Edited by

M. Kabir Hassan
Mustafa Raza Rabbani
Mamunur Rashid

FinTech in Islamic
Financial Institutions
Scope, Challenges,
and Implications in
Islamic Finance
 FinTech in Islamic Financial Institutions

“The contents offer a rich, contextual and practical reviews of Fintech in Islamic
finance; a useful read for academics and practitioners. Contents are carefully
chosen covering a wide range of topics that go deep into integration of Islamic
finance with Fintech. Both operational as well as Shariah aspects are discussed
broadly, with theoretical and practical implications.”
—Rifki Ismal, Assistant Secretary General, Islamic Financial Services Board
(IFSB), Malaysia

“Not many books on Fintech covers a combination of theory and practices from
country- and region-specific examples. The reviews offer directions to effective
use of Fintech for sustainable benefits. The topics cover a wide range of behav-
ioral aspects, including adoption of Fintech. Several topics offer interesting and
research-worthy ideas of the use of Fintech in Islamic non-banking institutions.
These could be meaningful to policymakers and investors.”
—Mansur Masih, Senior Professor, Universiti Kuala Lumpur Business School,
Malaysia
M. Kabir Hassan · Mustafa Raza Rabbani ·
Mamunur Rashid
Editors

FinTech in Islamic
Financial Institutions
Scope, Challenges, and Implications in Islamic
Finance
Editors
M. Kabir Hassan Mustafa Raza Rabbani
University of New Orleans University of Bahrain
New Orleans, LA, USA Riffa, Bahrain

Mamunur Rashid
Christ Church Business School
Canterbury Christ Church University
Canterbury, Kent, UK

ISBN 978-3-031-14940-5 ISBN 978-3-031-14941-2 (eBook)

https://doi.org/10.1007/978-3-031-14941-2

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer
Nature Switzerland AG 2022
This work is subject to copyright. All rights are solely and exclusively licensed by the
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 Foreword

Fintech is a reality; it’s useful and the market is growing. Fintech compa-
nies have disrupted global financial markets. Since a large part of the
Fintech operations is unregulated, industry experts suspect even more
disruptions in the coming days. Lack of monitoring poses a threat to
the Islamic Fintech industry, as this might clash with the existing multi-
layer Shariah supervisory system existing in the Islamic financial system.
We have seen the benefits of such supervisory system from the evidence
of limited impact of global financial crisis of 2007–2008. Hence, there
is a major shift in financial landscape and this book is an attempt in the
right direction to bring forward and explore gaps in theoretical as well
as empirical views on Fintech and Islamic Fintech. The chapters are rela-
tively shorter, easy to read, and offer a clear view of the matters current
to the Fintech universe.
The book covers broader theoretical aspects, emphasizes on supervi-
sory necessities, and reviews potentials of regional collaborations, such as
those among GCC, Southeast Asia, and MENA regions. Several chapters
are allocated to discuss the theoretical importance of Fintech. The bene-
fits of Fintech are discussed from three dimensions: payment channels,
data analytics, and macroeconomic benefits that include financial inclu-
sion, poverty reduction, and financial stability. Major challenges of Islamic
Fintech, such as Shariah compliance of the blockchain and bitcoins, lack
of talents, and limited collaboration among financial and entrepreneur-
ship sectors are highlighted. Chapters are not too empirical, which will

v
vi FOREWORD

benefit non-expert readers. There are sufficient discussions on relatively

emerging concepts. I believe the readers will immensely benefit from the
contents.

Ahmet Faruk Aysan, Ph.D.

Professor & Program Coordinator
College of Islamic Studies, Qatar
Foundation
Hamad Bin Khalifa University
Ar-Rayyan, Qatar
 Preface

Introduction
Financial institutions serve the society by collecting deposits, providing
loans, and offering allied financial services. Primary earnings of these insti-
tutions include the difference between interest earned and paid against
deposits, loans, and other services. Islamic finance finds this interest
synonymous with exploitation and offers an alternative solution based on
trade-based financing. The primary objective of this system is to achieve
profit and loss sharing between ‘partners’ in a trade-based financing mech-
anism. Financial institutions invest heavily in technology to make the
customer experience better. Financial technology (Fintech) using mobiles
and computers transforms the entire user experience and their level of
satisfaction. However, technology requires massive investment at the
country-level not only to establish infrastructure but also to create an
easy and safe environment for the users to adopt new tools. These invest-
ments are rather slow in developing economies where most of the Islamic
financial institutions operate.
Fintech poses two challenges for Islamic finance. The first is about
multi-level supervision. One of the reasons why Islamic finance is found
to be resilient is its multi-layer supervision by internal as well as external
supervisors. Aside from the Central Bank, there is a centralized Shariah
supervisor board in most countries to look after the macro aspect of
Islamic financial activities. Islamic financial institutions are, then, super-
vised by an internal Shariah Supervisory Board that suggests Shariah

vii
viii PREFACE

compliance of its products and services and approaches of financial activi-

ties. Last but not the least, Islamic financial institutions must also comply
with regulations by internal and external auditors, and financial reporting
standards at home and abroad. Fintech is generally believed to follow
a mechanism that bypasses a similar screening process, at least by the
central authorities, leading to privacy and transaction without involving
middlemen. This has led to a reduction in cost and an increase in
convenience. Consequently, Islamic Fintech might face the dilemma:
compliance versus convenience.
The second challenge is about adequate Islamic finance instruments
to support Fintech. While many Islamic financial institutions are yet to
offer a basic technology interface for most of their services, the Islamic
financial industry overall faces a ‘tech-matching’ challenge. There are four
major instruments seen among Islamic financial institutions. These are
Murabahah, Mudarabah, Musharakah, and Ijarah, among others. More
research is needed to ascertain the impact of Fintech companies on profit-
and-loss-sharing contracts (Musharakah and Mudarabah), and how these
instruments are matched with fitting Fintech instruments. As the knowl-
edge on these are limited, by Fintech most Islamic financial institutions
understand the use of mobile and computer facilities to conduct basic
banking facilities, which ensures convenience but does not ensure other
common properties of the Fintech mechanism.

This Issue
This edited book aims at covering some of these pressing issues. We cover
three major objectives. First, we discuss Fintech, Islamic Fintech, and its
underlying challenges. Second, several chapters are committed to finding
the potentials of Fintech for Islamic banks and allied institutions that can
directly benefit from existing models of Fintech. Third, several chapters
consider existing or modified models and discussions that can be applied
to Islamic non-banking financial sector.
Hassan, Rabbani, and Rashid introduce the Fintech and Islamic
Fintech concepts. They briefly discuss how a widespread ‘disruption’
could be utilized by the financial institutions. While the chapter recom-
mends several models, concepts, and areas, it also highlights potential
challenges that should be resolved to take full advantage of the Fintech
revolution.
 PREFACE ix

In Chapter 2, Hassan et al. discuss in detail how Fintech is a disrup-

tion and the elements of its disruption. The chapter includes a thorough
discussion on peer-to-peer (P2P) lending, crowdfunding, and mobile
payment. Alongside discussing the metamorphosis of Fintech, the chapter
elaborates on the implications of Fintech in socially valuable activities,
particularly for the benefit of the vulnerable during the pandemic.
Islamic Research and Training Institute1 estimate that global Zakat
collection could reach a mammoth $600 billion per year, while only one-
tenth of this amount is currently managed by official groups. Chapter 3
discusses a Fintech model based on artificial intelligence for Zakat. Zakat
is Islamic almsgiving that is mandatory to (financially) eligible Muslims.
Zakat needs serious effort to calculate, collect, and distribute at the indi-
vidual as well as the institutional stage. This chapter shows how a model
based on artificial intelligence, blockchain, and machine learning can
benefit the process of Zakat collection and distribution among the needy.
This process can help transfer billions of dollars from the rich to the poor
and immensely contribute to the social cause.
Chapter 4 discusses opportunities that Bahrain can utilize using
Fintech. Fintech market in Gulf Cooperation Council (GCC)2 market is
estimated to be around $49 billion (in the year 2020), which is expected
to grow at 21% per annum to reach $128 billion by the year 2025. Not
only as a growing GCC economy, but Bahrain is also important to the
Islamic finance industry as it hosts the Accounting and Auditing Orga-
nization for Islamic financial institutions (AAOIFI) that produces Islamic
accounting standards. The chapter concludes with discussions on Bahrain
being an important jurisdiction for Fintech in GCC.
Chapter 5 continues with an example from important regions with a
review of literature on the Middle East and North Africa (MENA) region.
The chapter focuses on Fintech initiatives in the United Arab Emirates
(UAE) and Bahrain. It demonstrates how these countries can utilize the
benefits of Fintech, and transform these countries into important Fintech
destinations.

1 https://www.aa.com.tr/en/middle-east/world-zakat-forum-optimizing-funds-to-red
uce-poverty/1640107.
2 https://cdn.salaamgateway.com/reports/pdf/6127a0965afd7898a34f69dadc24b8
d17ada0b1b.pdf.
x PREFACE

In Chapter 6, Hassan et al. write on the connection between

Fintech, industrial revolution 4.0 (IR4.0), and Islamic Fintech. Discus-
sions conclude that an effective blend of awareness and stakeholder
support is paramount for successful digital transformation. The chapter
recognizes the shortfall of the existing Fintech framework, particularly
for the case of Islamic financial institution.
Chapter 7 provides a bibliometric review of the Fintech and Islamic
finance literature. The primary objective of this review is to find influential
themes, authors, and keywords. The study finds Professor M. K. Hassan
as the most influential author in Islamic finance, and Malaysia as the top
context of Islamic finance research.
Chapter 8 provides a discussion of Fintech applications and their impli-
cations on Islamic banking sector of Pakistan. Using content analysis of
the annual reports, the study finds that Islamic banks in Pakistan have
been using Fintech since 2006. There has been significant development in
terms of payment systems, financial security, and use of machine learning
for customer benefits. The forward implications for policymakers are as
such effective policy support for the Fintech sector in Pakistan could
support economic growth.
Chapter 9 emphasizes on the stakeholder engagement, Islamic Fintech,
and COVID-19. The chapter identifies that Fintech has helped the
Islamic finance ecosystem to operate efficiently even during the Pandemic,
primarily due to the faster and wider acceptance of Fintech globally. While
the cost of financial services dropped significantly, Islamic Fintech helped
in reducing negative impact on the financial system during COVID-19.
Chapter 10 looks deeper into the implication of Fintech for Islamic
financial system, not just for Islamic banks. Abdeljawad, Qamhieh, and
Rashid explain the theoretical basis of Fintech in Islamic financial system,
its importance for Islamic banking and non-banking financial institutions,
growth of the industry, and recent initiatives to integrate Shariah-
compliant financial system with Fintech innovation. The chapter also
discusses common challenges facing Islamic Fintech.
Chapter 11 discusses the level of Fintech adoption among Islamic
Banks from the MENA region. Hassan et al. argue that Fintech bene-
fits the customers immensely from the cost and convenience standpoints.
However, overall adoption of Fintech in MENA region is still at an
aborning stage.
Chapter 12 addresses an importunate question: how compliant is
Fintech in the eyes of the Shariah? The chapter discusses the interplay
 PREFACE xi

among Fintech-based financial services, Shariah compliance, and Islamic

financial system. Authors have also shed light on the need for and
benefits of Fintech-based financial services during the difficult times of
COVID-19, and beyond.
Chapter 13 provides details on Islamic views about the two most used
Fintech concepts: crowdfunding and peer-to-peer lending. The chapter
adds on the Shariah compliance of these instruments while financing
relatively smaller but risky Islamic start-ups. Authors argue that, while
crowdfunding seems closer to the profit and loss sharing practices, P2P
lending needs serious Shariah supervision.
In Chapter 14, Rabbani et al. systematically review cryptocurrency
in Islamic and conventional finance literature. They have added discus-
sions on Bitcoin, Ethereum, and Litecoin, and their compliance with
Shariah principles. They have broadly concluded that trading in these
cryptocurrencies is not compliant in the eyes of Shariah.
Chapter 15 considers the two most highly cited Fintech areas:
blockchain and crowdfunding. The authors discuss the current landscape
and future potential of these concepts. Chapter 16 extends on the impli-
cation of Fintech during the challenging time of COVID-19. Karim et al.
discuss how Fintech-based financial instruments could be useful in the
post-COVID-19 period. The chapter also adds to the literature on the
influence of Fintech on socio-economic development tools and channels
available under the broader umbrella of Islamic finance.

Summary and Way Forward

This book forwards three key messages. First, Fintech has become a
strong tool to achieve sustainable outcomes in terms of lower cost of
financial services, convenience to customers, and lower cost for financial
institutions. Second, despite having several benefits, due to limited regula-
tion, abrupt growth of Fintech companies not only disrupted the financial
markets but also created a gap between supply and demand of finan-
cial services fitting the prerequisites of Fintech universe. Consequently,
companies with core technology background will have an upper hand
over the companies with limited investment in technology. Also, countries
having limited investment in technology will lose technology arbitrage
to the countries with a higher amount of investment in technology and
conducive regulatory and market environment for Fintech. Third, Islamic
xii PREFACE

Fintech is growing despite limitations on the fronts of market struc-

ture, regulation, and Shariah compliance issues. Islamic Fintech market
in the GCC region has reached a $49 billion dollar mark and is expected
to grow at a very fast rate2. A strong collaborative effort of the regu-
lators and market participants is expected to develop frameworks to
control mushrooming of the Fintech firms, which may jeopardize the
stability of the Islamic finance system. Future studies might focus on
whether Fintech really addresses the existing problems with Islamic finan-
cial system. For instance, studies might consider investigating whether
Fintech can resolve the departure of Islamic finance from contracts based
on the profit-and-loss-sharing and Qardul Hasan (benevolent loans).

New Orleans, USA M. Kabir Hassan

Riffa, Bahrain Mustafa Raza Rabbani
Canterbury, UK Mamunur Rashid
 Contents

Introduction to Islamic Fintech: A Challenge

or an Opportunity? 1
Mustafa Raza Rabbani, M. Kabir Hassan, and Mamunur Rashid
Fintech and the Art of Disruption 29
Mustafa Raza Rabbani, M. Kabir Hassan,
Mohammad Dulal Miah, and Himani Grewal
A Fintech-Based Zakat Model Using Artificial Intelligence 49
Mustafa Raza Rabbani, M. Kabir Hassan, Shahnawaz Khan,
and Aishath Muneeza
Islamic Fintech and Bahrain: An Opportunity for Global
Financial Services 65
M. Kabir Hassan, Ammar Jreisat, Mustafa Raza Rabbani,
and Somar Al-Mohamed
The Future of Finance and Fintech: Visualizing
the Opportunities for Fintech in the MENA Region 89
M. Kabir Hassan, Habeeb Ur Rahiman,
Mustafa Raza Rabbani, and Asem Alhomaidi
Fintech Trends: Industry 4.0, Islamic Fintech, and Its
Digital Transformation 113
M. Kabir Hassan, Zehra Zulfikar, Mustafa Raza Rabbani,
and Mohd. Atif

xiii
xiv CONTENTS

An Insight into the Fintech and Islamic Finance Literature:

A Bibliometric and Visual Analysis 131
M. Kabir Hassan, Abu Bashar, Mustafa Raza Rabbani,
and Tonmoy Choudhury
Fintech Innovation and Its Application in Islamic Banking
from Pakistan 157
Sitara Karim, Mustafa Raza Rabbani, Abu Bashar,
and Ahmed Imran Hunjra
Fintech in the Islamic Banking Sector and Its Impact
on the Stakeholders in the Wake of COVID-19 175
M. Kabir Hassan, Rabab Hasan Ebrahim,
Mustafa Raza Rabbani, and Hasanul Banna
Fintech and Islamic Financial Institutions: Applications
and Challenges 193
Islam Abdeljawad, Shatha Qamhieh Hashem,
and Mamunur Rashid
An Assessment of Level of Adoption of Fintech in Islamic
Banks in the MENA Region 223
M. Kabir Hassan, Somar Al-Mohamed, Mustafa Raza Rabbani,
and Ammar Jreisat
Fintech, Pandemic, and the Islamic Financial System:
Innovative Financial Services and Its Shariah Compliance 243
M. Kabir Hassan, Mustafa Raza Rabbani, Ammar Jreisat,
and Muhammad Mostofa Hossain
An Islamic Finance Perspective of Crowdfunding
and Peer-To-Peer (P2P) Lending 263
M. Kabir Hassan, Mustafa Raza Rabbani, Shahnawaz Khan,
and Mahmood Asad Moh’d Ali
Islamic Finance and Cryptocurrency: A Systematic Review 279
Mustafa Raza Rabbani, M. Kabir Hassan, Fahmi Ali Hudaefi,
and Zakir Hossen Shaikh
Islamic Fintech, Blockchain and Crowdfunding: Current
Landscape and Path Forward 307
M. Kabir Hassan, Mustafa Raza Rabbani, Mamunur Rashid,
and Irwan Trinugroho
 CONTENTS xv

