Financial technology set to increase Islamic finance customer base

06/12/2016 05:31 AST

Financial Technology, widely referred to as FinTech, was the main focus of the first day at the World Islamic Banking Conference that commenced on Monday in Muharraq, Bahrain. FinTech is expected to be integrated with Islamic finance as part of the latter’s development. “The next 20 years will be about combing smart technologies with Islamic finance in order to grow further,” Ashar Nazim, partner at Ernst & Young.

“The introduction of FinTech is going to increase the Islamic finance customer base, which is roughly around 100 million customers today to potentially 250 million by 2020. So more than twice the growth in terms of customers can be achieved with the proper adoption of FinTech,” he added.

Among the challenges facing Islamic banking is that it is slowing down. Some factors can play as game changers to move it forward.

Nazim said that one of the main factors is the need for a transition in the industry “from financial intermediation to investment intermediation.” There is a demand for potential collaboration as the one happening between Malaysia and Saudi Arabia in the FinTech space, he said.

“There is a growing realization among banks that they cannot do everything by themselves. There has to be better collaboration nationally and internationally within the industry to bring different ideas together,” Nazim added.

Smart technology can help increase the level of trust and accelerate the speed in which banking transactions are made.

Banks and financial institutions have different appetites for change and technology. Nazim said that emerging markets are not necessarily the innovative hubs. “Malaysia, Saudi Arabia and Turkey are the only countries that rank among the top 50 in the global innovation ranking, but the change in customer behavior is something that needs to be adapted really quickly,” he said.

FinTech has been in the making for several years in London until it became the number one financial services capital and the first among the world’s seven leading FinTech hubs, according to a report from Ernst & Young and HM Treasury. Lawrence Wintermeyer, CEO of London-based Innovative Finance, spoke of the emergence of smartphones, and a shift in global demographics and consumptive habits to be among the several macro factors in the shaping process.

“London has emerged as the world’s leading global FinTech hub, and so there is an opportunity to learn from London and the UK’s approach. Bahrain has an opportunity to adopt the learning from established FinTech hubs, such as London, to support the next stage of digital evolution and growth of Islamic Finance,” Wintermeyer said in his keynote speech yesterday Sunday. He said that FinTech has the opportunity to solve the challenge of the two billon unbanked adult across the world — a problem which is acute in many Muslim majority countries. As the conference’s first day focused on ways to embed FinTech into finance, and specifically Islamic finance, Nazim noted that the lack of a global FinTech body for Islamic financial institutions is standing in the way of its development in the region.

“One thing we call for is to have a global federation for FinTech for Islamic Financial institutions which would be responsible to see how these smart technologies are embedded with Islamic finance. And that is not there yet,” Nazim added.

Arab News