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Islamic fintechs to drive next big disruption in Middle East financial sector

Islamic fintechs to drive next big disruption in Middle East financial sector

Islamic fintechs are set to drive the next major disruption in the financial sector in the Middle East and other regions, as globally mobile millennial and Gen-Z Muslims are increasingly turning to the new age ventures for their financial transactions. But the fast-emerging trend calls for incumbent players of the traditional ecosystems in the Middle

Islamic fintechs are set to drive the next major disruption in the financial sector in the Middle East and other regions, as globally mobile millennial and Gen-Z Muslims are increasingly turning to the new age ventures for their financial transactions.

But the fast-emerging trend calls for incumbent players of the traditional ecosystems in the Middle East to embrace the agile systems needed to make their services accessible to underserved populations beyond Muslim-majority business hubs, if they want to stay ahead of the curve, a sector expert cautioned.

“In the UAE, the Abu Dhabi Global Market (ADGM) found that 83 percent of residents are accepting and adopting fintech solutions by non-financial institutions. Furthermore, 76 percent trust at least one financial technology company with their money over physical banks,” Miljan Stamenkovic, general manager – MENA at Mambu, a leading banking and financial sector technology platform, told Arabian Business.

Islamic fintech provides framework for future of global finance

With more customers demanding ethical banking practices, Islamic fintech offers an attractive alternative for a younger, technologically-minded customer base

“Islamic fintech is a huge emerging market and we’re just scratching the surface,” Stamenkovic predicted.

He said: “We’re seeing Islamic fintechs spring up globally – from the Asia Pacific to Europe and North America. This is because demand is being driven by a young Muslim population, which is more globally mobile than generations before them.”

According to latest studies and surveys by Mambu, the market for Islamic fintech will continue to extend beyond the Middle East strongholds to service Muslim and non-Muslim digital natives around the globe.

The latest Global Islamic Fintech Index (GIFT) report shows that eight countries out of the top 20 Islamic fintech ecosystems globally are not members of the Organisation of Islamic Cooperation (OIC).

“And these non-OIC markets are growing rapidly,” Stamenkovic added.

He said while the UK is home to the largest number of Islamic fintechs, Malaysia, Saudi Arabia and the UAE lead the GIFT as the three strongest Islamic finance ecosystems.

Miljan Stamenkovic, general manager – MENA at Mambu.

“But innovation in the Middle East region is currently focused more in the payments space along with deposits and lending. The biggest growth opportunities arguably lie in untapped areas of the market such as insurance and social finance, which remain ripe for disruption,” said the senior executive of Mambu, which works closely with Islamic banks among other financial institutions in the UAE, Saudi Arabia and the wider ME region.

Of late, several new-age fintechs are seen driving innovation in the Islamic banking sector and also disrupting the overall financial and banking sector.

For instance, Malaysia-based HelloGold is developing the world’s first Sharia-compliant mobile application for buying and selling gold, while IslamiChain, an innovative start-up leveraging blockchain technology, is enabling Sharia-compliant philanthropy and compassionate giving.

Other firms disrupting the space include Hakbah, an Islamic fintech which specialises in cooperative savings, and Wethaq, a platform focused on the structuring and distribution of securities in sukuk capital markets.

“Incumbent banks have a way to go if they want to catch up with these new challengers in digitising their services. It’s difficult to say how quickly the industry will embrace this change but with millennial and Gen-Z Muslims expected to make up three quarters of Islamic banking revenue in the next ten years, those that don’t will quickly get left behind,”  Stamenkovic said.

Islamic fintech will continue to extend beyond the Middle East strongholds to service Muslim and non-Muslim digital natives around the globe.

The Mambu senior executive, however, pointed out that for banks and financial institutions across the Middle East, there is also a more fundamental hurdle to overcome at a local level.

“Nearly 30 percent of the Middle East’s population is aged between 15 and 29. And it was forecast that 280 million people in the MENA region would own a mobile device by the end of 2020. Yet, more than 80 percent of 15 to 24 years-old were unbanked in the region, according to a 2019 report,” Stamenkovic revealed.

“So, this isn’t just about making Islamic banking more accessible, but the whole process of setting up a bank account. Key to this will be the availability of online and digital services,” he pointed out.

Stamenkovic said if Islamic banks embrace mobile services while remaining Sharia-compliant, they can unlock this unbanked market by giving them the means to make and accept payments in the same way as fintechs and non-financial institutions – without an ATM or the need to visit a brick-and-mortar bank.

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