COVID-19 Challenges and the Role of Islamic Fintech 341

Sitara Karim, Mustafa Raza Rabbani, Mamunur Rashid,
and Zaheer Anwer

Index 357
 Notes on Contributors

Abdeljawad Islam is an associate professor in the Banking and Finance

department at An-Najah National University, Palestine. He received his
Ph.D. in corporate finance from the National University of Malaysia
in 2012. His research interests span corporate finance, accounting, and
fintech. He has several published papers, books, and conferences in
high-ranked journals, series, and proceedings.
Dr. Ali Mahmood Asad Moh’d is currently working as an assistant
professor at department of Management and Marketing at University of
Bahrain. Dr. Ali has published several research papers in the journals of
repute including Cogent Economics and Finance and Journal of Economic
Cooperation and Development etc.
Dr. Al-Mohamed Somar is working as an assistant professor at the
American University of the Middle East (AUM), College of Business
Administration, Egaila, Kuwait.
Dr. Anwer Zaheer is an associate professor of finance at Sunway Univer-
sity, Malaysia, is equipped with more than 14 years of teaching and
industry experience. He has earned Ph.D. degree from the Interna-
tional Centre for Education in Islamic Finance (INCEIF), Malaysia,
and an M.B.A. from Quaid-i-Azam University, Pakistan. He has worked
in leading Pakistani Universities: University of Management and Tech-
nology and The University of Lahore. His teaching includes subjects
such as Quantitative Finance, Investments, Macroeconomy, Monetary

xvii
xviii NOTES ON CONTRIBUTORS

Economics, and Islamic Banking. He has published in journals like

Finance Research Letters, Journal of Business Research, Accounting and
Finance, Pacific-Basin Finance Journal, and International Review of
Economics and Finance.
Dr. Atif Mohd. is an Assistant Professor at the Department of Commerce
and Business Studies, Jamia Millia Islamia (JMI), New Delhi (India).
Prior to joining JMI in 2016, he also served at the Central University
of Himachal Pradesh, Dharamshala, Himachal Pradesh (India) for four
years. He has a teaching experience of more than seven years. He earned
his Ph.D. from JMI in finance after completing his M.Com. from the
same university.
Dr. Banna Hasanul is a Lecturer in Banking and Finance at the Depart-
ment of Accounting, Finance, and Banking, Business School, Manchester
Metropolitan University (MMU), UK. Dr. Banna earned a Ph.D. in
Finance and Banking from the University of Malaya with a presti-
gious Full-Bright scholarship. His research spans banking and finance,
financial technology, financial inclusion, digital finance, ESG, managerial
ability, and micro-finance. He has published 30+ peer-reviewed articles in
high-impact factor journals including Journal of International Financial
Markets, Institutions and Money, Annals of Operations Research, Finance
Research Letters, Journal of International Development, Annals of Public
and Cooperative Economics, Journal of Cleaner Production, International
Journal of Islamic and Middle Eastern Finance and Management, Singa-
pore Economic Review, Studies in Economics and Finance, Journal of Asia
Pacific Economy, among others, 5+ book chapters and 20+ conference
papers.
Mr. Bashar Abu is currently pursuing Ph.D. from IMS Unison Univer-
sity, Dehradun. Previously he has completed M.B.A. from Lovely Profes-
sional University, Punjab., India.
Dr. Choudhury Tonmoy has joined the King Fahd University of
Petroleum and Minerals from Edith Cowan University, Australia, where
he was coordinating and lecturing on Risk management in Financial
Market and Institutions. In 2021, he has won the prestigious Emerald
Literary Award for his works on risk spillover of US states. His research
focuses on the multidisciplinary implication of financial management with
a strong focus on risk spillover. He has finished his Ph.D. in Banking
from Western Sydney University in 2019. He also holds a bachelor’s
 NOTES ON CONTRIBUTORS xix

in accounting from Macquarie University, a master’s in finance from

Australian National University, and an M.Phil. in Management from the
University of Wales, UK.
Dr. Ebrahim Rabab Hasan is an Assistant Professor at the Department
of Economics and Finance, College of Business Administration. She holds
a Ph.D. in Finance from the University of Bradford, UK. Her research
interests are in the areas of corporate finance, including dividend policy,
capital structure, and cash holdings as well as corporate investments and
Financial Technology (Fintech).
Dr. Grewal Himani is working as an Assistant professor at Moradabad
Institute of Technology, Moradabad, India. Prior to this she has worked
as a lecturer at IMS Unison University, Dehradun.
Professor Dr. Hassan M. Kabir is a Professor of Finance in the Depart-
ment of Economics and Finance in the University of New Orleans. He
currently holds two endowed Chairs—Hibernia Professor of Economics
and Finance, and Bank One Professor in Business—in the University of
New Orleans. Professor Hassan is the winner of the 2016 Islamic Devel-
opment Bank (IDB) Prize in Islamic Banking and Finance. Professor
Hassan has over 383 papers published/forthcoming in refereed academic
journals. Professor Hassan has also been cited as one of the most prolific
authors in finance literature in the last fifty years in a paper published
in the Journal of Finance Literature. His publication record puts him
among the top 5.6% of all authors who published in the 26 leading finance
journals.
Dr. Hashem Shatha Qamhieh holds a bachelor’s degree in architectural
engineering, a master’s degree in business administration, and a Ph.D.
in Economics and Management of Technology. Dr. Shatha has served
in different positions and is currently an assistant professor at An-Najah
National University in the Finance and Banking department, within the
faculty of economics and administrative sciences. Her research focus is
on FinTech, financial risk analysis, economic forecasting, and financial
network applications.
Hossain Muhammad Mostofa of Bangladeshi Nationality, currently
pursuing his Ph.D. from the Academy of Islamic Studies, University of
Malaya, Malaysia. He previously has completed his bachelor’s degree
xx NOTES ON CONTRIBUTORS

from the Faculty of Islamic Jurisprudence and Law, University of Al-

Azhar, Egypt, awarding a full bright scholarship and the masters from
the Faculty of Islamic Revealed Knowledge and Human Sciences, Inter-
national Islamic University Malaysia (IIUM). Besides, he has obtained
a diploma in Media Studies from the International University of Latin
America, Cairo, Egypt, and pursued a degree in Islamic Studies under the
Bangladesh Madrasha Education Board Dhaka, Bangladesh, and placed
6th position on the merit list and 3rd on talent pool all over the country
and achieved another specialized degree of Hadith under the same board.
He has authored a book on Abortion from the Islamic Perspective, several
academic articles, conference papers, and daily newspaper columns in
national dailies through the single and joint authorship.
Hudaefi Fahmi Ali is currently a Lecturer at Fakultas Ekonomi dan
Bisnis Islam (FEBI), Institut Agama Islam Darussalam (IAID) Ciamis,
Indonesia. He is a former full-time Senior Researcher at the Indonesian
Zakat Agency’s Center for Strategic Studies (Puskas BAZNAS). He is
also a Ph.D. student at the UBD School of Business and Economics,
Universiti Brunei Darussalam. He earned a Master’s degree in Shariah
(research in Islamic banking and finance) from the Academy of Islamic
Studies, University of Malaya, Malaysia. His academic contributions deal
primarily with topical issues in Islamic economics, in particular, Islamic
finance and banking as well as Islamic social finance. His contributions
include maqasid al-Shariah and Islamic banking performance, current
issues of zakat administration (e.g. zakat and sustainable development
goals/UN SDGs, zakat and COVID-19) as well as local development
(e.g. pesantren and local economic development. He has used both struc-
tured and unstructured data and employed both human intelligence (e.g.
inductive, deductive, and abductive reasoning) and artificial intelligence
(e.g. machine learning) to answer research questions.
Hunjra Ahmed Imran has over a decade of teaching and research expe-
rience at both undergraduate and postgraduate levels. Currently, Ahmed
is working in the domain of corporate finance, corporate governance, and
sustainability. Ahmed has published in well-reputed journals, i.e. Finance
Research Letters, Technological Forecasting and Social Change, Journal
of Environmental Management, Research in International Business and
Finance, and Quarterly Review of Economics and Finance, among others.
Ahmed is on Editorial and Referee Board of several ABS and ABDC
indexed journals. Ahmed won the ‘Outstanding Reviewer Award-2021’
 NOTES ON CONTRIBUTORS xxi

by Emerald Literati, Distinguished Reviewer Award-2021 by VIRTUS

INTERPRESS and the ‘Best University Teacher Award-2020’. Ahmed
has already supervised 06 Ph.D.s and over fifty M.S./M.Phil. scholars.
Dr. Jreisat Ammar is an Assistant professor in Finance at the University
of Bahrain, and has a Ph.D. in Finance from the University of Western
Sydney, Australia. Extensive university teaching experience across finance
units at various universities. Research interests in Finance, Banking, Finan-
cial Market, and measurement of banking, and financial management. Dr.
Jreisat published papers in various Journals to name a few, such as the
Polish Journal of Management Studies, Cogent Economics and Finance,
International Journal of Economics and Business Research, and the Inter-
national Journal of Energy Economics and Policy. Dr. Jreisat received
an Honors-Awards-Grants-Scholarships, San Francisco University, USA,
2016.
Dr. Karim Sitara is serving as an Assistant Professor of Finance and
FinTech at ILMA University, Karachi, Pakistan. She is a Ph.D. in Finance
and Banking from the School of Economics, Finance, and Banking
(SEFB), College of Business, Universiti Utara Malaysia. She has a number
of publications in well-known journals. Her research interests include
Green Assets, Cryptocurrencies, Financial Economics, Corporate Gover-
nance, Sustainability, Energy, Stock Markets, and Financial Markets.
Dr. Khan Shahnawaz received his Ph.D. in Computer Science from
the Indian Institute of Technology (Banaras Hindu University), Varanasi,
India. His areas of specialization are machine learning, natural language
processing, blockchain, and FinTech.
Currently, Dr. Shahnawaz Khan is serving as an assistant professor
Faculty of Engineering, Design, and Information and Communications
Technology, Bahrain Polytechnic, Bahrain Prior to this he co-founded
2 IT companies and served as a chief technical officer (CTO) and has
been associated with IIT (BHU), Saudi Electronic University (SEU), and
Galgotias University (GU) as a lecturer, course coordinator, and program
coordinator.
Dr. Miah Mohammad Dulal is an Associate Professor and Head
of the Department of Economics and Finance at the University of
Nizwa, Oman. He has obtained his Master’s degree (M.B.A.) in Finance
and Ph.D. in Development Economics from Ritsumeikan Asia Pacific
University, Japan. Dr. Miah has published several academic books and
xxii NOTES ON CONTRIBUTORS

contributed more than 40 research papers to peer-reviewed interna-

tional journals. He has attended numerous international conferences as
an invited speaker and facilitator in various countries. Dr. Miah’s research
interest includes institutional economics, corporate finance and gover-
nance, Islamic banking and finance, and environmental finance. Currently,
he is serving as an editorial member of several journals.
Dr. Muneeza Aishath is an Associate Professor at INCEIF, Malaysia
which is known as the global University of Islamic Finance. She has served
as the first female Deputy Minister of the Ministry of Islamic Affairs
in the Maldives; Deputy Minister of Ministry of Finance and Treasury
in the Maldives; Head of Islamic Finance of Capital Market Develop-
ment Authority of Maldives; member of Islamic Fiqh Academy (National
Fatawa Council of Maldives); first chairman of Hajj pilgrimage fund,
Maldives Hajj Corporation Limited; chairman of Maldives Center for
Islamic Finance Limited which was set by the government of Maldives
to strategize the Maldives as the hub of Islamic finance in South Asia;
Islamic Finance consultant who developed the first Shariah-compliant
Islamic microfinance scheme offered in the Maldives; the Shariah Advisor
who structured all the corporate sukuks offered in the Maldives; Shariah
Adviser who structured the private sukuk and Islamic treasury instru-
ments for the government of Maldives; and the consultant who drafted
the Islamic capital market legal framework for the country.
Dr. Rashid Mamunur is a Senior Assistant Professor of Finance at the
School of Business and Economics, Universiti Brunei Darussalam. Prior
to joining UBD, Dr. Mamunur taught Finance at the University of
Nottingham and East West University (Bangladesh) for over 17 years. Dr.
Mamunur publishes widely in Corporate Finance, International Finance
and FinTech. Some of his works appeared in JIFMIM, AAAJ , Pacific-
Basin Finance Journal, International Review of Economics and Finance,
International Journal of Bank Marketing, Singapore Economics Review,
Renewable Energy, Tourism Analysis. He has led multiple international
grants, awarded with school best researcher award, best reviewer award,
and edited several special issues for renowned journals. Dr. Mamunur is
a Fellow of the Higher Education Academy, United Kingdom. He has
been serving as Associated Editor of IMEFM, a ABDC B-ranked Islamic
Finance journal, and JECD, a forty-year-old Scopus indexed economic
and development journal.
 NOTES ON CONTRIBUTORS xxiii

Rahiman Habeeb Ur is currently working as an assistant professor at the

college of Business administration, Kingdom University, Bahrain.
Dr. Rabbani Mustafa Raza holds a Ph.D. in Banking and Financial
Services from the prestigious Jamia Millia Islamia, University, New Delhi,
India. His research areas are Financial Technology (Fintech) and its
potential application in Islamic finance and banking industry, Integrating
the Halal economy with Islamic finance and exploring the possibilities of
Shariah-compliant cryptocurrency. He is serving as an Assistant Professor
at the Department of Economics and Finance, University of Bahrain.
Prior to this he has been His work has been published in a variety of
international journals including Energy Economics, Research in Interna-
tional Business and Finance (RIBAF), Journal of Islamic and Middle
eastern Finance and Management, Economic Research, Journal of Islamic
Accounting and Business Research, Heliyon Business and Economics, Envi-
ronmental Science and Pollution Research etc.
Shaikh Zakir Hossen is a Lecturer in Commercial Studies Division as
a Faculty of Islamic Banking and Finance, under Ministry of Educa-
tion, Kingdom of Bahrain since 2015. Prior to this, he worked more
than 15 years in commercial and academic industry. He has published
numerous articles in referred journals and presented many papers in
various conferences, both local and abroad exclusively in different areas of
Accounting, management, and Islamic Banking and Finance. He has also
participated in a variety of seminars, forums, workshops, and international
conferences.
Prof. Trinugroho Irwan is a Full Professor of Finance at the Faculty
of Economics and Business, Universitas Sebelas Maret (FEB UNS),
Indonesia. Currently, he is also the Director of Partnership, Develop-
ment, and International of UNS and the Chairman of the Center of
Fintech and Banking UNS. Irwan was the UNS best lecturer in 2015
and 2018 as well as the finalist of national best lecturer in 2018. Irwan
graduated with a Ph.D. degree in banking and finance from the University
of Limoges, France. He is also the Vice Chair for Program and Interna-
tional Affairs of the Indonesian Finance Association (IFA). He has done
some research projects and consulting to the Indonesia Financial Services
Authority (OJK), the Indonesia Deposit Insurance Corporation (IDIC),
World Bank, USAID, and Bank Indonesia. Irwan has published a number
of papers in reputed journals including Journal of Financial Stability,
xxiv NOTES ON CONTRIBUTORS

Economic Modelling, Finance Research Letters, Global Finance Journal,

British Accounting Review, Economic Systems, Research in International
Business and Finance, Journal of Behavioral and Experimental Finance,
Borsa Istanbul Review, International Economics, Economics Bulletin,
Emerging Markets Finance and Trade, Singapore Economic Review, Inter-
national Journal of Emerging Markets, and Journal of Asia Business
Studies. He also serves as managing editor and associate editor for
some reputable journals including the International Review of Economics
and Finance (Elsevier). Irwan is also an assessor, peer review team
member, and expert for some higher education international accredita-
tion and certification such as ABEST21, FIBAA, and ASEAN University
Network-Quality Assurance (AUN-QA).
Zulfikar Zehra is currently working as an Assistant Professor at Shaheed
Bhagat Singh College, University of Delhi, Delhi, India. She has obtained
a doctorate in Digital Marketing from the Centre for Management
Studies (CMS), Jamia Millia Islamia, New Delhi, India. She has also done
a research project in Intellectual Property Rights with CropLife Interna-
tional, Washington, DC, USA, during her M.B.A. from Amity University.
She has received an Academic Excellence Award from Aligarh Muslim
University (AMU), India. She has numerous research publications in
various International Journals.
 List of Figures

