![The role of Islamic finance and fintech The role of Islamic finance and fintech](https://www.dailymessenger.net/media/imgAll/2024February/en/1-2403150154.jpg)
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Islamic finance holds the promise of extending financial services to those seeking Sharia-compliant options, but can it also bridge the gap for the bottom of the pyramid population? Achieving financial inclusion for the poor demands innovative product design, pricing strategies, and efficient delivery mechanisms, coupled with dedicated leadership.
While the principles of Islamic finance emphasize egalitarian structures, Islamic microfinance has yet to make significant strides. Fintech emerges as a potential game-changer, offering Islamic financial institutions an efficient avenue to reach a broader clientele, especially in regions where traditional brick-and-mortar models prove financially unsustainable.
Fintech's integration into product structures can streamline the steps involved in Islamic finance transactions. However, the question arises: will Fintech find a warm reception in Islamic banking institutions, where Shari’ah Compliance Auditors favor greater control to minimize Shari’ah non-compliance risk? Standardization of Shari’ah rules becomes crucial to unlock the full potential of Fintech, enabling automation in product design and delivery without daily approval requirements from Shari’ah advisors.
Efficient Shari’ah compliance through Fintech, avoiding the need for constant Shari’ah advisor approval, could usher in cost efficiencies for Islamic banking. Moreover, Fintech can facilitate cross-selling of financial products, promoting economies of scope through integrated service delivery powered by technology.
The inevitability of Fintech disruption calls for an embracing approach by Islamic banks. To remain competitive, they must adapt to Fintech-driven changes that enable peer comparisons and performance analysis at consumers' fingertips. Failure to integrate Fintech could expose Islamic banks to commercial displacement risk, potentially diminishing their competitiveness in the evolving financial markets.
Islamic banking, having gained significant ground in less developed Muslim-majority regions lacking access to financial and telecommunication services, faces a critical choice. Will the increased use of Fintech follow advances in telecommunication services, or can Islamic banks take the lead in steering growth by adopting Fintech innovations?
In Africa, over 400 million people lack access to banking services, presenting a ripe opportunity for Fintech to cost-effectively reach this underserved population. Similar scenarios unfold in many Muslim-majority countries, including Pakistan, where less than 20% of the population holds bank accounts. Fintech, when harnessed effectively, emerges as a key catalyst for Islamic banking, promising increased penetration and outreach in Muslim-majority countries with significant untapped markets.
The author is the Managing Director & CEO of National Bank Limited. He is a fellow member of the Institute of Cost & Management Accountants of Bangladesh (ICMAB) and the first Certified Sustainability Reporting Assurer (CSRA) in Bangladesh. He is also a post-graduate diploma from the Institute of Islamic Banking & Insurance (IIBI), United Kingdom.
Messenger/Sajib