“FinTech is the backbone of the Islamic banking growth story”

With Islamic banking and finance in high growth mode, the role of specialist Islamic FinTech players has become more critical than ever, writes Nitin Kanaujiya, an Engagement Manager at Cedar Management Consulting.

Over the last couple of decades, Islamic banking has grown rapidly due to the convergence of several factors – an increase in the number of Islamic banks, an increase in the number of conventional banks offering Islamic (Shariah-compliant) products and services through a dedicated window’ ( availability), and changing consumer preferences (adoption of Islamic products).

Meanwhile, from a demand perspective, demand for Islamic banking fintech services and solutions continues to grow. In recent years, traditional demand for core banking services and digital channels has expanded further to other services, including wealth management, treasury, lending and risk management.

With both banks and FinTechs increasing their investments, Islamic banking will benefit across the board. Ten reasons:

Time to market
Changing customer expectations have led banks to launch newer or improved versions of digital applications and focus on reducing time-to-market. Partnerships with specialist Islamic FinTechs enable banks to deliver faster and stay relevant to meet best-in-class customer experience standards.

Scalability
Islamic FinTechs provide much needed scalability to the growing volumes of customer transactions. The growth rate for Islamic banking customers is higher than for conventional banking customers. With the increased adoption of digital banking among Islamic banking customers, the ability to scale has become highly relevant to meet the needs of the banks and their customers.

Since the inclusion of a larger population is necessary for the development of the economy, FinTech has helped various banks to accelerate this agenda by innovating more digital solutions like digital onboarding.

For example, one of the banks in Oman recently prioritized the rollout of their digital onboarding solution for their Islamic banking customers to drive financial inclusion.

Investment access
With the growing demand for Islamic banking products and services, more companies will be willing to invest in Islamic FinTechs, giving these FinTech firms access to better quality capital. These investments will further drive innovations in Islamic banking.

A greater focus on Islamic requirements will help drive a “first principles” approach in the design of Islamic banking products and services.

A regional FinTech ecosystem is essential as customer needs vary based on local culture. For example, Malaysia, Iran, Saudi Arabia, UAE, Germany, UK and other Islamic banking countries may have similar innovation requirements, which will ultimately be adapted based on local needs.

Outlook

For example, a single player does not need to offer an end-to-end solution in a digital onboarding journey. Instead, it may be a combination of FinTech actors participating in the value chain to fulfill the journey. Therefore, FinTechs should consider participating in a larger ecosystem and regional building interconnections.

A healthy Islamic FinTech sector can become the backbone of the Islamic banking growth story.