Introduction to Islamic Fintech: A Challenge or an

Opportunity?
Fig. 1 Growth of global fintech industry; billion USD (Source
Statista [updated in March 2022], accessed from https://
www.statista.com/outlook/dmo/fintech/worldwide#transa
ction-value) 4
Fig. 2 Islamic fintech global heatmaps 2021 (Source Global Islamic
Fintech Report 2021 [Dinar Standard & Elipses, 2021])
Notes SEA = Southeast Asia, SSA = Sub-Saharan Africa 6
Fig. 3 Islamic finance core principles (Source Author’s own
compilation) 10
Fig. 4 Challenges faced by the Islamic fintech (Source Author’s
own compilation) 15
Fig. 5 Opportunities for Islamic fintech (Source Author’s own
compilation) 19

Fintech and the Art of Disruption

Fig. 1 Evolution of fintech (Source [Arner et al., 2015]) 32
Fig. 2 Crowdfunding platform (Source Adapted from Rabbani et al.
[2021]) 36

A Fintech-Based Zakat Model Using Artificial Intelligence

Fig. 1 COVID-19 and global poverty (Source www.worldbank.org) 52

xxv
xxvi LIST OF FIGURES

Fig. 2 Short-term impact of COVID-19 on poor (Source Author’s

own compilation) 54
Fig. 3 AI-Based Zakat model (Source Adapted from [Khan et al.,
2021a, b; Rabbani et al., 2021]) 58

Islamic Fintech and Bahrain: An Opportunity for Global

Financial Services
Fig. 1 Global Islamic finance assets ($billion) (Source
DinarStandard, 2021/2022) 70

The Future of Finance and Fintech: Visualizing the

Opportunities for Fintech in the MENA Region
Fig. 1 Key participants of Fintech ecosystem (Author’s own
architecture) 93
Fig. 2 Fintech ecosystem proposed framework (Source Developed
based on review) 95
Fig. 3 Middle East venture capital investment into Fintech
companies (Source The Dubai International Financial Centre
[DIFC] Fintech Hive and Accenture) 96
Fig. 4 Number of Internet users in a leading country (Source
International telecommunication Union [ITU]) 98
Fig. 5 Trends of ICT development in MENA region (Source ITU
World Telecommunication/ICT Indicators database) 98
Fig. 6 Fintech startup creation MENA (Source Fintech Focus,
KPMG) 103

An Insight into the Fintech and Islamic Finance Literature:

A Bibliometric and Visual Analysis
Fig. 1 Scopus research category 136
Fig. 2 Annual scientific publication 136
Fig. 3 Most relevant authors 137
Fig. 4 Source growth 139
Fig. 5 Co-citation analysis of cited Authors 140
Fig. 6 Co-occurrence of author’s keywords 143
Fig. 7 Bibliographic coupling of documents 144
 LIST OF FIGURES xxvii

Fintech Innovation and Its Application in Islamic Banking

from Pakistan
Fig. 1 Evolution of digital banking system (Source Adapted
from Rahim et al., 2018) 170

Fintech in the Islamic Banking Sector and Its Impact on

the Stakeholders in the Wake of COVID-19
Fig. 1 Islamic versus conventional Fintech (Source Adapted
from DinarStandard (2020) 180
Fig. 2 Islamic Fintech by sector (Source Adapted from The Global
Islamic Fintech Report, DinarStandard, 2021) 181
Fig. 3 Uses of Islamic Fintech following COVID-19 (Source
Adapted from Hassan et al., 2020, p. 108) 184

Fintech and Islamic Financial Institutions: Applications

and Challenges
Fig. 1 Global consumer Fintech adoption rates for the years 2015,
2017, and 2019 (Source EY Global Fintech Adoption Index
[2019]) 199
Fig. 2 Changes in reasons for using a Fintech challenger
for the years 2017 and 2019 (Source EY global Fintech
Adoption Index [2019]) 199
Fig. 3 Top reasons for SMEs to use Fintech globally for the year
2019 (Source EY global Fintech Adoption Index [2019]) 200
Fig. 4 Subcategories of the Top 100 Fintech Unicorns
as of September 2021 (Source Researchers calculation based
on fintechlabs.com) 201
Fig. 5 The top five Islamic Fintech market sizes within the OIC
countries (Source Global Islamic Fintech Report [2021]) 202
Fig. 6 The Global Islamic Fintech (GIFT) Index (Source Global
Islamic Fintech Report [2021]; Note OIC countries are
distinguished using the darker colour) 203

Fintech, Pandemic, and the Islamic Financial System:

Innovative Financial Services and Its Shariah Compliance
Fig. 1 Fintech-based Islamic Financial Services (Source Author’s
own compilation) 250
xxviii LIST OF FIGURES

Islamic Finance and Cryptocurrency: A Systematic Review

Fig. 1 Bitcoin return in last one year (Source https://www.coi
ndesk.com/price/bitcoin) 294

Islamic Fintech, Blockchain and Crowdfunding: Current

Landscape and Path Forward
Fig. 1 Blockchain application in Islamic finance (Source Adapted
from Hassan et al. [2020a, 2020b]) 310
Fig. 2 No of Fintech Firms in selected OIC countries (Source IFN
Islamic Fintech) 314
Fig. 3 Number of Fintech startups by core technology (Source
DinarStandard [2018]) 315
Fig. 4 Blockchain data structure 316
Fig. 5 The overall structure of Blockchain economy and Islamic
(Source Finance) 318
Fig. 6 Smart phone penetration in top 10 countries in the world
vs. select OIC countries (September 2018) (Source O’Dea
[2020]) 319
Fig. 7 Future Fintech-based Islamic financial services (Source
Author’s own compilation) 325
Fig. 8 Current Islamic trade finance practices (Source Author’s own
architect) 326
Fig. 9 Future Blockchain-based Islamic trade finances (Source
Author’s own architect) 327
 List of Tables

Introduction to Islamic Fintech: A Challenge or an

Opportunity?
Table 1 Difference between fintech and traditional banks 8

Fintech and the Art of Disruption

Table 1 Popular investment apps comparison 37
Table 2 Major Cryptocurrencies comparison 38

An Insight into the Fintech and Islamic Finance Literature:

A Bibliometric and Visual Analysis
Table 1 Most influential documents 138
Table 2 Most influential journals 138
Table 3 Most important countries 140
Table 4 Top affiliations 141
Table 5 Evolving themes and subthemes in Islamic finance 146

Fintech Innovation and Its Application in Islamic Banking

from Pakistan
Table 1 Keywords and theme selection 164
Table 2 Descriptive statistics of variables over the period
(2006–2020) 165

xxix
xxx LIST OF TABLES

Table 3 The impact of selected keywords on profitability (ROA) 167

Table 4 The impact of selected themes on profitability (ROA) 168

An Assessment of Level of Adoption of Fintech in Islamic

Banks in the MENA Region
Table 1 Overview of the nine core Fintech technologies 227

An Islamic Finance Perspective of Crowdfunding and

Peer-To-Peer (P2P) Lending
Table 1 Types of crowdfunding with description 267
Table 2 Difference between crowdfunding and P2P lending 268

Islamic Finance and Cryptocurrency: A Systematic Review

Table 1 An overview of the literature on Cryptocurrency and sharia
compliance 283
Table 2 Analysis of sharia compliance of Cryptocurrency 297

Islamic Fintech, Blockchain and Crowdfunding: Current

Landscape and Path Forward
Table 1 Current landscape of Islamic Fintech and future
technologies 320

COVID-19 Challenges and the Role of Islamic Fintech

Table 1 Voluntary and compulsory acts of Islamic social finance 350
Table 2 Islamic Fintech and social inclusion elements 351
Introduction to Islamic Fintech: A Challenge
or an Opportunity?

Mustafa Raza Rabbani , M. Kabir Hassan ,

and Mamunur Rashid

1 Introduction
Islamic Finance
Islamic finance differentiates itself from the conventional finance primarily
based on its treatment of interest (Riba), followed by the equity- and
trade-based financing mechanism, avoiding unnecessary risk and uncer-
tainty, and supporting entrepreneurship and mutual solidarity (Saeed
et al., 2021). Islamic financial system demotes debt-based financing. The

M. R. Rabbani (B)
Department of Economics and Finance, College of Business administration,
University of Bahrain, Sakhir, Bahrain
e-mail: [email protected]
M. K. Hassan
Department of Economics and Finance, University of New
Orleans, New Orleans, LA, USA
e-mail: [email protected]
M. Rashid
Christ Church Business School, Canterbury Christ Church University,
Canterbury, UK
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 1

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_1
2 M. R. RABBANI ET AL.

system earned much popularity during the global financial crisis of 2007–
2008 as its performance stayed stable even when the global conventional
banks were collapsing. Islamic finance industry has been growing at a
supernormal growth for a very long time. The industry has reached $2.70
trillion value by the year 2020 (IFSB, 2021), which is contributed largely
by Islamic banks (around 70%). The growth of Islamic finance industry
has slowed down recently due to COVID-19 and geopolitical crises
involving systemically important Islamic finance jurisdictions1 (Yaya et al.,
2021). Most significant Islamic finance jurisdictions include Kingdom of
Saudi Arabia, Malaysia, United Arab Emirates, Indonesia, and Iran.
Slow growth of Islamic banking in recent years is contributed not only
by geopolitical crisis in important Islamic finance jurisdictions but also
attributed to the lack of innovation and limited investment in technology
when compared to their conventional counterparts (Banna et al., 2021).
This trend is changing rapidly as Islamic banks are investing in mobile
banking and collaborating with Fintech companies to offer services to
survive the competition. Theoretically, Islamic finance broadly stands on
three pillars: equity (versus debt), compliance (to Shariah norms), and
shared value (Hassan & Rashid, 2018). Fintech operations in Islamic
financial institutions might face the challenge of Shariah compliance and
might require a different framework than the usual supervision applicable
to existing Islamic financial institution.

Fintech and Its Theoretical Basis

Financial Technology also abbreviated as Fintech has emerged as the most
disruptive technology in the twenty-first century (Fu & Mishra, 2022;
Lv & Xiong, 2022). Even though the global financial crisis of 2007–
2008 significantly triggered the rise of Fintech, the need for this drastic
change has been fuelled by two factors. First comes declining customer
confidence in the traditional financial services, which motivates them to
search for alternative solutions. Second involves the rise of technology-
based entrepreneurship that intends to develop new concepts, ideas, and
applications, mostly for mobile users, that enhances our communication,
facilitates our interaction, and transforms our user experience, everywhere
financial transaction is involved (Nejad, 2022; Yue et al., 2022).

1 https://www.ifsb.org/press_full.php?id=570&submit=more.
 INTRODUCTION TO ISLAMIC FINTECH … 3

Fintech is defined in several ways. The most usual definition is based

on its purpose to make people’s life easier by offering financial services
using a mobile phone as a channel (Manyika et al., 2016). Since the visu-
alisation of using mobile phones or the internet, Fintech is expected to
offer personalized financial services that does not go under the radar of
the authorities meant to regulate financial markets and institutions. The
peer-to-peer (P2P) transaction framework facilitates need-based lending
facilities while checking credit histories, scoring, and eligibility using arti-
ficial intelligence and machine learning. Using Fintech, existing banks can
modify their existing service and payment framework using mobile appli-
cations. For instance, banks offer mobile applications that can be used to
apply for credit cards. The process is much faster than manual paper-based
applications, which can also reduce the overall cost of issuing a card.
Is Fintech financial entrepreneurship? Fintech companies are often
referred to as financial startups. These are generally raw ideas initially,
and with gradual refinements, the ideas turn into complete financial solu-
tions offering different financial services. This sort of entrepreneurship is
threatening traditional financial institutions, as they are offering various
financial services that include lending and borrowing services. Due to a
limited legal framework, the Fintech institutions are not yet fully regu-
lated. One simple search on Google Play Store or Apple App Store returns
thousands of apps that can manage digital payments. Consequently, the
growth of this industry has been branded as a ‘financial disruption’.
Financial inclusiveness is highlighted as the most important benefit
of Fintech. Due to unique institutional limitation, traditional financial
institutions, even microfinance, cannot serve people from all walks of
life. Limited access to finance has been the primary barrier to economic
growth in most developing and emerging economies (Demirgüç-Kunt
et al., 2015). Digital finance makes money transfer easier and less costly
(UNSGSA, 2018). Fintech can help reach additional 1.6 billion customers
with new financial services, SMEs could get net agricultural financial
support, and new social ventures can start with community financial
support (Pazarbasioglu et al., 2020; Sahay et al., 2020). This massive
support for financial inclusivity is expected to create more jobs, reduce
financial inequality, and help countries fulfill millennium development
goals (Allen et al., 2016; Klapper et al., 2006) (Fig. 1).
4 M. R. RABBANI ET AL.

7,345.00
5,924.00
4,700.00
4,078.00
3,322.00

2,518.00
1,805.00
1,441.00
1,376.00
1,069.00

810.3
693.7

441.2
401.4

324.1
279.2
238.1
227.8

201.8
158.7

34.17
22.51

6.63
5.48
5.03
3.61

4.35

3.95

3.89
1.93

2017 2018 2019 2020 2021

Alternative Financing Alternative Lending Digital Assets

Digital Investment Digital Payments Neobanking

Fig. 1 Growth of global fintech industry; billion USD (Source Statista [updated
in March 2022], accessed from https://www.statista.com/outlook/dmo/fin
tech/worldwide#transaction-value)

Growth of Fintech
The last decade has witnessed a rise of Fintech and allied companies.
Statista reports that digital payment is the most important Fintech activity
over the years which has reached $7.345 trillion dollars. This segment has
been closely followed by neobanking and digital investment. Neobanking
is digital banking with no physical existence (on paper) of any lending
or deposit activity. Other terms that are commonly used in relation
to Fintech include artificial intelligence (or AI in brief), blockchain,
cryptocurrency (often referred to as cryptos in brief), digital payments,
peer-to-peer (P2P) lending, crowdfunding, InsureTech, and RegTech.
Islamic Fintech market is on the rise. There is a high expectation about
Islamic Fintech as it is expected to cover 1.8 billion Muslim popula-
tion using Fintech services that are ‘accessible’, adequately ‘packaged’,
and ‘transparent’ in the eyes of Shariah, consumers, and institutions.2
Like the conventional Fintech, Islamic Fintech is defined as technolog-
ical tools easing the distribution of Islamic financial services. Even for
the namesake, the commonly used term is Islamic Fintech, general views
are of the opinion that the purpose it serves surrounds should give it a

2 https://www.forbes.com/sites/lawrencewintermeyer/2017/12/08/the-future-of-isl
amic-fintech-is-bright/?sh=4e547b9d65fa.
 INTRODUCTION TO ISLAMIC FINTECH … 5

fitting title—Fintech in Islamic financial institutions—rather than Islamic

Fintech.
Going beyond this rhetorical confusion, until the most recent survey
by Dinar Standard and Elipses (2021),3 Islamic Fintech market in the
Organization of the Islamic Cooperation Council (OIC) countries stands
at US$49 billion by the end of 2020. While the figure is less than 1%
of the global Fintech universe, the report has projected a 21% growth
rate for the Islamic Fintech by 2025, reaching a value of US$128 billion,
whereas the same growth rate for the traditional Fintech is only around
15%. Among a total of 64 countries, two Southeast Asian countries—
Malaysia and Indonesia, two Middle Eastern countries—Saudi Arabia
and the United Arab Emirates, and one European nation—the United
Kingdom, are found to offer the strongest Islamic Fintech ecosystems.
Figure 2 presents the Islamic Fintech heatmaps. Clearly, Asian coun-
tries lead Islamic Fintech activities, dominated by Fintech development
in Southeast Asia, Middle East, and South and Central Asia. Like the
Fintech development in traditional finance shown in Fig. 1, Islamic
Fintech development has seen significant growth in digital payment.
Other significant segments include alternative finance, wealth manage-
ment, and fundraising. These activities account for almost 70% of the
Fintech development in the selected area. The report (see footnote 3) also
publishes that more than 50% of the Fintech-related activities are geared
toward raising equity funds in the coming years. This survey provides
strong support to Fintech as a strong tool for Islamic SMEs and startups
that can raise alternative financing without going to the formal finan-
cial markets and institutions. This is another example of ‘disruption’ in
financial markets.

