Diversification of Islamic Financial Insturments
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 The Fintech industry has started after the financial crisis of 2007-2008 and has gained
popularity. The focus of policy makers and regulators has not been much on the new
sector being developed as the financial
crisis had all attention. Fintech have
grown rapidly and are estimated to have
surpassed $12 billion198 in recent years.
The Fintech companies have been
primarily based on concept of peer-to-
peer (P2P) lending, crowd-funding, money
transfer, mobile payments and trading
platforms. Islamic finance has also seen an
interest in Fintech and a few companies
have started operation over the past year
like Dubai-based Beehive, Jakarta-based
Blossom Finance, and Singapore-based
KapitalBoost and ClubEthis. Apart from
Malaysia, no Islamic financial jurisdiction
has delved into a regulatory framework
and Shariah guidelines for the sector.
Since Fintech’s penetration in Islamic
finance is in its nascent state, policy
makers need to address this sector. Till
now the numbers are very small in Islamic
finance, but the potential of disruption by
Islamic Fintech to the traditional Islamic
banking is quite huge. With innovation
and technological advancement there are
more risks involved which the policy
makers need to address. Some key aspects
that they need to address are as follows:
- An Islamic legal framework needs
to be introduced which provides
cover for the establishment and
running of Fintech companies.
This legal framework needs to be
on a global platform to allow for
cross border operability of these
companies. The main reason is,
since Fintech are primarily based on the internet, they don’t have any
geographical boundaries.
- Shariah governance is essential, as most Fintech innovation provides choices
which are more aligned to individual needs. With consumerism involved the
onus of faith based transaction falls on the policy makers to ensure its Shariah
compliance.
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FINTECH
Fintech, the abbreviation for
financial technology, is a broad
category that refers to the
innovative use of technology in
the design and delivery of
financial services and products.
The application of fintech cuts
across multiple business
segments, including lending,
advice, investment management
and payments. Many fintech
companies harness mobile
technologies, big data and
superior analytics to tailor
products for various customer
segments.
Both start-ups and traditional
finance companies are active in
fintech.
These start-ups often don’t look
like a traditional bank or
insurance company: they
typically offer targeted
solutions, as opposed to being
one-stop-shops for customer
financial service needs.