Islamic finance has been experiencing more than 16% annual growth over the last one decade. This is a commendable growth and the highest in the financial sector. The industry is now worth more than $2 trillion. There has been growing enthusiasm for Sharia lending, but the growth has not been by sheer luck as people are now coming to terms with what Islamic banking has to offer. Most people now understand that thePrinciples of Islamic Finance can be a strong tool for poverty eradication.
We cannot ignore technological advancements as every business owner is trying to establish an online presence. Financial institutions are also now rolling out digital products to reach out to more potential customers. Islamic financial institutions have also not been left on out in the digital space. The following are the reasons why digital banking can revolutionize Islamic Finance.
More than half of the world’s population has access to mobile phones
4.7 billion out of the 7 billion people in the world use mobile phones. Digital banking products are mostly accessed through mobile phones although some also use internet banking. Projections indicate that the number of mobile phone users in the world might hit 5 billion by 2019. The principles of Islamic banking is a strong selling point that makes it favorable over conventional banks. The rising adoption of technology will thus make it easy for Islamic finance to penetrate.
It will be easy to bank the unbanked
More than 2 billion people in the world do not have bank accounts according to a World Bank report. One of the major reasons why such a big number of people do not have accounts is due to accessibility. Banks penetration in areas such as Sub-Saharan Africa is still low, and some have to travel for miles before they find a bank. As a result, most have opted to remain unbanked because financial institutions are far away and inaccessible. Digital banking will make access to Islamic finance easier. The customers do not have to travel, and they can as well access the services anytime.
There is more exposure
Conventional banks are now offering Islamic finance products. Such banks set up dedicated departments that follow the underlying Sharia principles. These products are also open to non-Muslims, and thus there is a wide client base. Policies of these financial institutions change from one country to the other. For example, Malaysia allows conventional banks to open subsidiaries which offer Sharia-compliant products. On the other hand, countries like Lebanon and Qatar do not allow conventional banks to offer Islamic finance products
Efficiency in information flow
Literacy levels in some parts of the world are still low. Some people do not even know if there are financial institutions that offer Islamic Finance products. Paperwork and bureaucracies at the bank have been among the top challenges that hinder people from accessing financial products. Digital banking will make it easy to pass information that is essential when accessing these services. With the current setup, customers have to wait for days or even weeks before financial institutions process their requests. Digital banking will fasten the process through automation of various process such as verification of data.
Even though Islamic finance has a lot of advantages over conventional banking, the adoption of the former is still low. Digital banking can be the solution to the low adoption challenge because of its convenience. Islamic banks do not focus on the proceeds they get from a loan but how the society will benefit in the long run.