Fintech Entrepreneurship: Benefits and Challenges

Fintech shows enormous potential to change the global economic atmo-
sphere by engaging billions of people through digital financial services and
closing the financial exclusion problems created by the traditional finan-
cial system. The most common benefit of Fintech is, therefore, financial
inclusion that strengthens financial flow. Fintech provides an opportu-
nity for banks and financial institutions to modify existing products and

3 https://cdn.salaamgateway.com/reports/pdf/6127a0965afd7898a34f69dadc24b8
d17ada0b1b.pdf.
6 M. R. RABBANI ET AL.

25

20
20

17

15
13
12
11 11

10 9 9
88 8 8 8

6
5 5 5 5
5 4 4 4 4
3 3 3
2 2 2 2 2 2 2 2 2
1 11 1 11 1 11 1 1111

SEA MENA GCC Europe North America South & Central Asia MENA Others SSA

Fig. 2 Islamic fintech global heatmaps 2021 (Source Global Islamic Fintech
Report 2021 [Dinar Standard & Elipses, 2021]) Notes SEA = Southeast Asia,
SSA = Sub-Saharan Africa

provide innovative financial services for a better experience at a low cost.

However, that modification is expensive and considered as ‘disruptive’.
Several studies support the view that efficient management of Fintech
can benefit Islamic financial institutions by delivering their services to
customers previously uncovered by the system (Atif et al., 2021; Hassan
et al., 2020; Rabbani et al., 2021a, 2021b).
Since the global financial crisis of 2008, banks and financial institu-
tions across the globe have been facing aggravated financial regulations
(Flögel & Beckamp, 2020; Nastiti & Kasri, 2019). Otherwise, these insti-
tutions cannot avoid paying huge penalties (Busch, 2021). Although the
traditional banks and financial institutions religiously follow these regula-
tions but still the customers have shifted to the digital solutions mainly
due to the benefits it brings in terms of innovation, cost, and convenience
(Agarwal & Zhang, 2020). Fintech entrepreneurships offer innovative,
 INTRODUCTION TO ISLAMIC FINTECH … 7

efficient, and cutting-edge financial services at a very low cost, which

comes at sheer benefits to people from remote areas (Anshari et al., 2020;
Mosteanu & Faccia, 2021). Fintech has made it possible to streamline
the complex traditional financial services into more exciting and acces-
sible to people mainly the millennial and younger generation (Khan et al.,
2022; Magnuson, 2018). Accommodating and customizable user expe-
rience offered by mobile financial applications help spread the financial
services to a wider group of the population. As a result, Fintech companies
effectively save ten times more than the traditional financial institutions
(Cho & Chen, 2021). At the current stage, Fintech companies are not
widely regulated. Young graduates with technological backgrounds are
teaming up with people having know-how of the financial sector to
develop new ideas that are transferred to valuable Fintech startups.
From these standpoints, the current chapter asks a few basic ques-
tions. Do Fintech companies have the capability to outrun the traditional
banks and financial institution? What is the level of conformity between
the Fintech companies and Islamic finance? Is Fintech a doable business
model that supports core Islamic finance principles, such as profit and loss
sharing, shared prosperity, and a fair economic system?
Answers are not that straightforward. Banks do business on trust and
develop their clientele based on loyalty and customer service for over two
centuries. They have developed this ‘feeling’ that bank is a safe place to
keep money and banks do take care of their customers (Andaleeb et al.,
2016; Iqbal et al., 2018). This trust is being built over a long period
of time backed up by strong customer relationship management (Jreisat
et al., 2021).
Banks are comparatively large transnational corporations with massive
capital. Fintech startups are dependent on the banks and need to partner
with them to win customer trust (Rabbani, 2022). Banks are less risky
as compared to Fintech companies as they are more established, and the
rates of return are more stable (So, 2021). Banks also have risk manage-
ment instruments—a lot of these as derivative instruments—to manage
financial exposure. Fintech entrepreneurs are overall much riskier than
banks. A brief comparison between the banks and the Fintech companies
is presented in Table 1.
Given their obvious differences, in brief, banks offer less risky financial
transactions, while Fintech offers privacy, cost reduction due to interme-
diation, and convenience as it is based on technology. In the subsequent
sections, we will discuss how Fintech evolved over time with its services
and how relevant it is to Islamic finance.
8 M. R. RABBANI ET AL.

Table 1 Difference between fintech and traditional banks

Points Fintech Traditional banks

meaning Fintech uses computer programs Traditional banks are the

or technology to provide financial financial institutions licensed to
solutions to the customers of provide financial services in
banks and financial institutions terms of accepting deposits and
(Rabbani et al., 2020) advancing loans to individuals
and businesses (Li et al., 2017)
Technology Fintech is tech-based innovation, Although the traditional banks
which is built on the technological are slowly and steadily
innovations like machine learning, embracing the technology, they
artificial intelligence, and quantum are still struggling with the
computing for making financial legacy infrastructure. To
services faster, more accurate, and compete with Fintech firms,
more efficient there has been a massive change
in technology infrastructure
among traditional banks
Regulation Fintech ideas/innovations are not Every country has a union
directly regulated yet. Some of the government or central bank to
products that came out of the regulate the banks and financial
Fintech innovation are facing institutions. These regulators
regulatory restrictions, including make strict regulations to
‘buy now pay later’, safeguard the interest of the
cryptocurrency, etc. The regulators lender and borrowers. Banks are
are still looking for ways to highly regulated financial
properly regulate these startups, institutions
and it gives them an edge over the
traditional banks to work faster
and adopt to the needs of the
customers
Growth potential There is a clear edge to Fintech in Banks are growing too. With
terms of growth potential. The adoption of right innovations
industry is at the growth stage and collaborations, they can
now and there is immense grow further. It is easy for a
potential to grow further and bank to invest in Fintech and
faster find an easier way to get new
customers
Risk factors Fintech startups are considered Traditional banks are governed
riskier due to a new and less by stricter regulation and that
established nature of business. makes them less risky as
People still prefer Fintech because compared to Fintech
it offers flexible, faster, and
innovative less expensive financial
services

Source Author’s own compilation

 INTRODUCTION TO ISLAMIC FINTECH … 9

2 Islamic Finance
Islamic finance has emerged as one of the most important trends of the
twenty-first century in the finance world (Abdelsalam & El-Komi, 2016).
It has been a key challenge to the conventional financial system (Rabbani
et al., 2021a, 2021b). The basic premise of Islamic finance is to establish
equality and justice in the society with equal distribution of wealth and fair
treatment for everyone. Islamic finance relies on the financial system that
adheres to the rules and regulations laid down by the Shariah. Shariah
laws are prescribed by the guidance from the Holy Qur’an and Sunnah
(teachings and practices) of the Prophet Muhammad (Peace be upon him).
These guidelines are often regularized by Maqasit al Shariah—the objec-
tive of Shariah- in literal meaning. Although the Islamic and conventional
financial system serves similar clientele, the prohibition of interest rate is
the first tangible differentiator between the two. Fixed interest rate has
been identified as an economic injustice, as it tends to exploit parties
involve in a financial transaction (Yaya et al., 2021). Figure 3 shows a
summary of factors that shape the Islamic finance universe.

Prohibitions
a. Non-interest mode of finance: Islamic financial system is a non-
interest medium of the financial system. Both lenders and borrowers
are not allowed to charge or pre-fix any interest as this is completely
non-interest mode of financing method. Interest or Riba is strictly
prohibited the Islamic law and declared Haram (prohibited). Riba
(interest) is defined as the ‘usury’, or ‘unjust’ or ‘exploitative’ gains
made in trade under the Shariah law.
b. Prohibition of Gharar: Gharar or excessive uncertainty is prohib-
ited under Islamic law. Excessive uncertainty may result in deceit or
injustice. Islam also does not permit making extra returns based on
extreme uncertainty, which is a regular phenomenon in traditional
finance. Gharar is defined as any transactions or probable objects
whose existence or description is not certain.
c. Prohibited to invest in restricted items: Unlike the conventional
financial system, Islamic finance does not allow to trade restrictive
items. Trading in certain items, such as alcohol, gambling, pork,
entertainment, or any other item declared harmful and illegal by the
Shariah law, is not permitted in Islamic finance (Hassan et al., 2019).
10 M. R. RABBANI ET AL.

Fig. 3 Islamic finance core principles (Source Author’s own compilation)

Islamic finance uses a screening mechanism to filter these unlawful

activities.
d. Prohibition on speculation and gambling: Speculative transactions
like financial derivative and gambling are prohibited under Islamic
finance. Derivative for the purpose of hedging is currently discussed
in the Islamic finance literature. While speculation is prohibited,
Islamic finance promotes profit and loss sharing. Speculation may
create wealth by chance without any connection to real productive
activity.

Promotion
a. Profit and loss sharing (PLS): Islamic finance believes in shared
prosperity. It relies on a trading platform and connects buyers
and sellers through real transactions. The parties involved in these
transactions will share profit and loss, which average out negative
 INTRODUCTION TO ISLAMIC FINTECH … 11

impact on one of the parties. PLS is possible when financing is

done through equity-based instrument, which requires the parties
to establish partnerships. Another by-product of the PLS system is
that the parties involved are not considered directly as borrowers
and lenders; rather they are partners in a partnership business.
Mudarabah and Musharakah are the two popular methods of
equity-based PLS methods of financing in Islamic finance. Also,
PLS-based financing promotes an asset-backed transaction system.
b. Ethical and moral values: Islam is a complete code of life, which
is based on the ethical and moral codes of conduct. Similar codes
are also applicable to Islamic finance. Since Islam itself is an ethical
system and all the transactions under the Islamic financial system
must be governed under the ethical and moral code of conduct laid
down by the Shariah. The basic moral principle of Islamic finance
states that all the transactions under Islamic finance must be aimed at
social benefit and holistic development of the society when compared
to making individual benefit. Islamic finance promotes sustainable
and green transactions through green Sukuk and green banking
initiatives that target long-term environmental protection. Higher
levels of ethical identity of Islamic institutions are also expected by
the market participants (Rashid & Hassan, 2014).

3 Point of Convergence Between

Fintech and Islamic Finance
Fintech is nothing new. In general terms, Fintech is the integration of
technology in the financial industry to offer convenience to customers.
Diner’s club cards in 1950s and automated teller machines in 1960s have
given some clear directions on how technology can shape the financial
landscape forever. By 1980s, major stock exchanges and broker-driven
trading systems started using the electronic trading platform (Sharma,
2014). Beginning of 2000, we have seen the start of PayPal, making
online transfers, and payments completed in seconds. Within the first
decade of the new millennium, there are tremendous development in
mobile-based payment systems, with Google Pay, Apple Pay, etc. Techno-
preneurs have worked restlessly to create a new user interface, as such now
your smile can make payments using a phone facial recognition system.
After mobile payment, the introduction of bitcoins and blockchain is
12 M. R. RABBANI ET AL.

considered another major development in the Fintech universe, which

has seen tremendous volatility during the pandemic time (Abdul-Rahim
et al., 2022; Talwar et al., 2020).
Ernst and Young (EY) run a Fintech survey,4 the recent being
published in 2019 (EY, 2019), which reports that around 75% of the
customers prefer to use Fintech-based services for money transfer and
payment. These customers would like to use Fintech for remittance facil-
ities for cross-border transfers. Fintech adoption for money transfer and
payment has increased more than threefold during 2015–2019. Another
high growth area of adoption is insurance, where mobile-based applica-
tions are used to fill in the information to apply for insurance products.
The EY survey (EY, 2019) also finds that changes in rates and fees are
a primary motivator behind higher rates of Fintech adoption. This helps
us rely on the most common definition of Fintech: the delivery of finan-
cial services based on technological innovations, specifically using mobile
phones and the internet (Banna et al., 2021).

Major Attractions of Fintech

Aside from the most common growth factors, Fintech is commonly cited,
even among the non-practitioners and non-users, for mobile payment,
blockchain, and cryptocurrencies. Among these, blockchain offers a basic
platform that connects computers in a network that can record a series
of transactions that cannot be easily altered or removed. It offers several
benefits to users. First, the system is secured and private among the users.
Second, the blockchain system bypasses the traditional regulatory author-
ities, including the central banks for a financial transaction, and also does
not require a traditional payment service provider, such as a bank or other
financial intermediary. Cryptocurrencies can be sued to settle payments or
transfer money online, and the records of such transactions and transfers
can be securely preserved using blockchain.
While the system comes with privacy and convenience, supervision
and regulatory foresight are a major lacking. Banking system is a highly
regulated system to keep bankers away from unnecessary risk-taking,
so that authorities can safeguard the value of the investors. In Fintech

4 EY Global Fintech Adoption Index (2019).

 INTRODUCTION TO ISLAMIC FINTECH … 13

universe, transactions are unregulated, which may give rise to excessive

volatility. There might be a sharp rise in shadow economic activity due to
blockchain.

Islamic Finance and Fintech

Islamic finance prohibits interest, uncertainty, and gambling. Islamic
financial system places additional restrictions over the usual restriction
and monitoring by traditional financial system (Hassan et al., 2019).
Alongside usual monitoring by the Central Bank, internal and external
auditors, Islamic banks must also pass the screening criteria imposed by
Centralised Shariah Board and internal Shariah Supervisory Board (SSB).
Multiple layers of restrictions made a less volatile growth possible for
Islamic finance. Customers realize that even during the global financial
crisis the Islamic financial institution steps away from a high-risky invest-
ment, which establishes the system as a more resilient one compared to
the conventional banking system (Yoon et al., 2021).
There has been a significant growth of independent Fintech
entrepreneurs (startups) and the ones that integrate their Fintech inno-
vations for a particular Islamic bank. The objective is to offer Shariah-
compliant financial services with less interference from regulatory bodies.
However, some initial compliance to regulatory principles must be met
before a Fintech company charter can take place. For instance, the Central
Bank of Bahrain issues Shariah-compliance certification to crypto trading
platforms like Rain, Binance, and CoinMENA to create a level of confi-
dence among Islamic investors. More investment in these Fintech-based
innovations is likely to help Islamic finance sector grow.
Islamic finance practices a trade finance mechanism that deals with a
peer-to-peer (P2P) platform. Crowdfunding platforms are also used to
finance small-scale innovative projects for commercial as well as social
causes. Crowdsourcing can have a better fit with Islamic finance as both
the systems promote equity-based, profit-sharing, and donation-based
financial systems (Yang & Zhang, 2016). ‘Buy now pay later’ intrinsi-
cally supports the trade-based Islamic finance system. This system can be
used for raw materials financing, especially in a business-to-business (B2B)
platform involving large suppliers and SME buyers.
Fintech has been also instrumental in the rise of Islamic insurance
(Takaful) and the bond market (Sukuk). TakaTech and InsureTech enable
users to check for updates on various insurance products, compare the
14 M. R. RABBANI ET AL.

market, apply for the chosen product, and update their product, all
remotely using their phones. It is expected that the use TakaTech is
going to reduce overall insurance processing costs and bring efficiency to
Takaful industry (Hasan et al., 2020). InsureTech can use available client
data to match its risk profile to offer new products. Artificial intelligence
can be employed to do this matching that enhances overall customer
experience.
Sukuk industry, both sovereign as well as corporate, is growing fast.
The growth has attracted clients from Shariah-compliant as well as non-
compliant markets. FITCH Rating5 reports that total Sukuk issuance in
Q1 2022 grew quarter on quarter by 11.6%. The amount of quarterly
issuance is US$64.5 billion. Close to 80% of the Sukuks are investment-
grade and issuers have a stable outlook. Blockchain technology can benefit
the Sukuk market farther. Based on blockchain, and profit and loss sharing
at the backdrop, Smart Sukuk will be able to finance projects using
microfinance and foreign bank in a setup (Chong & Ling, 2021). This
arrangement is an efficient alternative to the existing Sukuk management
system.

4 Challenges
Islamic Fintech is expected to push the Islamic finance sector forward by
a bigger margin compared to traditional Islamic financial intermediation.
Technology and innovation will make a clear difference. However, the
choice of moving into Fintech will come at costs. Figure 4 demonstrates
a brief list of factors that may shape the future of Islamic Fintech.

