Fintech is not a cliché. It’s the trend in 2017 and likely beyond.
Fintech, which stands for financial technology, refers to the use of technology in financial services banking to support and enable services and to drive growth.
The term Fintech emerged in the years after the financial crisis that started in 2007, the Credit Crunch.
According to Statista, a statistics portal, transaction value in the FinTech market amounts to $1 trillion in 2017.
Transaction Value is expected to show an annual growth rate (CAGR 2017-2021) of 17.9 per cent resulting in the total amount of $2trn in 2021.
Something even newer has arisen. According to multiple published reports, a consortium of three Bahraini banks will establish a company dedicated to research & development in the sharia-compliant fintech sector as the Arabian Gulf state seeks to position itself as a leader in financial technology.
Why is that?
First reason is the growth of Islamic banking.
A recent survey from Emirates Islamic Bank showed that about 52 per cent of UAE consumers have an Islamic banking product now, compared to 47 per cent consumers in 2015.
“The results of this year’s Islamic Banking Index clearly show that more people in the UAE are recognising the positive attributes of Islamic banking, leading to a wider adoption of Sharia-compliant products and services.” Jamal Bin Galaita, CEO of Emirates Islamic, said in a statement.
According to the survey, the perception of Islamic banks versus conventional banks began to change, with Islamic banks closing the gap on conventional banks on key areas including innovation, speed of service and ease of using procedures.
“About 29 per cent of non-Muslim consumers believe Islamic banks offer the best profit rates on deposits, while 24 per cent believe that to be true of conventional banks,” it said.
Meanwhile, Rasheed Al Maraj, the governor of the Central Bank of Bahrain, said at an event in Bahrain that the Middle East Islamic banking sector is forecast to grow at an annual rate of 5 per cent for the next two years.
A report published on Tuesday by Thomson Reuters and the Islamic Corporation for the Development of the Private Sector (ICD) revealed that total Islamic finance assets are projected to reach $3.8trn by 2022 after growing by 7 per cent to $2.2trn in 2016.
Halal is booming
The second reason is the growing Halal market.
Demand for Halal products is huge worldwide as it is estimated that there are about 1.8 billion Muslims in the world as of January 21, 2017; nearly one-fourth of the world’s population today, according to the Pew Research Institute.
Statista, a statistics portal, reveals that halal products had a global market value of approximately $45.3 billion in 2016 and are expected to reach $58.3bn in 2020.
Meanwhile, Halal Focus, a business consultancy platform, says that the global Halal economy is estimated to touch the $6.4 trillion (AED23.48 trn) mark by 2018, up from $3.2trn in 2012.
Dubai reinforces its position as the capital of the global Islamic economy.
Halal Focus revealed that UAE is home to 5,000 importers, manufacturers and stockists of Halal products.
“The GCC countries import $50bn worth of Halal products, according to a latest research by Farrelly and Mitchell – a food and agri-business specialist. Of this, the UAE’s Halal import bill is $20bn, or about 40 per cent of the GCC’s Halal products imports,” it added
But this big market is in need for a financial system to manage and boost it beyond its current volume while giving people the confidence to buy and invest in these products.
Here comes the role of Islamic banking and fintech.
Solution: Islamic Fintech
Nowadays we talk more than ever about blockchain, Bitcoins and robotics.
Financial institutions in the world, whether conventional or Islamic, cannot afford to stay behind.
This is what Bahrain and the UAE have been doing.
KFH Bahrain, a unit of the sharia-compliant Kuwait Finance House, Islamic lender Al Baraka Banking Group and Bahrain Development Bank will set up Algo Bahrain to support the regional Islamic banking sector by developing fintech products and other innovative, sharia-compliant banking solutions.
Meanwhile, the DIFC’s FinTech Hive signed up in August this year a memorandum with the Dubai Islamic Economy Development Centre (DIEDC) to make sure the local FinTech startups get the attention and support they deserve.
FinTech Hive at DIFC contributes to Dubai’s efforts to become the global hub of Islamic FinTech by providing a platform that brings financial firms and technology companies together in one collaborative, disruptive innovation supply chain.