Is 2022 the Year Islamic FinTech Takes Off?

In the world of Islamic banking, the intrinsic difficulty of interpreting texts written over a thousand years ago in light of modern innovations means it isn’t always easy to find consensus over whether financial tools and practices comply with Sharia.

Disagreements over which financial instruments are halal originate in contested interpretations of the Quranic notion of “riba,” which is most commonly translated into English as usury or interest.

While Islamic scholars may disagree over exactly what counts as riba, ever since the days of Egypt’s Mit Ghamr Savings Bank, considered by many to be the first modern Islamic bank, the orthodox position has been that the kind of fixed-rate interest charges that are the norm in other banking systems are incompatible with the teachings of the Quran.

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In light of this need to maintain sufficient distance from a whole set of financial activities that are commonplace in non-Islamic banks, with each new financial technology that appears, new questions concerning its nature arise.

In the context of an inordinately complex and multilayered global banking system, it’s no wonder that there has been a tendency among Islamic banks to approach FinTech with caution.

Halal Cryptocurrency

If you need an example of the kind of moral difficulty that FinTech can create for Islamic finance, just Google search the question “Is Bitcoin halal?” While the internet seems to lean more on the yes side, the world’s Muslim communities are by no means in agreement on the issue.

Although the jury is out on Bitcoin, the last year has seen the launch of a number of FinTech projects that seek to bring crypto assets to Muslim markets by providing guarantees of Sharia compliance to investors.

Initiated towards the end of 2021, the Marhaba project brands itself as the world’s first halal DeFi platform. With a native token, MRHB, listed on PancakeSwap, NFT minting and marketplace, and a cross-chain wallet, Marhaba looks like classic DeFi with a few differences that will help it appeal to Muslim investors and traders.

For example, the Sahal Wallet incorporates Islamic social finance options, with users able to easily calculate zakat in-app, and send their alms to charities approved by MRHB’s Shariah Governance Board in the form of crypto assets.

For Muslims who want an extra guarantee that their investments are being used as a force for good, the ISLAMICOIN project, administered by a decentralized autonomous organization (DAO) that operates according to Sharia, intends to build an entirely new blockchain governed by the principles of Islamic finance.

And by carving out new space in the cryptosphere for specifically Islamic financial instruments, the ISLAMICOIN project creates the kind of oversight that critics argue is absent from traditional cryptocurrency.

BNPL in the Muslim World

In the space of just a few years, buy now, pay later (BNPL) services catering to Muslims have adapted the consumer finance model popularized by the likes of Klarna and Afterpay.

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Saudi Arabia and the United Arab Emirates (UAE) have emerged as leaders in the field of Sharia-compliant BNPL with the launch of four major BNPL platforms since 2019: Tabby, Spotti, PostPay, and Tamara.

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In order to adhere to the principles of Islamic finance, the new generation of BNPL solutions coming out of the MENA region offer zero-interest repayment plans, a transparent fee structure for missed installments, and an upper limit on any fees that are accrued.

But they seem to have ambitions beyond a Middle Eastern user base, and rather than positioning their services as Sharia-compliant or exclusive solutions for Muslims, offers are presented as simple alternatives to the often-costly model of interest-based eCommerce lending.

With this strategy of marketing themselves as globally oriented solutions for international customers, Islamic BNPL applications thus demonstrate the potential for Islamic FinTech to appeal beyond the Muslim world.


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