Shariah Non-Compliance
The biggest challenge for an Islamic financial institution whether bank
or an Islamic Fintech company is to ensure highest level of compliance
with the rules and regulations laid down by the Shariah. Compliance
with Shariah is an integral component of the survival of Islamic institu-
tions, as these guidelines are observed very closely by the customers and
investors before making any financial decision. If it is found that a partic-
ular product or an institution has violated the Shariah norms, they can

5 https://www.fitchratings.com/research/islamic-finance/global-sukuk-market-outlook-
1q22-12-04-2022.
 INTRODUCTION TO ISLAMIC FINTECH … 15

Tracking
modern
innovation

Perception
Unfavourable
about Islamic
regulation
finance

Major challenges
facing Islamic
Fintech

Competition Talent gap

Cyber Shariah non-

security compliance

Fig. 4 Challenges faced by the Islamic fintech (Source Author’s own compila-
tion)

face quarters of criticism which may force them to close their business.
According to the Global Islamic Fintech report 2020, more than 76% of
the Islamic Fintech startups have already taken the Shariah-compliance
certification or are planning to obtain it (AMF, 2021). Shariah scholars
around the globe are still not clear and have not reached a consensus
on whether cryptocurrency is permissible or not (Shahnawaz Khan &
Rabbani, 2020). More research is needed to ascertain the level of super-
visory control to be optimal in case of Islamic Fintech, given the fact
that Fintech under regulation may turn into completely different (possibly
16 M. R. RABBANI ET AL.

unsuccessful) concept. Another challenge lying with respect to Shariah

non-compliance is the lack of Shariah guidelines with respect to the use
of digital wallets.

Public Perception of Islamic Finance

This is among the most important challenges faced by the Islamic financial
institutions. A growing group of customers believe that Islamic financial
products are for Muslims only. They tend to avoid the industry and prod-
ucts altogether as they believe that Muslims are only allowed to use these
products. This serious separation is often legitimized on the ground of
lack of awareness and extreme rhetorics used by clerics using Arabic in
Islamic finance literature. The other group of bank customers are prac-
tically unaware of the crucial differences between Islamic and traditional
financial systems. These key differences and lack of awareness will have a
serious impact on Islamic Fintech adoption. Technology is a taboo among
many serious practitioners due to limited knowledge of the convergence
between innovation and religion. Serious public awareness campaigns can
help reduce these differences and help Islamic Fintech grow further.

Talent Gap
Fintech-based Islamic financial services such as Blockchain and artifi-
cial intelligence-based Zakat , Qardh-Al-hasan, Mudaraba, Murabaha,
Awqaf, etc. require a genuine understanding of Islamic principles
and technological processes. IFIs must equip themselves with trained
personnel, which may require them to have active collaboration with
educational institutions to have graduates on the demanding areas of
Fintech.

Unfavorable Regulatory Environment

Most Muslim majority countries are lacking in regulatory convergence.
There are several cases of Fatwa shopping where dominating Muslim
countries tend to impose their rulings on other countries. The standard
setters in Islamic finance (AAOIFI, IFSB, etc.) should work together to
reduce cross-border and cross-school differences to support cross-border
transaction by Islamic Fintech. Islamic countries should also provide tax
incentives to help this Fintech grow.
 INTRODUCTION TO ISLAMIC FINTECH … 17

Cyber Security
Sine Fintech relies on a digital technology, the system heavily depends
on a mix of online tools like cloud storage, mobile transfer, electronic
payment, and cryptocurrency trading. These online facilities face threats
from attacks by hackers to steal valuable and personal data and cause
millions of dollars of financial as well as non-financial losses. Banks and
financial institutions are required to invest in digital security that must be
updated on a regular basis. This cost a part of their profit, which may
otherwise cost them their reputation. In case of large and reputed banks,
even a minor security can cause a bad reputation in the market, resulting
in the loss of millions of customers and a drastic fall in stock prices, which
is too big a risk for the business to take. Even though Blockchain is found
to be secured so far, growing interest in this system will attract unwanted
guests (hackers) for which the Fintech companies, mostly startups, are not
ready yet.

Competing Against Modern Innovations and Technological

Advancement
Thousands of new Fintech concepts are coming out every day. A simple
search on Google.com will render millions of links to Fintech concepts
and ideas. Most innovative countries are non-Muslim majority countries.
Indicatively, this is a sign of competitive loss of Islamic Fintech against its
counterparts. Despite having limitations, investment in Fintech in Sub-
Saharan Africa, Southeast Asia, and other Asian countries is growing at a
tremendous rate (Banna et al., 2021). Islamic countries should come up
with an effective policy framework to support techno-entrepreneurship
and Fintech-based entrepreneurial activities. Fintech startups are finding
it really challenging to keep pace with the stiff competition (Borgogno &
Colangelo, 2020). To manage this competition Islamic Fintech is required
to ensure Shariah compliance, and investment in Shariah and technolog-
ical R&D. Cost is one of the major operational risks that Islamic Fintech
should consistently research on. Otherwise, Islamic Fintech will lose its
competitive edge.
18 M. R. RABBANI ET AL.

5 Opportunities
Muslims account for about half of the world’s 1.7 billion unbanked popu-
lation.6 Among this (47%), the major portion is Muslim women. Islamic
finance caters to the need of 1.8 billion Muslim population globally.
A lion share of this population do not use mobile phone, have no or
limited access to internet, and have very limited financial literacy (Antara
et al., 2016; Ganesan et al., 2020). Islamic finance is present only in 45
countries. Considering these facts, Islamic Fintech can be the right solu-
tion to ensure the financial inclusion of the global Muslims. Some early
signs of such growth is seen in OIC countries, as Fintech-based finan-
cial inclusion strategies are effectively in place in these countries (Karim
et al., 2021). COVID-19 pandemic and UN’s sustainable development
goals have also paved the way for renewed Fintech initiatives for growing
Muslim population as many Islamic banks have completely changed their
way of offering services using technology and mobile phones (Naeem
et al., 2021; Rabbani et al., 2021a, 2021b). Some of the opportunities
are listed as follows and Fig. 5.

New Startup
Several government-financed initiatives in Turkey, Malaysia, Bahrain,
and Saudi Arabia support and encourage new startup in the Islamic
Fintech area. Also, Islamic banking has failed to find a doable frame-
work for SME financing. Therefore, Islamic Fintech can offer alternative
financing through digital lending or crowdfunding to start businesses on a
smaller scale. Bahrain has started ‘Fintech Bay’ to support and encourage
entrepreneurship initiatives by providing financial assistance (Meero et al.,
2021). Islamic banks can collaborate with Fintech companies to offer
financial services to entrepreneurs who are previously unbanked (Rabbani
et al., 2020).

Financial Inclusion
The rise of Islamic Fintech has seen the adoption of technology in many
unknown and unbanked Muslim population. Many Zakat institutions

6 https://www.arabnews.com/node/1780506/business-economy.
 INTRODUCTION TO ISLAMIC FINTECH … 19

Cross-pillar
collaboration

Entrepreneurs
Fraud
hips and start-
detection
ups

Opportunities

Inclusion Diversity

Fig. 5 Opportunities for Islamic fintech (Source Author’s own compilation)

have started using Blockchain and artificial intelligence to reach needy

and vulnerable Muslim population with charity funds (Khan et al., 2021;
Mohammad et al., 2020). Fintech-based financial inclusion is also bene-
ficial to banks globally. Banks have found positive connection between
Fintech investment and financial instability and lower return volatility
(Banna et al., 2021). Banks can cover more customers at a lower cost,
offering tailored services that fit specific needs of the customers. Mobile-
based apps, mobile money agents, digital wallets, cross-border payments
and remittances using mobile apps, and e-government services supported
by Fintech can expand the domain of financial inclusion (Huang et al.,
2020; Kang, 2018).
20 M. R. RABBANI ET AL.

Financial Fraud Detection and Security

Financial fraud is defined as an act of deception for personal or collective
gain that comes at the cost of others. It has been a major challenge for
regulators and policymakers in the financial sector. The challenges with
depositors money, for instance, in a digital financial system is even stiffer.
Financial fraud is also connected to bribery and corruption, abuse of
market structure, money laundering, terrorist financing, and tax evasion
(Nikkel, 2020). Use of Fintech facilities might help regulators keep a
record of these transactions and to curb these with prudential actions.
Fintech facilities such as RegTech and AML (anti-money laundering) used
advanced machine learning and artificial intelligence to detect fraud and
identify suspicious transactions in real-time (Ai & Tang, 2011; Kurum,
2020).

Diversity
Some of the pressing problems faced by the modern-day financial institu-
tions include tough regulatory requirements, a threat from cybercrime
and stiff competition from Fintech and technology firms (Flögel &
Beckamp, 2020; Nguyen, 2020). Fintech can help bring diversity by
integrating traditional services with technology-driven digital interfaces
and processing systems that can make the user experience better. Blak-
stad and Allen (2018) point out that organizations with diverse traits
and employees with diverse backgrounds bring out-of-the-box ideas that
foster innovation. Also, companies with digital diversity ‘out-innovate and
outperform’ others, including in the existing as well as the new entrants
to the market.

Partnership and Collaborations

Fintech is essentially a collaboration between Islamic finance,
entrepreneurship, education system and regulatory ecosystem. There
will be an active partnership between universities and Islamic financial
institutions to help them upgrade their technology background, train
them in financial know-hows, and update them on new things demanded
by the customers. Similar collaborations are possible across the border,
Fintech practically opens the border of financial transactions. Hence,
as the Fintech entrepreneurship is on the rise, so is the collaboration
 INTRODUCTION TO ISLAMIC FINTECH … 21

(Ntwiga, 2020; Truby, 2020). These collaborations offer multiple bene-

fits to both the Fintech company, financial institutions, and the society
at large. For instance, if Fintech can help Islamic banks to establish real
profit and loss sharing with the use of technology, the entire Islamic
economic landscape will shift. These collaborations will find new ways
that can help the IFI’s in meeting changing customer needs, opening
digital access, brand positioning, and limiting the threats of Fintech by
sharing information and tools at the developer stage (Kværnø-Jones,
2021; Romanova & Kudinska, 2016).

6 Conclusion
Fintech products and services are disruptive innovations that leverage
financial data and digital technology. There are several areas where
Islamic finance can be integrated with Fintech. Existing Fintech inno-
vations are covering digital deposits and payment services, insurance, and
basic lending in the Islamic financial system. With the help of advanced
modeling, machine learning and artificial intelligence, the range of these
services will expand exponentially in the future. Fintech helps in start-up
financing, entrepreneurship development, increasing collaboration among
institutions and regulatory bodies, helps control corruption and the
shadow economy, and helps stabilize financial system. There are several
drawbacks too. Fintech is less regulated and open, which is prone to
instability and attacks from hackers that may jeopardize the stability of
the entire economic system. Islamic Fintech must also be regulated both
by external regulators and internal Shariah supervisor board. These might
make Fintech less cost-efficient and less resilient.
As the benefits of Fintech supplant the drawbacks, there will be an
increasing amount of investment in Fintech and Fintech-based inclusion
strategies soon. It is important at this stage to have doable business
and regulatory models for Islamic Fintech, so that these institutions can
help resolve ongoing economic problems in many least developed and
emerging countries. Despite its clear advantages over the traditional non-
digital form of financial system. Fintech will face stiff competition and
harsh realities in terms of unbalanced regulatory assistance. Nonetheless,
Fintech is here to dominate. Policymakers should try to accommodate its
benefits for the welfare of all.
22 M. R. RABBANI ET AL.

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 Fintech and the Art of Disruption

Mustafa Raza Rabbani , M. Kabir Hassan ,

Mohammad Dulal Miah, and Himani Grewal

1 Introduction
Financial Technology (Fintech) has enormously changed the way busi-
nesses were carried out in the financial market landscape (Barberis &
Arner, 2016). It is growing rapidly every day as its range of offer-
ings, services, innovations, and number of customers are increasing and

M. R. Rabbani (B)
Department of Economics and Finance, College of Business administration,
University of Bahrain, Sakhir, Bahrain
e-mail: [email protected]
M. K. Hassan
Department of Economics and Finance, University of New
Orleans, New Orleans, LA, USA
e-mail: [email protected]
M. D. Miah
Department of Economics and Finance, University of Nizwa, Nizwa, Oman
e-mail: [email protected]
H. Grewal
Moradabad Institute of Technology, Moradabad, India

© The Author(s), under exclusive license to Springer Nature 29

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_2
30 M. R. RABBANI ET AL.

entering to new markets and territories (DinarStandard, 2021). The

Fintech disruption has brought us better financial management tools
and techniques, more innovative and user-friendly customer experience
using mobile payments, crowdfunding, P2P lending, digital banking,
regulation technology (Regtech), Insurance technology (Insurtech), and
all these benefits come at a relatively cheaper cost (Khan & Rabbani,
2020a; Rabbani, 2022; Rabbani et al., 2020). Fintech companies are
proving to be better partners than their competitors to the banks and
financial services companies with new and innovative financial services,
better and improved products for consumers, and changing the finan-
cial services landscape forever. The use of Fintech-based financial services
such as digital currency, e.g., bitcoin, intelligent buyer–seller automat-
ically executable smart contract, digital and branchless banking, the
implementation of artificial intelligence and natural language procession
(NLP)-based services in delivering financial services, use of artificial intel-
ligence and NLP for chatbot and interactive agent that understands the
customer sentiments and financial behavior, use of financial technology in
the insurance industry, Fintech-based solutions for the new, emerging,
and established business that do not have access to traditional finan-
cial services in the form of crowdfunding and cryptocurrency, etc. has
rendered the traditional financial services obsolete and old-fashioned (Atif
et al., 2021; Hassan et al., 2020; Khan & Rabbani, 2020b; Mohammad
et al., 2020; Rabbani, et al., 2020).

History of Fintech
Fintech is not something new it is virtually as old as the financial services
industry. Arner et al. (2015) describe the history of Fintech in three
different phases. Each of these phases experiences a different level of
evolution, innovation, and transformation of different kinds in the way
consumers interacted and engaged with the financial service providers.

Fintech 1.0 (1866–1967)

This was the first stage of the Fintech evolution which refers to a stage
where infrastructure was built to support the globalization of the finan-
cial services. Some of these notable innovations in the financial services
industry are regarded as the ‘transatlantic cable’ (1866) and ‘fedwire’
(1918) that facilitated the electronic fund transfer for the first-time using
information technology. It might look very basic and elementary for
 FINTECH AND THE ART OF DISRUPTION 31

the current generation, but it was the first step toward a modern and
innovative financial service industry that we observe today.

Fintech 2.0 (1967–2008)

Barclays installed its first ATM in 1967 and that marked the start of
a more innovative and hassle-free financial services era. This period is
also known as the start of analog to the digitization of financial services
industry (Leong & Sung, 2018). The next revolution came in the form of
the establishment of National Association of Securities Dealers Automated
Quotations (NASDAQ), the world’s first electronic stock exchange and
Society for Worldwide Interbank Financial Telecommunication (SWIFT),
a communication system for interstate money transfer.
The Fintech-based innovation continued in the 1980s and saw the rise
of mainframe computers and the growth of online banking completely
changed the way people used to look at the financial institutions (Ryan &
Chan, 2005). The online revolution was a major shift in the way people
looked at the financial institutions (Arner et al., 2015).
The 1990s brought the digital banking era where people started to
manage their finance in different ways. Moreover, the launch of PayPal in
1998 completely changed the course of handling and making payments
worldwide. Resultantly, the internet and information technology found
more acceptance among the masses (Jackson, 2004). It looked as if the
financial services industry was settled. Amidst the trend that innovations
in the industry are peaking up, the global financial crisis of 2008 hit hard
the finance world and changed the financial landscape forever by paving
the way for the innovation and growth of disruptive technology of the
modern era (Rabbani et al., 2021).

Fintech 3.0 (2008–present)

The global financial crisis is regarded as the point of breaking the trust
between the banks and its customers as the world suffered an estimated
loss of around US$2 trillion due to the failure of bank to safeguard the
interest of the customers and other stakeholders (Crotty, 2009). The
financial crisis combined with the regulatory changes by the global regu-
lators paved the way for the new financial service providers (Jagtiani &
John, 2018). Some of the most innovative and disruptive financial inno-
vations witnessed after 2008 found their acceptance in the society. The
launch of Bitcoin and other cryptocurrencies in 2009, Google and Apple
pay services, Fintech apps like Stripe and PayTM experienced a widespread
32 M. R. RABBANI ET AL.

