Photo for illustrative purposes only. Participants at a session during the Global Islamic Economy Summit (GIES) 2018 in Dubai on October 31, 2018. Photo supplied by Dubai Chamber of Commerce and Industry
DUBAI - A lack of innovation in developing meaningful Shariah-compliant financial products and unaccommodating regulations stand in the way of a faster development of the global Islamic finance industry to better serve consumer needs, fintech players told Salaam Gateway on the sidelines of the Global Islamic Economy Summit (GIES) in Dubai last week.
The industry needs a creative “spark”, Khalid Saad, CEO of Bahrain FinTech Bay (BFB), told Salaam Gateway. BFB opened in April and was set up by a private-public partnership between Bahrain’s Economic Development Board and Singapore-based FinTech Consortium.
Saad believes the traditional Islamic finance industry, dominated by banks, still has some way to go.
“[T]here is the Islamisation of conventional products – so there's a huge opportunity to become more creative in the delivery of products and services,” he said.
Saad’s observation is shared by Anass Patel, who launched online service 570 easi eight years ago in France where there is no Islamic bank, and banking regulations and tax procedures do not consider the requirements of Islamic finance asset-backed structures.
"[570 easi] is for those looking for an ethical alternative for new home financing and new savings and new insurance products [that] they don’t find [in France]. Everything had to be built,” said Patel.
He referred to the majority of Islamic financial products, including those in the Gulf region, as “completely copy and paste” and said the industry needs to adopt a more entrepreneurial approach and study customer needs.
Referring to 570 easi as an example, he said: “It's really building from scratch, understanding what are the requirements, what are the needs, starting from the customer, not starting from the products – not: ‘I have a product and I'm pushing it to the market’."
However, even if such an approach were adopted, regulations may not accommodate a speedy go-to-market for creative solutions.
FAST FINTECH, SLOW REGULATIONS
Hamid Rashid, founder of Geneva-headquartered Finterra that also has a presence in Malaysia, Singapore and Hong Kong, told Salaam Gateway regulation was the biggest challenge for the company’s blockchain-based waqf, or endowments, platform. The firm has to wade through multiple layers of legislation for financial services, Islamic financial services and Shariah compliance.
“If you work in a space like waqf you just get bombarded from all directions and angles on your compliance,” said Rashid.
“You can't launch a process, [let alone] a product, without going through these three layers. These layers are there to protect us and the community but they're slow movers,” he said.
Certain compliance and review aspects have also not caught up with technology, according to Rashid. He cited the example of how most auditors do not have the framework to audit fintech solutions.
Picking up on this, Mohammed Alsehli, co-founder and CEO of Islamic capital markets platform Wethaq, believes a lack of standardisation remains a major challenge in the Islamic economy and the Islamic capital markets in particular.
He wants to see the fragmented traditional framework of regulations and standards transform in alignment with the accessible, plug-and-play paradigm that technology has made possible.
“More important work needs to be done to establishing an ecosystem that all business principles, service providers, governance as well as information sources could plug into in an intuitive, robust and cost efficient way,” Alsehli said, adding that doing so would boost trading and investment as well as enhance market depth and liquidity.
FINANCIAL INCLUSION, SDGs
Financial technology solutions may be providing greater access to wealth for some in the market but not everyone has the same opportunities, Prof. Dr. Mansor Haji Ibrahim, Deputy President Academic & Dean at Malaysia’s INCEIF, the world’s only dedicated Islamic finance university, told Salaam Gateway.
“[W]e have new technologies coming that make it easy for people to access the market, but only for those who are literate,” said the academic.
He said fundamental issues on the ground like access to finance and education still need to be addressed.
“The poor remain poor so they don't have access. Everyone has to be given the same opportunity.”
Bahrain FinTech Bay’s Khalid Saad sees this as something the Islamic finance industry can capitalise on.
“You have to expand the investible universe for Islamic finance. A challenge and opportunity is: how do we service the unbanked in a meaningful way which helps the industry grow but also helps with financial inclusion,” he said.
On a more positive note, Aamir Rehman, Senior Advisor at the United Nations Development Programme (UNDP), believes the Islamic finance industry needs to better recognise the good it has already done.
The industry, he said, needs to become more effective in measuring its positive impact, and the UN's Sustainable Development Goals (SDGs) are an important language and framework for that.
“The Islamic finance sector is accustomed to negative screening, which means screening out harmful behaviour,” he told Salaam Gateway.
“It's been very effective in minimising or avoiding harm. It hasn't been oriented towards measuring the good that it does. The challenge is augmenting those negative filters to measurement of good.”
(Reporting by Megha Merani; Editing by Emmy Abdul Alim firstname.lastname@example.org)
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