Projections indicate that by 2020, Islamic Finance will have more than one billion users. The same industry will have assets worth $3 trillion which is a commendable growth as people learn about Islamic Financial products. Ignorance and few Islamic Financial institutions have been some of the major hindrances towards the growth of Islamic Finance.
In Muslim countries, an average of 7 out of 10 adults does not have a bank account. Even though Islamic Finance can be a strong tool for poverty eradication and redistribution of wealth, the coverage has not been that good. The following are the ways through which fintech is likely to shape the Islamic Finance.
Blockchain and cryptocurrencies
By now you must have some basic knowledge of cryptocurrencies and the Blockchain technology. If not, a cryptocurrency is a digital asset, which can be used as a medium of exchange, and runs mostly on a public ledger. The Blockchain is the network that powers the cryptocurrencies. The good thing about cryptocurrencies is that they are secure and transparent in use. The transparency features support Islamic Finance principles as well.
A good example of a sharia-compliant digital coin is OneGram. Famous cryptocurrencies like Bitcoin are not only a medium of exchange but also a store of wealth which is against the principles of Islamic banking. One coin of OneGram is backed by one gram of gold which ensures the money is only used as a medium of exchange.
Islamic Finance aims at empowering the society both socially and economically. However, most people who understand Islamic Finance have not had the chance to be hand-held by renowned investors and entrepreneurs. These people have shelved their dreams because most of the business incubators present are not sharia-compliant.
A good Islamic Incubator follows all the principles of Islamic Finance. Ideally, the incubator should provide the design, market, advice on operations, help in creating networks, fund the venture and power it with the necessary technology. More than half of startups do not see their third birthday simply because of a poor foundation. Islamic Incubators are laying out firm foundations and follow up to ensure that business owners achieve their long-term goals.
Even though several conventional banks have opened Islamic windows, the penetration of Islamic Finance is still low. A good percentage of the world population has to travel for long hours to access a financial institution. Most people prefer to keep money at home as they can access it whenever a need arises.
Digital banking financial institutions such as Medina are promising to address the bottom of the pyramid. They are bringing the services to the doorsteps of the consumer and make it easy to access Islamic financial products. The main advantage of this setup is that one can access the products at any time and no need to travel.
There has been moral decay in the society as some investors and well-wishers fund projects and causes that are based on immoral ideas. Sharia laws stipulate what believers should trade and what they should not. Crowdfunding based on Islamic laws uses halal financing which means that the products are allowed within the Muslim community. Such a campaign will not fund business ideas to sell alcoholic drinks or launch a gambling venture.
One of the most popular Sharia-compliant covers is the Takaful insurance. It differs with conventional insurance in several ways. In conventional insurance, one pays an insurance company to bear the risk of loss. If the insured risk occurs, the company compensates you and then takes the remains of either your property or car.
On the other hand, Takaful insurance takes your money and puts it in a pool with other policyholders. You thus become a mutual and joint owner of the resources in that pool. The insurer takes a set fee while the remainder covers your property. If the insured risk occurs, the insurer compensates you. The remainder/wreck is also your property, and you can give it to charity.
Financial technology will soon feature on all areas of Islamic Finance. Such technology will fasten the penetration of Islamic banking products and make them easily accessible to the public. There is still need for thorough civic education on these products because most people do not know of their existence.