Fintech 1.0 (1866-1967) Fintech 2.0 (1967-200) Fintech 3.0 (2008-present)

Fig. 1 Evolution of fintech (Source [Arner et al., 2015])

popularity. Furthermore, Alibaba created facial recognition technology

‘smile to pay’. The evolution of digital-only banks, like N26 and Ila bank,
has significantly disrupted in the financial services industry (Pantielieieva
et al., 2019).

Definition of Fintech and Financial Disruption

The history of Fintech goes as old as the history of the financial services
industry. Since the global financial crisis of 2008, the new breed of
Fintech has taken the centerstage which is more disruptive, efficient, and
innovative and has almost replaced traditional financial services (Khan
et al., 2022). Fintech is clearly a disruptive technology as it is regarded as
a threat to banks and financial institutions (Choi et al., 2019). In reality,
the financial services industry welcomes Fintech companies as the catalyst
of innovation and treats them more like a partner than a competitor. An
example of Fintech as disruptive technology could be from Mobile wallets
and digital payment apps which facilitate a consumer to transfer money
with a click of a button to stock trading apps which makes it possible
to do trading by investing in stocks without visiting any stock market or
stockbroker. Fintech is a disruptive innovation that has been wholeheart-
edly embraced by millions of users (Hasan et al., 2020; Saba et al., 2019).
While the term ‘disruption’ carries a little negative inference, the reality
is that when it is used in the financial sphere, it has completely different
meaning and carries a novel meaning. Today, the demand for Fintech-
based financial services is huge and Fintech startups are poised to reshape
and redefine the future of the financial services industry (Jagtiani & John,
2018; Pwc, 2017). In fact, the global Fintech market is on a boom and
COVID-19 pandemic has further enhanced the customer confidence in
 FINTECH AND THE ART OF DISRUPTION 33

Fintech-based financial services as it is expected to reach US$309.98

billion by 2024 up from US$127.66 billion in 2018 at a cumulative
annual growth rate of around 24.8% (Newswire, 2016–2020).

Payment Apps, Lending Platforms, and Investment Apps

Fintech has made it possible to do any kind of financial operation with just
a push of a button. It is now possible to pay electricity bills, mobile bills,
borrow money from banks, or do crowdsourcing/P2P lending at greater
ease and convenience. It is also possible to make an investment without
the help of a broker or agent using smart apps. Fintech apps have made all
these operations possible and all of these can be done with just a click of a
mouse or push of a button (Blakstad & Allen, 2018; Jagtiani & Lemieux,
2018). A solid finance application such as ‘Binance’ or ‘Crypto.com’
can handle routine finance tasks such as buying and selling of cryp-
tocurrencies, paying bills, track of spending and investing accounts, etc.
(Morgan & Normand, 2021; Siswantoro et al., 2020). It can also be
used to trade in stocks, follow your account in real-time, and can help
you learn more about the market and build your portfolio of assets.
Because of these possibilities and widespread importance, the mobile apps
have become quite popular among the consumers (Morgan & Normand,
2021). Some of the popular mobile payment services, lending platforms,
and investment apps are reviewed as follows:

Popular Types of Fintech Used By Consumers

Mobile Payment Services
It is also known as the ‘mobile money’, ‘mobile money transfer’, and
‘mobile wallet’. It generally refers to the payment services regulated and
controlled under financial regulation and the operation is performed by
the smartphone device (Hossain et al., 2012). It is an alternative to earlier
hard cash, check, or credit card. A buyer/consumer can now use his/her
smart devices to transfer money to the seller’s account. Although it is
relatively new and still finding its feet among the rural consumers, it is
quite popular among the urban consumers and widely accepted as the
preferred medium of payment among the millennial population (Bazley
et al., 2017; Kang, 2018). Mobile payment service is regarded as the
twenty-first century technology (Alam et al., 2019). The mobile payment
use is more popular among the Gen Z and millennial population. In
34 M. R. RABBANI ET AL.

the USA alone, more than 4 million out of 6.5 million new users per
year from 2020 to 2025 belong to the millennial and young population
(Morgan & Normand, 2021). Some of the popular mobile payment apps
are described as follows

Cash App
It is a mobile payment service developed by Square Inc. for making
payments to merchants via mobile phone. It is also known as the cash-free
and customized debit card that facilitates the financial transactions online
without using card. It also allows customers to transfer money from one
consumer to another by using the mobile app. There are different versions
of cash apps all over the world. ‘Benefit Pay’ and B-wallet in Bahrain,
PayTM in India, and Tele Money in Saudi Arabia have some common
characteristics. One of the distinguishing features of the cash app is that
it doesn’t need the traditional bank account to be linked to the bank.
Instead, the customers are identified solely through their email address
and phone number.

Apple Pay
It is the mobile digital wallet service available to Apple customers. It is
the most widely used mobile payment application across the globe. It
has 43.9 million users in 2021. Apple Pay is expected to grow by 14.4
million users per year between 2020 and 2025. The COVID-19 pandemic
has certainly proved to be a boom for the contactless mobile payment
services. According to the analyst firm ‘e-marketer’, the mobile payment
usage increased by over 29% in 2020 due to the social distancing and
other restrictions posed by the government (Naseri, 2021). Like apple
pay, there are Samsung pay and google pay which are also quite popular
among the users.

Lending Platforms
The lending platforms are the online lending and borrowing platforms
where users seeking finance for their venture can upload their informa-
tion and seek funding from crowdfunding and crowdsourcing. These
lending platforms are responsible to match lenders with borrowers to
help the individual or businesses in online borrowing/lending (Gutiérrez-
Urtiaga & Sáez-Lacave, 2018). It is beneficial to both lenders and
borrowers as the app provides the lenders multiple alternative avenues
of investment to choose from and it allows the investors to pursue the
 FINTECH AND THE ART OF DISRUPTION 35

borrowers profile and based on the information provided make the invest-
ment decision (Bento et al., 2019). Most of the loans are lent through the
crowdfunding, which means there are multiple lenders financing a partic-
ular borrower (Moysidou & Hausberg, 2020). The borrowers receive the
unsecured loan at a competitive rate of interest without support from
banks and formal financial institutions in hassle freeway and without much
documents and formalities.
As depicted in the figure below, the lending platform also keeps records
of the fund raisers. A fund raiser can have and start more than one project.
However, the proposed system maintains a record of success or failure and
all history of his/her projects and credit scores over the time. Interested
investors or lenders can access this information to be sure about his/her
history and reputation. This process aims to tackle the issue of borrower’s
reputation and generates confidence about the borrowers and their credit
scores. Some of the popular lending platforms are described as follows.

Lending Tree
Lending tree was founded in 1996 in Charlotte, North Carolina, USA.
The lending tree does not charge any service fee from the borrowers or
the lenders for the services of matching lenders with the borrowers. It
is an online lending platform headquartered in the USA. It allows the
borrower to register on the platform and seek funding from multiple
sources. It allows borrowers to meet with the potential multiple lenders
and find the loans at suitable terms and conditions.

Better
Better was founded in 2014 with the objective of redefining the whole
mortgage process. It started in partnership with ‘Avex funding’—a
California-based mortgage company. In 2015, it acquired the origi-
nator and partner ‘Avex funding’. Now, Better mortgage corporation
provides home loans, real estate services, insurance policies, and settle-
ment services. Better is also rated A+ with the better business bureau and
the app has received BBB accreditation. Better works very much like the
other lending platforms with the only difference being that it does not
charge the lending fee, so the closing cost with the Better is cheaper than
the other mortgage companies. Since better does not charge any interest
or commission from the borrower as they sell their loans to the end users.
36 M. R. RABBANI ET AL.

Partner
Project &
Profile Docs Investor
Borrower’s
Borrower

Credit
Projects &
Borrowers’

Borrowed

Investment

P2P

Repayment

Fig. 2 Crowdfunding platform (Source Adapted from Rabbani et al. [2021])

The better uses technology to match borrowers with the investors who
are interested in buying the loan from the borrowers. This process allows
the borrower to find the loans at the cheapest rate possible and it brings
a unique financial solution by getting compensated through the RSUs.
Besides these two, there are other lending platforms operating in the
market which directly interact with lenders and borrowers. Most popular
among them are, perform, Upstart, Prosper, Funding Circle Payoff, etc.

Investment Apps
Investment apps allow investors to buy and sell securities online. They are
generally simple to use and designed in such a way that is more engaging
for the less qualified person. The investment apps are not only easy to use
but also provide free financial advice to the users in addition to providing
some additional financial services. These apps require a very small initial
investment and provide various alternative avenues of investment to the
users. There are many investment apps available like e-trade, Sofi, Fidelity
 FINTECH AND THE ART OF DISRUPTION 37

Table 1 Popular investment apps comparison

Points Sofi Robinhood E*Trade

Fess 0% on trading and It requires 0% fees It requires 0% for

1.25% on for trading trading, 0.30% for
Cryptocurrency automated accounts
and 0.35% to 1.25%
for managed
accounts
Investment types The investors can Provides options for Provides options for
create investment investing in ETFs, investing in ETFs,
account for Stocks, stocks, stocks,
Cryptocurrencies, Cryptocurrencies, and Cryptocurrencies,
and ETFs ADR bonds, mutual
funds, Certificate of
deposit, and futures
Minimum balance $0 $0 $0 (US$500 for
required core portfolio)

Go, Robinhood, Acorns, Ellevest, etc. Most popular among them are
described and compared below (Table 1).
It can be observed from the above table that almost all the investment
apps are having same characteristics and provide competitive services. The
investors can buy and sell securities without paying any fees. There is no
minimum account balance to maintain, and it provides various investment
accounts based on the investors’ need.

2 Cryptocurrency
In 2008, a Japanese named ‘Satoshi Nakamoto’ (it is believed that Satoshi
Nakamoto is his pseudo name) published a paper titled ‘Bitcoin: Peer to
Peer Electronic Cash System’, which revolutionized the whole finance and
outlined the creation of a new currency called ‘Bitcoin’ (Ballis & Drakos,
2020; Guhan et al., 2018). It is believed that the global financial crisis
has facilitated the innovation of cryptocurrency to cater to the need for
an alternative currency (Ahmed et al., 2020). Cryptocurrency is consid-
ered the most sensational financial innovations of the twenty-first century
(Gómez & Demmler, 2018). It has created a lot of buzz in the global
financial market and has become a phenomenon in recent years (Abubakar
et al., 2019). A Cryptocurrency or ‘Crypto’ is a digital currency that can
be used to buy and sell goods and services, but unlike traditional currency,
cryptocurrency uses an online ledger secured by the technology called
38 M. R. RABBANI ET AL.

Table 2 Major Cryptocurrencies comparison

Bitcoin (BTC) Litecoin (LTC) Ethereum (ETH)

Market The market The market The market cap is

capitalization capitalization of capitalization of US$224.65
Bitcoin is US$596.86 Litecoin is US$4.52 Billion (as on
billion (as on June 6, billion (as on June 6, June 6, 2022)
2022) 2022)
Current market Launched in 2008 Launched on October Launched on 30
price and is currently 7 2011, and is July 2015 and is
selling at US$32,600 currently selling at currently selling at
(as on 06/06/2022) US$64.80 (as on US$1876 as on
06/06/2022) 06/06/2022
Data source crypto.com crypto.com crypto.com

Cryptography. There are more than 6000 cryptocurrencies trading in the

market currently with the total capitalization reaching up to 1000 Billion
USD in May 2021 (Benedetti & Kostovetsky, 2021). Some of the more
popular Cryptocurrencies are reviewed as follows (Table 2).

3 Benefits and Risks to Consumers

The rampaging COVID-19 has forced people to maintain social
distancing and closure of business and production facilities. Such
measures have boosted digital cash transfer and mobile payment Fintech
platforms. Hence, it can be perceived that the benefits of Fintech have
never been so evident that emerged during the time of COVID-19 (Alawi
et al., 2022; Khan et al., 2022). It has provided multiple benefits to the
consumers in terms of giving many alternative choices, access to world-
class financial services with compliance and increased security at lower
cost, higher speed, convenience, and with more transparency. The use of
new technology like Blockchain has revolutionized the finance world in
terms of delivering process efficiency, enhancing user experience, reducing
cost, and reducing risk in the business (Jreisat et al., 2021; Rabbani et al.,
2021). Fintech comes with all these benefits to the customers but not
without risks. In this section, we highlight the benefits and risks of Fintech
to consumers.
 FINTECH AND THE ART OF DISRUPTION 39

Benefits
Low Cost
Fintech has enabled the integration of multiple technology and process
like linking multiple bank accounts and cards in a single interface. This
process empowers Fintech to deliver efficient service at the lowest possible
cost (Banna et al., 2021). Unlike traditional financial institutions, Fintech
startups and solution providers do not charge superfluous fees (Jagtiani &
John, 2018). Using Fintech like BFC (Bahrain Financing Company) app,
customers can transfer money across the globe without worrying about
heavy conversion fees (Selim, 2020).

Improved Compliance and Security

Due to its unique positioning as a disruptive technological innovation
and disruptor, Fintech easily traverses the local regulatory requirement
and legal hurdles. Fintech startups put more emphasis on maintaining a
seamless compliance department to ensure that the transactions are vetted
properly. It uses next-generation IT systems that helps them identify
glitches and rectify them on real-time basis unlike the traditional financial
institutions that have no such system.

High Speed and Convenience

Technological advancements such as Fintech have made transactions and
processes much faster and efficient. Traditional customers’ needs to wait
the whole day standing in the bank queue to complete a transaction.
Certain transactions were allowed to be performed within a stipulated
time. Fintech has completely removed such restrictions as transactions can
be performed at any time and from anywhere.

Stimulus Payments to Consumers

As the world is fighting the negative effects brought about by the
COVID-19 pandemic, poverty worldwide increased manifold due to the
lockdown restrictions and loss of job. The situation became grave and
governments and civil societies had to come up to help the poor and
affected. In this situation, financial technology became the lifeline in
distributing the stimulus and aid packages. By teaming with established
financial institutions and governmental agencies, Fintech startups have
played a key role in saving millions of lives by offering aids.
40 M. R. RABBANI ET AL.

Direct Cash Payments

During the pandemic, few things worked marvelously for the vulnerable
and affected, one of them is the hard cash. Several organizations across
the globe used Fintech-based applications to transfer cash and incen-
tives directly to customers electronic wallets. There were many programs
like ‘Project 100’ in the USA, to provide 100 million USD directly to
customer’s account. Other such initiatives include, ‘Spot me’ initiative
by the popular Fintech provider ‘Chime’ to direct access to the stimulus
packages.

Helping Small and Medium Enterprises (SMEs)

The lockdown and social distancing measures imposed during the
pandemic brought tough time for the SMEs. The use of Fintech apps
peaked during recent months as restaurants and other SMEs survived due
to the use of Fintech and mobile payment apps. For example, in Bahrain,
the government launched ‘Benefit Pay’ a mobile payment app for contact-
less payment during the pandemic. Restaurants and supermarkets offer
contactless and cashless delivery during the pandemic and Fintech played
a pivotal role in reaching out to the customers.

Financing Became More Obtainable

Fintech-enabled solutions, like crowdfunding and P2P lending, have
revolutionized the finance industry with easy and hassle-free financing
opportunities (Rabbani et al., 2021). The traditional financing methods
make it difficult for the startups and less established organizations, which
usually cannot provide documents required by the mainstream finan-
cial institutions, to obtain funding. Fintech, like crowdfunding and P2P
lending, has made it easy and convenience for SMEs to avail loan facilities.

4 Regulation
Fintech has taken the whole finance industry by storm as many established
financial institutions are still not able to make changes to the existing
setup to embrace this disruption. Since it is growing at a rapid rate, the
potential threats of fraud, theft, money laundering, and cybersecurity are
on the rise (Hendershott et al., 2021). These risks have proved to be great
challenges for policymakers and regulators as well (Fenwick & Vermeulen,
2020; Ivanova, 2019). There are many views with regards to regulating
Fintech. The view suggests that these startups tend to bring a huge risk;
 FINTECH AND THE ART OF DISRUPTION 41

so they should be heavily regulated to protect the customers from any

potential fraud or security lapse (Arner et al., 2019; Ribisel, 2018). Other
View suggests that since these startups are based on innovation, heavy
regulation can hamper their innovative behavior. The regulators must be
soft in regulating Fintech as opposed to the traditional banks (Razak et al.,
2021).
The regulatory bodies can adopt one or more of the following
approaches in regulating Fintech.

a. Case by case restraint: In this case, the regulators allow Fintech-

based financial services to hit the financial market with extensive
oversight. Based on the need to regulate the product the regu-
lating bodies bring the regulation to protect against any potential
mishappening (Söylemez, 2019).
b. Structured Experimental Approach: Under this approach, the
Fintech products and financial services are tested under the specified
control mechanism. It enables the Fintech firms to test the products
and services with minimum regulatory requirements.
c. Single Window: It allows Fintech products and services to enter the
market under a simplified framework.
d. Hands off: Under this framework, the Fintech products go to the
market without any regulatory requirements, and it is intervened
later by the regulatory authority.

