Islamic Finance | Real Estate Finance | Real Estate
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This article was first published in the IFN Annual Guide 2022 dated January 2022.
The key watchwords as we seek to navigate out of the year of COVID-19 are ‘recovery’ and ‘vaccines’. Following the rollout of various COVID-19 vaccines and the acceleration of the vaccination programs globally, people have slowly shaken off the cobwebs of living and working in our remote bubbles and begun to navigate the new normal. While the post-COVID-19 recovery has not been consistent, there is a strong desire to move on from the pandemic and get back to ‘business as usual’ as quickly as possible.
As more businesses enter the recovery phase by embracing hybrid working arrangements, fintechs have been well placed to provide digital access to financial services. 2021 is a year that has seen a rapid growth of the Islamic fintech sphere with more new entrants.
The impositions of lockdown measures and the prevalence of hybrid working arrangements have accelerated the digitization of financial services. The immediate aftermath of the COVID-19 pandemic has acted as a catalyst for an explosion of Islamic fintech activity and the development of fintech ecosystems.
According to the IFN, there are 269 Islamic fintechs worldwide, up from 142 a year ago. This is as a result of countries building on from the formation of national fintech associations and the central bank-led regulatory sandboxes to connect start-ups with the existing financial system.
National governments have taken a top-down approach by implementing new regulations to streamline the adoption of digital financial solutions and putting together strategic frameworks for the promotion of fintech start-ups. The following are some of the developments:
The launch of Nomo, a fully-licensed digital bank under the brand of the UK-based Bank of London and the Middle East, by the Boubyan Bank Group has the potential to propel the future of Islamic digital banking, by providing a mobile app-based solution to its customers in Kuwait and the UK.
At this moment, it is still unclear how the world will ultimately adapt to living with the effects of COVID-19. While most of Europe and North America are adopting a bullish attitude about restoring normality, other parts of the world are still working under various degrees of lockdown measures. For most countries however, the aim is that everything will return to normal by the latter half of the year.
With the growth and evolution of digital banking, the cybersecurity risks that banks must address will inevitably increase. Given that most Islamic banks in the GCC are behind in the digital banking curve, banks will be taking proactive measures to mitigate potential threats and embrace all that digital banking has to offer to customers.
Given the effects of climate change are being felt by more people around the globe and with the new commitments to secure Net Zero emissions following the 2021 United Nations Climate Change Conference, also known as COP26, investors will increasingly focus on investing in environmental, social and governance (ESG) causes.
Islamic fintech is well positioned to support many ESG causes such as: renewables, reducing poverty and narrowing the gender pay gap. Lending is already a key area for Islamic fintech firms, and wealth management solutions that promote ESG causes are well aligned with Shariah principles.
There will be more fintech start-ups launching artificial intelligence-led investment platforms for consumers. Those investors who began investing during the pandemic but are now ‘time-poor’ as they return to normal life will seek tech-based solutions to continue growing their portfolios.
The global Muslim population is made up of some of the world’s youngest and most tech-savvy individuals and its members are becoming steadily more affluent. They will seek to grow their wealth over the long term.
With fintech becoming an established part of mainstream financial services, national regulators have been exploring how to regulate these businesses within existing legislative frameworks. The clashes by the US Securities and Exchange Commission and Coinbase, the world’s largest cryptocurrency exchange, is only the tip of the regulatory iceberg.
As national regulators across the globe grapple with the issues of how to regulate this nascent sector to protect consumers and ensure a sufficient level of capitalization in businesses, there will be more public exchange clashes and possible disputes between the fintechs and the regulators.
The global economy is yet to fully shake off the effects of the COVID-19 pandemic, but as the post-pandemic recovery gathers steam, fintech has a big role to play in the new normal. I anticipate that 2022 will build upon the rapid digitization of financial services that has occurred in the past 24 months to expand the architecture of the Islamic financial system.