In an era where Islamic financial institutions can no longer rely on Shariah compliance to reach out to new customers and have to compete with conventional players by building a digital component into their business proposition, an Islamic fintech investor in the midst of operationalizing new platforms observes that Shariah banks are, however, not yet ready to ride the digital revolution and fintech wave.
“Traditionally, Islamic banks have focused primarily and heavily on the factor of Shariah compliance as a key unique selling proposition (USP) but as the digital revolution kicks in, that USP will fade out. They cannot survive on just being Shariah compliant — digital should be another element of their offering,” Raheel Iqbal, the managing director of technology investments with Finocracy, shares with IFN.
Identifying three key areas Islamic banks are lacking in to fully adapt to a changing tech-driven operating environment — technology, resources, vision — Raheel singled out the enduring paradigm or traditional mindset within banks as the biggest hurdle for Islamic banks to move into the digital era.
“In hindsight, what the Islamic finance industry should have focused on [should have been] some of these [fintech] models [such as crowdfunding]. Unfortunately, Islamic banks ended up mimicking conventional products. Whereas crowdfunding is what the industry wanted in the first place — it is a more resilient business model and serves the purpose of the Islamic finance industry,” believes Raheel.
Seeing it as imperative for banking leadership to adopt the right mindset, Raheel also highlighted that there is a need for venture capitalists to buck up and lend support to nurture and develop Islamic fintech start-ups.
“We have a lot of good brains in Muslim-populated regions, so there isn’t a lack of resource, but they need to be given the right opportunities and funding. Comparing the US and Europe to the GCC, there is a drastic difference [in venture capital funding],” says Raheel.
Finocracy targets to roll out 15 fintech platforms for Islamic banks in the GCC by 2022; the venture builder, which invests its technology assets into start-ups and provides capacity-building, has already initiated six and will focus on operationalizing these platforms over the next year with a view of introducing up to three new platforms in 2019. Among the projects the firm is working on are in the areas of blockchain, crowdfunding and digital banking.