Besides these regulatory frameworks, the regulators can use different

regulatory tools to regulate a Fintech. Commonly used tools are described
as follows.

a. Wait and See: Fintech-based innovations are allowed to be launched

in the market without any restrictions and their performances are
monitored over the time to see if they fit into the environmental
and social requirements. If they present any risk, then strict rules
are brought in to control them.
b. Test and learn: The products are tested in a live environment to
see their reaction and bring appropriate regulation with involvement
from regulators.
42 M. R. RABBANI ET AL.

c. Waiver/exemption: Exemption is granted for certain types of inno-

vations which are good for the environment and bring positive
changes into the society.
d. Regulatory sandbox: A virtual regulatory environment where the
innovations are tested in a virtual time-bound manner. It is appro-
priate for the markets with great supervisory capability with more
active and non-licensed players.

5 Conclusion
The chapter takes a comprehensive look at the disruption called Fintech.
It started with a thorough discussion on the history of Fintech. Then
Fintech is defined in the modern context. Then the chapter provides an
overview of the payment apps, lending platforms, and investment Apps.
Lending platforms like P2P lending and crowdfunding are defined and
described. The chapter provides a discussion on cryptocurrency. It is
concluded that the cryptocurrency can be regarded as the most disruptive
innovation of the twenty-first century.
Fintech has come as a blessing for many customers and entrepreneurs.
There is no denying that it all started way before the ongoing pandemic,
but it proved to be a blessing for the Fintech startups. The disruptive
technology has brought positive changes in the society in terms of deliv-
ering valuable stimulus and financial aid to the vulnerable and affectioned
by the pandemic.
The findings of the study suggests that the Fintech disruption has been
a blessing in disguise for the overall growth and development of the
finance community. The Fintech disruption has brought many benefits
for the society including enhancing efficiency and transparency in finan-
cial transactions by bringing better financial management tools, mobile
payments, P2P lending, and some fast-forwarding solutions like Regtech
and Insurtech.

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 A Fintech-Based Zakat Model Using
Artificial Intelligence

Mustafa Raza Rabbani , M. Kabir Hassan ,

Shahnawaz Khan, and Aishath Muneeza

1 Introduction
The COVID-19, the largest health crisis in the modern times, is turning
into a global economic and financial crisis. The pandemic could cause
a loss of about 10% of the global Gross Domestic Products (GDP),

M. R. Rabbani (B)
Department of Economics and Finance, College of Business Administration,
University of Bahrain, Sakhir, Bahrain
e-mail: [email protected]
M. K. Hassan
Department of Economics and Finance, University of New,
Orleans, New Orleans, LA, USA
e-mail: [email protected]
S. Khan
Engineering, Design, and Information & Communications Technology, Bahrain
Polytechnic, Isa Town, Bahrain
e-mail: [email protected]
A. Muneeza
International Centre for Education in Islamic Finance, Kuala Lumpur, Malaysia
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 49

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_3
50 M. R. RABBANI ET AL.

leading to a closure of millions of businesses and rendering more than

200 million people unemployed (Le et al., 2021). Economists are specu-
lating that this pandemic-born financial crisis could be more devastating
than the great depression of the 1930s (Abakah et al., 2021). It has
already created enormous human suffering. As of January 24, 2022, 8
P.M. GMT, more than 351 million people have already got the direct
infection and around 5,600,000 people have lost their lives due to this
novel coronavirus (Panakaje et al., 2022).
There is a need to identify the immediate concerns and work on it to
minimize the damage to the society (Fu & Mishra, 2022). A varied and
comprehensive set of policy interventions from various sections of the
society, including government, entrepreneurs, general public, and poli-
cymakers are required to meet this colossal challenge. The government
and other participants should immediately try and develop a compre-
hensive health support system and the finance community must assess
and respond to the social and economic impact this virus is going to
bring to the society. It has also ignited actions from the institutions and
people eager to help (Hashmi et al., 2021). The present study proposes
a solution based on Islamic finance to tackle the social and economic
problem created by the virus. Islamic finance offers a wide range of finan-
cial services well-suited to each stage of pandemic COVID-19. One such
important Islamic Financial Service Zakat can be the potential warrior
in fight against the economic consequences of COVID-19 (Khan et al.,
2021b).
The objectives of this chapter are to evaluate the economic impact of
COVID-19 on poor and economically insecure by shedding light into
various stages of COVID-19 pandemic where Zakat can be utilized and
proposing an Artificial Intelligence (AI) and Natural Language Processing
(NLP)-based Islamic Fintech model for helping poor and economically
insecure section of society affected by the COVID-19.
This chapter is divided into five sections. Followed by this introduc-
tion, section two discusses poverty and COVID-19 while section three
focuses on the impact of COVID-19 on poor and vulnerable sections of
the society. Section four analyzes Maqasid Al-Sharia (objectives of Islamic
law) and economic potential of Zakat in helping poor during pandemic.
Section five discusses the details of the proposed Fintech model for Zakat
using AI followed by the conclusion.
 A FINTECH-BASED ZAKAT MODEL USING ARTIFICIAL INTELLIGENCE 51

2 Poverty and COVID-19

Poverty creates social disharmony (Moser, 1998). In simplest of the word,
the poverty can be defined as the state of being poor with no financial
resources and being dependent on others to satisfy their needs (Brady &
Bostic, 2015). The United Nations sees poverty as the state of deprivation
reflected in terms of low consumption level, low health condition and
lack of housing facility, and lack of access to the education and learning
(Anser et al., 2020). Thus, poverty is not only about lack of accessibility
to food, cloth, and shelter but also about lack of access to credit facilities
(Hassan & Khan, 2007).
Understanding poverty is significant from the point of view of the
current pandemic as it revolves around the ‘income’. Most of the analysis
of poverty revolves around the numerical parameters of having resources
or not having resources (Hassan & Saleem, 2017). But there is a need to
go beyond the simple measure of money and study the poverty from the
other factors than the absence of money (Bashir, 2018; Haque & Yamao,
2011).
The COVID-19 pandemic is unique in another sense that, in the
modern era there is no other example of such as the mass transmission
of disease (Killeen & Kiware, 2020). Despite the fact that technological
innovation has been on the rise in the last 100 years and still the world
is not able to control or eliminate it as it happened in other health emer-
gency like EBOLA and SARS (Bin-Nashwan et al., 2020). It is a fact that
the continuous spread of the deadly COVID-19 and slow progress of the
vaccination will push many people into the state of starvation, besides the
increase in corruption, crime, and related criminal activities will get a push
(Hassan et al., 2020, 2021).
In addition to its immediate effect on health and lives, coronavirus
continues to take its toll on everyone especially on the economically poor
and vulnerable section of the society due to the state-imposed lockdown
and restrictions to control the spread of virus (Rabbani et al., 2021a;
2021b). Mehler et al. from the world bank analyze the data related to
the economic impact of COVID-19 and he concludes that the current
pandemic is likely to cause the increase in global poverty first time since
1988 and it is expected to go further up. It is expected to take 49 million
people into extreme poverty and 23 million of these figures are expected
to be from Sub-Sahara Africa region and 16 million from Asia. The global
report on food crises reveals that due to COVID-19 it is expected that an
52 M. R. RABBANI ET AL.

additional 130 million people could be added to the starvation by the end
of 2020. We already have about 135 million people who are at the crisis
level of food security and starvation in 2019 (Food Crisis Report, 2020).
It is hard for the poor to follow the government’s restriction measures of
social quarantine, lockdown, and isolation. Immediate strategies to mini-
mize the economic impact of the pandemic on poor and vulnerable should
be introduced (Panakaje et al., 2022; Rabbani, 2022).
As it can be also seen from Fig. 1 the share of the world population
living on $ 1.9 per day will increase to 8.6% in 2020 from 8.2% in 2019 or
in other words it will jump from 632 to 665 million people. The COVID-
19-related reason for global poverty and its impact on poor is massive as
it is expected that it will increase the global poverty by 0.7%. The other
way to understand above figure from the World Bank is that the COVID-
19 and its associated reasons will push 49 million people into the extreme
poverty. All these estimations and projections are having high degree of
uncertainty as so far the most affected countries due to COVID-19 are
the advanced and relatively developed countries where there is very less
number of absolute poverty (Abdullah & Rabbani, 2021; Habeeb et al.,
2021).

COVID 19 and Global Poverty Global poverty rate historical trend

COVID 19 and Global Poverty Global poverty rate forecast before COVID 19
COVID 19 and Global Poverty Global poverty curent forecast
10.5

10

9.5

8.6
8.5

8.4
8.3
9

8.2

7.8

7.5
8

2014 2015 2016 2017 2018 2019 2020 2020 MID

BEG.

Fig. 1 COVID-19 and global poverty (Source www.worldbank.org)

 A FINTECH-BASED ZAKAT MODEL USING ARTIFICIAL INTELLIGENCE 53

3 Impact of COVID-19 on Poor

and Vulnerable Section of the Society
The economic shock of the COVID-19 can affect the poor and already
vulnerable section of the society in a massive way (Jreisat et al., 2021b).
It can affect their well-being and welfare through the following channels.

Impact on Wage Income

• The wage income of the daily wage earners and laborers has been
a massive hit due to the lockdown and stoppage in production
activities (Habeeb et al., 2021).
• The direct income has also been affected adversely due to the illness
and taking care of the sick family member or relatives (Sharma et al.,
2020).
• The direct effect on labor and salaried class has also been because of
the loss of employment due to lay off, decline in quantity of work,
etc. (Aday & Aday, 2020).
• The indirect effect on labor income has been due to the decrease
in aggregate demand disruptions in the channels of distribution
resulting into the closure of factories or due to restriction of
mobility, etc (Rabbani, 2022).

Impact on Consumption
• There has been a direct impact on consumption due to an increase
in healthcare expenditure and on already credit-strained households
(Adekoya & Oliyide, 2021; Rehman et al., 2021).
• Disruption in the channels of disruption resulting into the increase
in prices of the certain necessary commodities such as, medicines and
food items has impacted the consumption adversely (Bresser-Pereira,
2020).

Disruption in Services
• Disruption in travel and transportation, closure of hotels, and due
to quarantine have adversely affected the tourism and hospitality
industry (Ozili, 2020).
54 M. R. RABBANI ET AL.

Direct loss of earning due to illness,

Impact on wage
income
Indirect loss due to fall in AD

Welfare of Poor
and Vulnerable Rising in prices (Inflation)

Impact on
Consum tion
Increase in healthcare expenses

Saturation of health services

Disruption in
services
Schools nutrition learnin etc.

Fig. 2 Short-term impact of COVID-19 on poor (Source Author’s own

compilation)

• Due to the focus on COVID-19 by the health officials, it has resulted

into the increase in non-communicable and other disease (Sharif
et al., 2020).
• Suspension of classes in schools and universities posing challenge for
the administration for student retention and for the students the
problem of learning and nutrition (Khan et al., 2021a, b).

The above channels are reflected in Fig. 2.

4 Maqasid Al-Sharia and the Economic Potential

of Zakat in Helping the Poor During Pandemic
As the world economists respond to the COVID-19 and economic shock
created by the novel coronavirus. There is a need to engage a varied
and wide-ranging set of participants to address this massive challenge.
The virus has created a massive human, financial, and emotional suffer-
ings (Panakaje et al., 2022; Rabbani et al., 2021). Islamic finance can be
one of the most important stakeholder in response to the COVID-19
pandemic through a broad range of ethical and moral financial services
directly directed toward helping the poor and vulnerable (Naeem et al.,
2021; Rabbani et al., 2021). Islamic view of poverty alleviation is based
 A FINTECH-BASED ZAKAT MODEL USING ARTIFICIAL INTELLIGENCE 55

on the Islamic principle of social justice, financial inclusion, reduction in

inequality of income, and belief in Almighty Allah (Naeem et al., 2021).
Islamic finance defines the poverty as a situation where a person is not
able to fulfill any of his following five obligations (Adewale & Haron,
2017; Yap, 2011): religious duties; physical self; intellect or knowledge;
offspring; and wealth.
Islamic finance has some unique financial instruments, such as Zakat ,
Qardh-Al-Hasan, Awqaf, etc. which can act as the emergency support
programs by the various governments and NGOs to help the COVID
affected people (Rabbani et al., 2021). This section discusses Zakat as
the poverty alleviation and emergency support Islamic financial service
to help the COVID-19 affected poor and vulnerable section of society.
The present chapter also proposes an AI and NLP-based Islamic Fintech
model for Zakat to be used during and post-COVID to overcome the
adverse economic effect of it (Rabbani, 2022; Rabbani et al., 2020).
The proposed model will not only help in overcoming the adversities of
COVID-19 but also help in achieving the broader objective of financial
inclusion, social justice, and social welfare.
Zakat is one of the five basic pillars and only compulsory financial obli-
gation in Islam. It is the only economic and financial obligation on all
well-off Muslims. It is very unique financial instrument in Islamic finance
as it transfers wealth from rich to poor. As Zakat is one of the five
pillar, and there are serious consequences for non-payment and denial
of payment of Zakat, anyone denying the payment of Zakat ceases to be
the Muslim (Mohammad et al., 2020; Rabbani et al., 2021). Zakat is
mentioned 82 times in Holy Qura’an and importance of it can be under-
stood from the fact that out of which it has been mentioned more than
30 times along with Salah (The second pillar). It can be explained as per
the Holy Qur’an as-

Explanation from Verses of Holy Qura’an: The compulsory and obligatory

donation from the well-off Muslims to the poor Muslims. It is treated as the
religious obligation to tax. In Islam the origin meaning of Zakat is taken as
to purify, to pure or to increase. Islam treats social wellbeing of the poor and
deprived at the front and included Zakat as the part of the faith. (Ahmad &
Mahmood, 2009; Noor et al., 2011)

There are various opinions regarding the Nisab of the Zakat as which
articles should be included for Zakat calculation. Nisab means to be
56 M. R. RABBANI ET AL.

eligible to pay Zakat the one’s wealth must be over the prescribed
threshold. Zakat for Zakatable assets, as established by the Holy Prophet
Muhammad (Peace be upon him) must be calculated based on the 2.5%
of the total monetary value of the assets (Al-Bukhari, 2004).
COVID-19 has its impact on every community and Muslim commu-
nity is not an exception. It might have affected Muslim community more
because of close-nit nature of Muslim families. Also size of Muslim family
is comparatively larger (Hassan et al., 2020). There is devastating finan-
cial impact on the Muslims as there is widespread job loss, bereavements,
and millions are pushed to misery. As put in by the Raza Khan (1908) in
his famous book ‘The essentials of the Islamic faith’, In the midst of any
crisis or trauma, Muslims must turn to their faith for inspiration, guidance,
hope, and recovery. One key concept we are reminded here by the doctors
and health personnel during this trauma is the sacrifice. As explained by
Girard and Hassan (2008) in their work on ‘faith-based investing’, that
the sacrifice and patience is the DNA of Islam.
Zakat is essentially the wealth tax on Muslims is also a sacrifice of the
wealth. The 2.5% of the assets that have been owned over a year is to pay
the poor and needy. It isn’t a charity rather it is the duty of the Muslims to
purify the rest of their wealth (Hassan & Khan, 2007). Zakat has played
a pivotal role in fight against the COVID in Pakistan, UK, Bahrain and
Saudi Arabia, through different private and governmental organizations
(Mohammad et al., 2020).
As the community is approaching a long war against this pandemic
and this is just a beginning. Instant cash transfer nature of Zakat makes it
one of the most solid and reliable Islamic financial services to help poor
and needy during and after effects of COVID (Mahmuddin et al., 2020).
The world bank has estimated that the global annual Zakat fund is esti-
mated to reach 600 billion dollars this year and this could prove to be
a great boost to the global economy in time of this crisis. This compul-
sory donation from the Muslims which represent the one fourth of the
world population could save millions of people from this humanitarian
catastrophe (Ali et al., 2020; Rachman & Nur Salam, 2018). Islamic
banks and financial institutions has already adopted the financial disrup-
tion called Fintech (Bashar & Rabbani, 2021; Jreisat et al., 2021a) and it
has resulted into positive effect on their profit and overall performance in
terms of achieving the objective. The proposed AI-based Fintech model
can help the governments around the world and NGOs in war against the
COVID. It will prove to be a stepping stone in this fight by providing a
 A FINTECH-BASED ZAKAT MODEL USING ARTIFICIAL INTELLIGENCE 57

reliable, transparent, inclusive, and efficient financial model (Hassan et al.,

2020; Mohammad et al., 2020).

