By Anthon?Garcia? and Emmy Borromeo
Islamic fintech is a growing sector, and it’s rich with opportunities for innovation. Today, various players are changing the game by introducing solutions that ensure ethical, inclusive, and transparent financial services for a fast-growing Muslim population. The success of this market hinges on tech advancements, financial literacy, and widespread adoption.
Digital payments, mobile banking, peer-to-peer lending, blockchain-powered financial platforms, and cryptocurrency. These are all forms of financial technology or, simply, fintech. In a nutshell, fintech is about leveraging internet solutions to deliver various financial services.
Over the past years, fintech has redefined how we spend, save, and invest — so much so that its global market value is expected to surpass $141 billion by 2028, according to Statista. And as this space continues to expand, there’s a burgeoning segment that’s been gaining traction in recent times: Islamic fintech.
The rise of Islamic fintech
As defined by Investopedia, “Islamic banking, also referred to as Islamic finance or Shariah-compliant finance, refers to financial activities that adhere to Shariah (Islamic law). Two fundamental principles of Islamic banking are the sharing of profit and loss and the prohibition of the collection and payment of interest by lenders and investors.”
Islamic fintech is a nascent market, with growth being driven by a growing Muslim population. According to a World Bank report, this populace — whose average age is 24 — is growing at a faster rate than any other religious group. And they are projected to make up 26.4% of the world’s population by 2030.
In the Middle East, where Islam is the most followed religion, Islamic fintech is gaining a strong footing. This sector also builds upon the region’s already booming fintech landscape. A report by McKinsey shows that fintech revenues across the Middle East, North Africa, and Pakistan (MENAP) could reach up to $4.5 billion by 2025.
Saudi Arabia is leading the pack, specifically in Islamic fintech — with its market for this sector being valued at $18 billion in 2020.
Game-changing solutions
In the Kingdom, a number of game-changing Islamic fintech entities are emerging, including UmrahCash. Based in Jeddah and Kano, North Nigeria, the platform revolutionises the way pilgrims access money in Saudi Arabia by simplifying access to Saudi Riyals in Makkah, Medina, and Jeddah.
“Having worked between West Africa and Saudi Arabia, I have directly witnessed the financial challenges faced by pilgrims from developing countries visiting the Kingdom. With many countries in Africa facing a shortage of foreign exchange and strict capital controls, many Muslims are left unable to fund their trips to Makkah and Medina. The traditional system forces pilgrims to rely on black market exchanges, informal hawala networks, or carrying large amounts of physical cash — all of which create unnecessary risks and often double the cost of pilgrimage,” UmrahCash Founder William Phelps tells The World Financial Review in an email interview.
The platform addresses this issue, offering a secure and cost-effective alternative by integrating digital payments and streamlining access to local currency. The platform also supports Saudi Arabia’s Vision 2030.
“By 2030, the Kingdom hopes to increase non-cash transactions by 70% and support 30 million pilgrims annually in Makkah and Medina. Solutions such as UmrahCash are essential for this goal, as we bridge the gap between the habits and preferences of pilgrims abroad with the aims of the government within Saudi Arabia,” he explains.
To further expand its impact, the company has also recently signed an agreement with Ashraqat, an organisation providing guidance and assistance to pilgrims from Arab countries. This partnership aims to “further scale UmrahCash’s integration of mobile money, bank accounts, and virtual wallets into one centralised solution.”
Rich with opportunities for innovation
Islamic fintech is indeed a promising sector rich with opportunities for innovation — all while staying true to Shariah principles. The rise of Islamic fintech is especially beneficial in areas where traditional models often present challenges for Shariah compliance and beyond.
One such example is insurance.
Takadao is a pioneering Shariah-compliant fintech entity that “builds technology that enables communities to pool money together to mutually insure one another without the need for an insurance company.”
In an email interview, Co-Founder and CEO Sharene Lee notes what sets it apart from traditional insurance products.
“We believe that traditional insurance is a broken industry as demonstrated by the fact that a near majority of the global population lacks basic insurance due to high costs and a relentless profit-seeking motive. Takadao’s technology revives the age-old concept of mutual insurance, where the funds are owned and controlled by the members themselves, as opposed to a third-party manager who would seek to deny claims to maximise profits,” she enthuses.
As for how they ensure full compliance with Islamic law, she explains, “Takadao follows AAOIFI standards in matters where there are clear published standards, such as standards related to Takaful (a Shariah-compliant form of mutual insurance). To ensure that this is the case, we have an internal Shariah board that continuously evaluates our products and activities. We have monthly scheduled board meetings and impromptu meetings as the need arises.”
Challenges and trends
As Islamic fintech continues to evolve, it faces both challenges and trends that will continue to shape its bright future.
For William, one important trend is the increased integration of Web3 technology and stablecoins in Shariah-compliant solutions. “There are strong arguments for and use cases with Shariah-endorsed blockchain products. As the sector continues to develop, it is inevitable that on-chain solutions will play a central role,” he says.
However, beyond stablecoins, blockchain technology and tokenisation offer something even more transformative: a new financial infrastructure that aligns more closely with Shariah principles. And Sharene highlights how decentralised tokens can serve as an alternative to traditional fiat currencies, which underpin the modern financial system.
“Centralised fiat currencies are beneficial when there is a benevolent ruler or king that seeks to enrich his people over himself. However, there are many governments in the world today that irresponsibly print money to bail out business interests at the expense of future generations who bear the costs through rampant inflation and runaway debt loads. Furthermore, from a Shariah perspective, fractionalised reserve banking is problematic to say the least,” she argues.
She further explains that decentralised digital assets, like Bitcoin and Ethereum, present a viable alternative to government-controlled money, “Decentralised tokens are free from the perils of the printing press and have strict rules enforced by code and the community of users. While not perfect, these are much more akin to what is universally accepted as money in Islam — gold. Gold is the original decentralised money because no one can control its future supply.”
The future of Islamic fintech
As mentioned, the growing Muslim population will be a key driver of Islamic fintech’s growth. Sharene underscores this as a defining trend in this market.
“The most important trend is population growth. The Muslim population is growing at double the rate of the non-Muslim population globally. Alongside this, the prevalence of social media as the primary source of news and content that educates, and shapes public opinion has seen a rise in Muslim influencers who accelerate the awareness of Islamic finance. Governments around the world are taking note of countries like Pakistan that are introducing new regulations requiring that the financial sector be made Shariah-compliant,” she states.
Now, as Islamic fintech gains momentum and awareness continues to grow, one essential factor remains: education.
According to William, “There will be a greater focus on educational initiatives. The key is to ensure these technological advances remain accessible to users at all levels of financial literacy.” On their part, UmrahCash is already providing training programs for pilgrims, service providers, and state employees.
And, for him, ultimately, the future of Islamic fintech depends on how well it can merge traditional Islamic values with modern technology — while making it inclusive and accessible to as many people as possible.
About the Authors
Anthon?Garcia?is an award-winning journalist and book editor based in Dubai, United Arab Emirates. He currently writes freelance for Economy Middle East, Energy and Utilities, Inc. Arabia and Cityscape Intelligence. He graduated with an AB English degree from the University of the Philippines and an MBA from Western Global University.
Emmy Borromeo is a writer and digital content strategist based in the Philippines. With a background in Economics from the University of the Philippines, she has written freelance for publications across the Middle East and the UK, covering business, economy, technology, and energy.
#Innovative #Inclusive #Islamic #Fintech #Growth