Fintech for Muslims is a booming sector — or at least, that is what the industry believes based on empirical observation; without hard data, it is difficult to say that with absolute certainty — until now. Endeavoring to fill this information vacuum, IFN Fintech — an IFN sister publication — and UK-based industry body Innovate Finance have pioneered a groundbreaking initiative paving the way for insightful analysis of the Islamic fintech sector through concrete intelligence. And the findings from the initial phase of this ongoing global research, may be surprising to some.
IFN Islamic Fintech Landscape
Conducted globally across Asia, the Middle East, Europe, Africa and the Americas, the IFN Islamic Fintech Landscape — an international initiative mapping out fintech companies catering to the Islamic finance market — has identified 103 fintech companies from 24 countries across nine broad verticals that either identify as Shariah compliant or are offering Shariah compliant solutions.
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Table 1: Top global Islamic fintech markets by geography |
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Country |
Number of Islamic fintech companies |
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Malaysia |
18 |
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UK |
16 |
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Indonesia |
15 |
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UAE |
12 |
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US |
11 |
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Source: IFN Islamic Fintech Landscape |
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Taking an inclusive approach, the Landscape canvassed companies of varying development stages, both consumer-facing (the more ‘exciting’ crowdfunding and peer-to-peer (P2P) financiers and digital banks) and those serving the institutional market (back-end operations, trade facilitation etc), and have either secured a Shariah certification or are planning to obtain one.
To ensure accuracy and maintain data integrity, only entities which have verified their Shariah compliance status with IFN Fintech were included in the IFN Islamic Fintech Landscape. It is important to note that the Landscape universe will continue to expand as more entities will be included once their eligibility has been confirmed.
Crowding out the rest
Based on the data collected, the current Islamic fintech segment can be categorized into nine general verticals: crowdfunding; banking software; payments, remittance and forex; personal finance management, trading and investment; alternative/peer-to-peer finance; blockchain and cryptocurrency; challenger/digital banking; insurtech; and data and analytics.
More than one-third of the Islamic fintech market belong to the crowdfunding space (35%), followed by banking software (17.48%) and payments, remittance and forex (13.59%), with insurtech and data and analytics taking the smallest shares.
“This is consistent with the evolution of mainstream fintech where the early traction was in alternative finance, payments, remittance and forex — verticals with low regulatory friction or an underserved consumer need,” explains Abdul Haseeb Basit, CFO of Innovate Finance.
The findings reflect the coverage of IFN Fintech since it launched in April where discourse has primarily been dominated by the crowdfunding community and payments providers.
The tepid take-up of insurtech has also been explored (See IFN Report Vol 14 Issue 35: ‘Will insurtech finally spell growth for the Takaful industry?’).
What is interesting is that the phenomenal rise of Shariah compliant crowdfunding/P2P platforms (and payment technology) runs in parallel with the regulatory development for such alternative finance in major Islamic finance markets.
Malaysia, the UAE, Indonesia, Bahrain and the UK have all begun formally regulating crowdfunding and their respective sandboxes or special fintech licensing schemes have accommodated payment solutions providers.
The regulatory infrastructure enhancement is no doubt triggered by the burst of start-ups in the crowdfunding and payment space, and this crucial development in turn has laid the foundation for a more conducive environment which promises to spur further growth within these verticals.
Chart 1: Islamic fintech companies by verticals
Source: IFN Islamic Fintech Landscape
Location, location, location
It does not come as a surprise that Islamic finance heavyweight Malaysia is home to the largest Islamic fintech community worldwide; in fact, three out of the top five Islamic fintech jurisdictions are some of the world’s most advanced Shariah financial markets (Malaysia, Indonesia and the UAE); the UK, a leading Islamic finance hub of the western world, also joins the top five.
But what is perhaps surprising to some is that the US made it into the same circle as these Islamic finance leaders when it comes to fintech (See Table 1): at 11, it is only one company away from being neck and neck with the UAE, and it is eye to eye with the Emirates if we were to analyze the US as part of North America (including Canada).
The burgeoning Islamic fintech community in Malaysia, Indonesia and the UAE — comprising an eclectic mix of start-ups in the crowdfunding and alternative payments category as well as personal finance management space to established Islamic banking software providers — demonstrates the appetite for more cost and time-efficient Shariah financial services as well as the readiness or high potentiality of these markets to adopt digital-based financial services.
These jurisdictions have made it a national agenda to drive the Islamic fintech proposition and have, or, are beginning to carve out dedicated regulations or make provisions to facilitate Islamic fintech solutions and providers.
The familiarity of the market with Halal financial products and regulatory support is attracting both domestic and foreign start-ups to set up shop in these countries.
The high concentration of Islamic fintech firms in the US and the UK — which again, are dominated by crowdfunding and P2P platforms and personal finance management/trading/investment players including robo-advisors and commodity Murabahah trade facilitators — underscores the latent demand for Shariah compliant financial products in these non-core Muslim countries.
The growth of these alternative Islamic finance channels is hugely driven by the conducive fintech/start-up ecosystems of these fintech hubs, and the borderless and mobile experience digital finance can offer opens up the doors for Islamic finance to further develop in Europe and North America where the Muslim population is largely fragmented.
In fact, a significant number of the constituents of the UK and US Islamic fintech collective have global ambitions and choosing to base out of advanced financial markets such as the UK and the US was a conscious decision to leverage on the respective markets’ sophisticated and internationally recognized regulatory framework to ease exporting their business model abroad.
Fintech fiesta
The study has confirmed the assumptions and empirical observations of many: that the Islamic fintech segment is most active in the crowdfunding/P2P and payments realm and that Malaysia, the UAE, and Indonesia are where most of the Islamic fintech action is taking place.
However, the IFN Islamic Fintech Landscape initiative also yielded unexpected yet interesting results: the UK and the US are Shariah fintech centers in their own right — even without explicitly positioning themselves to be so — while Islamic finance hubs like Saudi Arabia fall short in representation.
It must be noted, however, that Saudi Arabia is part of the geographical expansion plans of many of the Islamic fintech start-ups interviewed, and there are a number of fintech companies yet to be included in the IFN Islamic Fintech Landscape pending verification.
What is certain is that fintech for the Islamic finance space is blossoming — from Asia to the Middle East and from Europe to Africa, the seeds for technology-driven Shariah compliant financial services, which promise to alter the traditional Islamic finance landscape, are starting to sprout and this is one exciting space to watch.
NOTE: The IFN Islamic Fintech Landscape is an ongoing initiative and endeavors to be as comprehensive as possible; it will be continuously updated upon the collection and verification of data points.