It’s difficult to conceive a situation in today’s world that doesn’t entail generating money without interest or Riba. It’s not easy to let go the concept of time value of money. To grasp Islamic finance, one must abandon the notion of generating money out of money without really using it. Money is a vehicle of trade, not to be treated as a commodity. It extends beyond halal (allowed) and haram (forbidden) in financial dealings, which instead necessitates a complete mentality shift. Islamic finance is not necessarily based on human logic but rather based on shari’ah reasoning, that is regarded immutable and contains many commands of Allah about individuals’ beliefs, character, and activities in society. Islamic finance is regulated by equity, participation, and ownership in order to enable constructive human activities for all parties engaged in doing business while also adhering to approved ethical business practices within Islam.
Mohieddine Kronfol gives Islamic finance excellent grade, “The concepts underlying Islamic finance are very old; indeed, many aspects of the Western financial system that began to develop in renaissance Italy had Islamic roots” (Kronfol, 2015). Nonetheless, the contemporary Islamic finance industry arose after the 1970s, owing to developments in the global political and economic system in general (Warde, 2000). For the establishment of the current system, this era of development passed through stages of interest-free banking, then formation of Islamic banks, and finally expansion of Islamic banks.
New technologies and digitalization are contained in the next phase of Islamic finance. The discussion about the validity of these new technologies in Islamic finance has already begun, while the conventional financial system is already on its way to embracing these new technologies. Point to ponder that this disruption is required due to market acceptability and its demand. While Islamic finance has gained a solid footing in the twenty-first century, they risk losing their position if they do not embrace the industry’s changes and development. The good news is Islamic finance has a natural multidimensional nature that has piqued the curiosity of people from different walks of life.
Digitalization has the potential to accelerate the transition to a circular economy that is more sustainable (Antikainen, Uusitalo, & Kivikytö-Reponen, 2018). According to some authors, though there are still numerous obstacles to overcome in order to achieve the intended advantages and gaps preventing the deployment of digital technology-aided circular business models, it can assist closing material loops by giving correct information on product availability, location, and condition. The impact is likewise in case of Islamic Finance, adapting fintech can assist it attract more consumers, boost efficiency, lower costs, and offer a larger choice of products, allowing the industry to compete with traditional finance while maintaining profit margins (Qatar Financial Centre, 2018).
If I look around the change in my local economy, I see fintech and digitalization opened doors for businesses, income, and these money in not coming from outside of the local economy, rather it is it is changing hands and circulating inside. So fintech can not only help Islamic finance with new markets by providing innovative products and services, greater regulatory compliance, more consumer accessibility, and considerable cost savings, but people are benefited as well with income increase, financial inclusions, etc. Governments in Muslim-majority countries have begun to establish policies to assist this development, while also developing regulations to prevent possible fraud and criminality (The World Bank, 2020), thus it can be said that no way back from here, but a new era is ahead. The World Bank Report (2020) provided some recommendations on Islamic Fintech’s role in filling gaps – AI and big data analytics should be used in more sectors of Islamic finance, distributed ledger technology has the potential to increase Islamic trade finance and minimize Shari’a non-compliance, AI can help to simplify wealth management, to conquer the Muslim insurance market, Takaful needs to gain traction and innovate.
