generation of customers who did not have initial access to fintech products and services.
For financial intermediaries in the UK, there is a clear need to understand not only the basic principles of Islamic finance, but also the rise of Islamic fintech companies and how they differ from established fintech brands.
Why is Islamic fintech on the rise?
There are two interrelated factors responsible for the rise of Islamic fintech. The first has to do with the customer base. Looking at demographic figures, the number of followers of the Islamic faith is projected to reach around 3 billion people by 2060. Importantly, in regions like Central Asia, a new generation of consumers now have access to the infrastructure and technology needed to power the effective rollout of fintech services.
The other factor is linked to what I call the second surge, or second wave, of fintech companies. Over five years ago, fintech startups lead by brands like Monzo and Revolut stepped into the public spotlight, offering consumers, businesses, and investors creative financial solutions that overcame many of the underlying frustrations cited when dealing with large banks. Since then, these startups have transformed into large institutions. In their place, a new wave of fast scaling fintech companies is on the rise, using technology to appeal to demographics who have not yet been able to access fintech solutions.
Alif is an example of this, offering Sharia-compliant fintech solutions for all those willing to use Islamic finance products. Importantly this is not confined solely to Muslims but an inclusive offering - anyone can take advantage of the products and services available through Islamic fintech.
Enhancing knowledge and awareness of Islamic finance
One of the challenges the Islamic finance sector is facing is a lack of market awareness and knowledge surrounding the basic principles of Sharia-backed products and services. This is an issue commonly raised in non-Muslim jurisdictions, and the UK is no exception.
The UK has been actively attempting to address the knowledge gap and ensure the country becomes an important global hub for Islamic finance. The ICD-Refinitiv Islamic Finance Development Report revealed that in 2019, the UK had the third-largest number of Islamic Finance Education Providers, trialling behind Indonesia and Malaysia. In that same year, the UK also ranked third in the world for the number of Islamic Finance Conferences held.
These are positive steps in the right direction and bodes well when we consider the role the UK could play with the rise of Islamic fintech. However, the lack of available Sharia-compliant products has been a topic of recent debate. In September last year, there were public calls for Sharia-compliant student loans to ensure that Muslim students would be in a better position to access university education.
Making the UK’s financial system inclusive must remain a top objective. In the UK, there are estimated to be more than 100,000 Islamic finance retail customers, and the government puts the value of net assets of Islamic funds in the UK at £600 million.
Islamic fintech in 2022
The digital disruption of Islamic finance will be one of the key trends of the fintech sector in 2022. The industry is rising, empowering a new generation who are beginning to embrace the benefits on offer from smart fintech applications. This is a global development set to unfold here in the UK. In light of this, it is important for advisers and intermediaries to ensure they are well aware of not only the basic principles of Sharia finance, but also the impact technology is having with the rise of Islamic fintech companies.