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value-based investors and given increasing evidence that ESG-screened investments tend to
outperform the market.
2.3.2 Financial Technology (Fintech)
The rise of fintech is revolutionising financial services and bringing about changes to the way
the finance industry has traditionally operated. New propositions encompass not only
improved services but also offer convenience and attend to the needs of technology-savvy
customers that demand direct access to their financials as well as immediate response to their
needs, without compromising matters such as privacy and security (Kmeid, 2017). Fintech is
helping to break down physical barriers in access to financial services; through low-cost
mobile and internet technologies, it is promoting greater financial inclusion.
Overall, the fund management industry has been slow to develop even in some developed
markets―the result of the small number of players and high costs. Reducing costs should
enable a spike in growth and diversity in fund management services, especially in developing
markets―for foreign incumbents to enter new developing markets in a cost-effective manner
and for home-grown fund management firms to establish. In the near future, fund management
may not need significant set-up costs, thus allowing the establishment of specialised firms that
serve niche capital users and have extensive outreach to investors.
The Chinese shadow-banking/crowdfunding market is a good example of this, with specialised
funds sourced from retail/institutional investors and providing much-needed capital to
expanding firms (not properly served by Chinese banks), all enabled through the use of
technology.
Just as the banking industry has evolved to offer innovative digitalised financial services to its
customers, the fund management industry is expected to leverage fintech to augment its
market by reducing costs, expanding online services, and extending customer outreach.
Technology is enabling fund managers to provide bank-like services such as payments and
easy deposits and withdrawals (e.g. Tabung Haji and other large funds). As fund managers,
typically bear lower costs than banks and their returns are generally significantly higher, their
technology-driven entrance in the banking arena increases efficiency in financial
intermediation by significantly reducing intermediation costs.
The Islamic fund management industry is also expected to keep pace with its conventional
counterpart by adopting transformative digitalisation strategies. Studies have shown that
there is little difference between Muslims’ and non-Muslims’ preferences when it comes to
digital financial services (Kmeid, 2017). Fintech applications, with some degree of human
oversight, are expected to drive a quantum change across the value chain of global fund
management, including the Islamic industry, as reflected i