5 AI Based Islamic Fintech Model for Zakat

Islamic Fintech is identified as one of the important tool to achieve the
Islamic finance objective of social justice and financial inclusion (Khan
et al., 2022). The proposed Fintech model uses AI and NLP to auto verify
the documents and from the borrowers as well as receivers to disperse the
amount of Zakat. The proposed AI-based Fintech model is depicted in
Fig. 3.
The Fintech platform requires each user of the platform to register by
creating a login ID. The platform uses e-KYC to verify the identity of the
users in real time using AI. Once the user is registered, he/she can be
registered as the lender (Donor of Zakat ) or the borrower (recipient of
Zakat ). The recipient can login and provide its details by giving the proof
of need and the amount it requires each period to fulfill its need. The
recipient can be an individual, Small and Medium Enterprises (SME), or
anyone in need of funds suffered by the financial crisis or the pandemic. It
is to be noted that the entity registering itself as the recipient must provide
the valid proof of the need to qualify as a recipient of Zakat. Zakat cannot
be given to everyone as there are certain sharia requirements, which must
be fulfilled by an entity. The platform classifies such users as the ‘recip-
ient of Zakat’. The platform also uses Blockchain technology to provide
security to the donor and to verify how many times the amount has been
transferred to the recipient. Blockchain is the technology used in case of
Cryptocurrency (Karim et al., 2022; Rabbani et al., 2021a, 2021b).
The other type of user is known as the lender (donor of Zakat). It is
important to note that the donor must provide proof of Halal source of
income. Zakat can be given only from the Halal source of income. The
system uses machine learning, digital image processing, and AI to verify
the documents provided by each user.

6 Conclusion
Zakat is the compulsory donation from the rich and able Muslims which
must be given to the poor and needy within a year. This immediate benefit
nature of Zakat is well suited to tackle an economic crisis such as the one
caused by COVID-19. The present study offers a solution to the social
58 M. R. RABBANI ET AL.

Agreements based Agreements based Lender

on Sharia on Sharia
requirements requirements (Donor)
Zakat recipient

(mustahiq)

Borrower

Supportive Funds
Documents AI Based Zakat Type Selection
verification Fintech Platfrom

Borrowed Funds

Repayments

Fig. 3 AI-Based Zakat model (Source Adapted from [Khan et al., 2021a, b;
Rabbani et al., 2021])

and economic problem created by the virus. Islamic finance offers a wide
range of financial services well-suited to each stage of pandemic COVID-
19. An important Islamic Financial Service Zakat can be the potential
warrior in the fight against the economic consequences of COVID-19.
Islam advocates the system of wealth distribution with a view to create
a society where there is no accumulation of wealth and concentration of
economic power, no amassing, and no profiteering; a civilization where
there is no one dying for food nor multi-millionaires; a society where
justice prevails in all aspects of life, be it social, political, or economic;
an economic system which works on the model of poverty alleviation,
equal distribution of wealth and social justice. Zakat being the third
pillar of Islam after Tawheed (Oneness of Allah) and Salah (prayer), it
is the first pillar in the Islamic economic system. It is the first and most
important tool for eradicating poverty, helping poor, and bringing the
economic justice to the Muslim society. Zakat is the most important tool
for combating poverty and equitable distribution of wealth and removing
 A FINTECH-BASED ZAKAT MODEL USING ARTIFICIAL INTELLIGENCE 59

social and economic evils from the Islamic society. The proposed AI-based
Fintech model can help the governments around the world and NGOs
in war against the COVID. It will prove to be a stepping stone in this
fight by providing a reliable, transparent, inclusive, and efficient financial
model.

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 Islamic Fintech and Bahrain:
An Opportunity for Global Financial Services

M. Kabir Hassan , Ammar Jreisat ,

Mustafa Raza Rabbani , and Somar Al-Mohamed

1 Introduction
Islamic financial sector is currently one of the fastest-growing segments of
the global financial sector (Chong & Liu, 2009; Lawal & Ajayi, 2019).
It plays an increasingly critical role when it comes to the global social

M. K. Hassan
Department of Economics and Finance, University of New, Orleans, New
Orleans, LA 70148, USA
e-mail: [email protected]
A. Jreisat (B) · M. R. Rabbani
Department of Economics and Finance, College of Business Administration,
University of Bahrain, Zallaq, Kingdom of Bahrain
e-mail: [email protected]
M. R. Rabbani
e-mail: [email protected]
S. Al-Mohamed
Department of Finance, College of Business Administration, American
University of the Middle East, Eqaila, Kuwait
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 65

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_4
66 M. K. HASSAN ET AL.

financing needs (Azwirman et al., 2019). This is because it serves a core

population of approximately 1.8 billion Muslims worldwide as well as
provides ethical finance to an enlarged worldwide audience. In addition
to fostering a nascent Islamic Fintech ecosystem, global Fintech advance-
ments are also influencing Islamic finance (Islamic Development Bank
Group, 2020).
Technology has been an imperative component of the global finan-
cial services industry for a long time, probably since the dawn of the
twenty-first century. It is widely agreed that Automated Teller Machines
(ATMs), mainframe computer networks, and digital stock exchanges were
among the early financial technology innovations. The “Fintech” revolu-
tion, however, has raised a great deal of concern about the impact of new
technologies on the financial services industry, because of new techno-
logical enablers being introduced into the sector (Hassan et al., 2020;
Rabbani et al., 2021a, 2021b). Due to this disruption, financial services
are reshaping their business models, their operational models, and their
customer experiences in an exciting way that will be able to serve the
global consumer market and serve evolving business needs. Considering
these emerging global Fintech trends, Islamic finance has a great deal of
opportunity (Hassan et al., 2021).
As part of the evaluation process, we begin by defining Fintech and
assessing its trajectory and development. As a result of this disrup-
tion of the financial sector, we are seeing the creation of a variety of
new business models, operational models, and customer experiences. As
defined by Dinar Standard, an advisory firm based in the United States,
Fintech is described as being technologies that are driven by the Fourth
Industrial Revolution and are enhancing and/or disrupting current finan-
cial services, operations, business models, and customer engagement
(DinarStandard, 2021).
In the recent past, advanced technologies such as artificial intelligence,
robotics, blockchain, and others have slowly made their way into the
finance world (Khan & Rabbani, 2020; Khan et al., 2022). The Islamic
banking sector has not been left out of these revolutions. In the Gulf
Cooperation Council as well as around the world, Bahrain is considered a
major hub for Islamic finance and banking. Bahrain possesses the highest
concentration of Islamic banks in the world. An important objective of
this study is to discover the impact of Fintech on the future of Islamic
finance in Bahrain (Jreisat et al., 2021; Rabbani et al., 2022).
 ISLAMIC FINTECH AND BAHRAIN … 67

Bahrain is the world’s foremost center for Islamic finance. Over

the past few years, Islamic finance has experienced explosive growth.
According to Thomson Reuters’ 2018 report, the industry has grown
by 11%, but not at its full potential (IFSB, 2020). There were many
reasons as to why Islamic finance failed to grow at an unimaginable rate.
A major reason could be that Islamic financial institutions have not been
able to convince the community that they are truly Islamic and follow
all the rules prescribed by the Quran, the Sunnah, and the Shariah. The
Islamic community has not been convinced that interest-based financial
systems are haram, just as drinking alcohol or eating pork are. In contrast,
Muslims are not allowed to eat pork or to drink alcohol, yet they are
willing to give and accept riba/interest (Farooq & El-Ghattis, 2018).
Muslims are yet to be convinced about Sharia and the services offered
by Sharia-based groups as they do not have faith in the Islamic finan-
cial system. Furthermore, Islamic financial institutions may not be able
to create products and services that meet the demands of the poten-
tial consumer market. The conventional mode of financing has become
increasingly difficult to complete, as it is a very complex system, and
people are so accustomed to it (Jusni et al., 2019).
This chapter explores the Fintech fundamentals and helps the Islamic
finance industry make sense of this wave of change as it is happening.
In the Islamic finance industry, Fintech has no longer been confined
to a fantasy or a fad. With this technology, the entire financial sector
(both conventional and Islamic) will be on a level playing field. Hope-
fully, this will contribute to the development of the Islamic financial
industry. Those who focus on innovation and transparency will be able
to gain future market dominance. With modern technology, business
models can be developed with Sharia-compliant goods that scale well and
can be marketed successfully. A Fintech-driven change in society could
have enormous social benefits, so it should be viewed as an opportunity
instead of a threat. The economy and society can both benefit from the
change. Currently, there are only a few platforms in the Islamic world
offering financial services. When the Islamic Fintech market is compared
to the global market, it is indeed very small (compared to conven-
tional Fintech). On the other hand, the beginnings of this industry have
proven to be reliable and accepted in recent years. Islamic crowdfunding
blockchain, which is the primary element of Islamic finance, is already
used on several platforms. Several countries, including Brunei Darus-
salam, Bahrain, Malaysia, and the United Arab Emirates, regulate Fintech
68 M. K. HASSAN ET AL.

to help financial institutions and startups collaborate in developing inno-

vative business models. Collaboration between regulators and industry
will play a vital role in paving the road for the adoption of Fintech
worldwide in key areas such as regulatory implications of technological
advancements and financial products and services development.
The chapter consists of the following sections: the second section
focuses on Islamic Fintech’s global gaps and opportunities. Bahrain’s
central bank has recently implemented new regulations, which are
discussed in the third section. The fourth section discusses emerging
technologies in Bahrain. In the fifth section, we explain the gaps and
opportunities in Bahrain’s Islamic Fintech market. Finally, the study draws
important conclusions about how the Islamic financial system in the
Kingdom of Bahrain can be further developed, based on open innovation,
social inclusion, and embracing the new technology.

2 Gaps and Opportunities

in Global Islamic Fintech
In the last few years, Islamic finance technology has grown significantly
still the primary focus has been on peer-to-peer lending, creating a gap
in the availability of Islamic finance for consumers and businesses (Khan
et al., 2022). As identified by this study, there are many gaps in the Islamic
Fintech ecosystem. Below are a few of those gaps (Banna et al., 2021;
Rabbani et al., 2021a, 2021b).

a. Artificial intelligence and its role in wealth management: Artificial

intelligence refers to the ability of a machine to perform the same
tasks as a human, such that computers can be exploited to fuel
human intelligence. There is a need for Islamic Fintech to be more
automated and more readily accessible, which is the most impor-
tant gap identified. To succeed, Islamic Fintech needs to become
more automated by introducing innovative models and extending
the range of equity investments. A Fintech company based in the
United States, called Mint provides automated financial statement
analysis for its users (DinarStandard, 2021).
b. Blockchain: There is still room for growth for Islamic trade finance
as the market is still relatively small. It is crucial that smart contracts
 ISLAMIC FINTECH AND BAHRAIN … 69

and blockchain are utilized since they will not only provide indepen-
dent verification but also documentation, and they can be used to
streamline business processes, as well as payments and remittances.
The blockchain can be used by Islamic banks to develop new and
innovative products, generate more revenue, and reduce transaction
costs (Hassan et al., 2020, 2022; Karim et al., 2022).
c. Analytical and big data applications in Islamic banking: The most
asset of financial institutions is data in today’s data-driven world.
Financial technology has simplified the banking process. With the
introduction of big data and the solution of complex financial prob-
lems, it has reshaped the financial landscape. With the use of big
data, applications in Islamic finance such as takaful, re-takaful, sukuk,
ijarah, and equity investments are becoming more relevant. In the
case of proper implementation of data analytics, the information can
be used to improve, enhance, and grow the banking sector of the
country, contributing more effectively to the growth of the nation.
The customer interacts with the bank every time he or she makes
a purchase, every time they call, every time they make an enquiry,
every time they shop, every time an ATM card is used, every time
an app is used, and so on means a huge amount of data that can
open many new avenues for banks and increase the bank’s growth
(Bashar et al., 2021; Sun et al., 2020).

Islamic finance continued to grow quite steadily (Fig. 1), and its
assets grew rapidly after the financial crisis. Based on Dinar Standard,
2021/2022, it’s predicted that Islamic finance assets will amount to
$3472 billion by 2024. With the COVID-19 pandemic, Islamic finan-
cial system has another chance to appear as a serious competitor to the
conventional financial system with its social financial services (Hassan
et al., 2020, 2021; Rabbani et al., 2021a). As the open social innova-
tion of the financial system post-COVID-19, Islamic finance has a crucial
role to play (Abdullah & Rabbani, 2021; Dharani et al., 2022; Habeeb
et al., 2021; Panakaje et al., 2022; Rabbani, 2022a, 2022b).

3 New Regulations by Bahrain’s Central Bank

Even though Bahrain is a small country, its growing economy offers
opportunities to invest within a conducive business environment designed
to help your firm succeed. With strengths in the finance, technology,
70 M. K. HASSAN ET AL.

Fig. 1 Global Islamic finance assets ($ billion) (Source DinarStandard,

2021/2022)

manufacturing, and logistics sectors, Bahrain’s economy is the most diver-

sified in the Gulf Cooperation Council (GCC) region. Businesses of all
sizes can thrive under our pro-innovation business policies and laws.
It is imperative that Bahrain and the rest of the Middle East have
clear legal and regulatory frameworks for the financial sector which has
continued to undergo changes and reforms over the past year. Interna-
tional best practices indicate that regulators have continued to seek to
liberalize and modernize legislation to facilitate business opportunities for
investors. An analysis is provided here of some of the significant legal
and regulatory developments in Bahrain’s Fintech industry. In November
2018, introducing open banking regulations in Bahrain was the first step
in establishing open banking in the Middle East, by implementing rules
governing the provision of account information services and payment
initiating services. Obtaining the explicit consent of consumers, open
banking allows for the sharing of consumers’ private information, in
a standardized and secure manner, between organizations. Third-party
providers of financial services can gain access to information efficiently
and economically with the help of application programming interfaces,
which enables the development of innovative Fintech solutions (Karim
et al., 2021; Meero et al., 2021).
Bahrain implemented the United Nations Model Law on Electronic
Transferable Records as national law in January 2019. The electronic
 ISLAMIC FINTECH AND BAHRAIN … 71

transferable records that have been enacted thus far are essentially elec-
tronic copies of paper documents and instruments, such as bills of lading,
bills of exchange, checks, promissory notes, and warehouse receipts.
Bahrain also updated its Electronic Communications and Transactions
Law, allowing greater use of electronic communications in business,
among other things. “Electronic documents can be accessed by their
holders to request the delivery of a specific product and to request
payment”.
The Central Bank of Bahrain, under its regulatory framework, provides
services in cryptocurrency trading, dealing, investment advisory, and
portfolio management for crypto assets on behalf of principals, agents,
custodians, or as a cryptocurrency exchange located in Bahrain or abroad.
A “global crypto-asset service license,” which is a license that allows
individuals or corporations domiciled in another country to operate
within Bahrain, is available to individuals or corporations domiciled or
incorporated abroad (Meero et al., 2021).
As well, the CBB published a directive in March 2019 about “Dig-
ital Financial Advice” (also known as “Robo-Advice”), which is using
technology to provide financial advice. A comprehensive governance and
control framework is necessary for digital financial advice because it
relies primarily on algorithms and assumptions. CBB, the Information &
eGovernment Authority, and Benefit together launched eKYC, the first
electronic data exchange initiative in the Middle East. Using a state-of-
the-art online platform and database, the financial institution will be able
to authenticate and verify the client’s identity, information, and financial
standing before providing financial services to him or her. Also, it facil-
itates the launch of products and services offered by Fintech companies
via internet applications and the development of these products (Dinar-
Standard, 2021; “Leveraging Islam. Fintech to Improv. Financ. Incl.,”
2020).
Insurance aggregators (i.e., brokers operating online platforms) will be
affected by new CBB regulations beginning August 19, 2019. Internet-
based applications or mobile applications. Comparing and purchasing
insurance policies through a platform or app that allows users to access
several insurance companies that offers them the option of finding and
selecting insurance quotes from several insurance companies. Laws No.
30 of 2018 governing personal data protection and Law No. 31 of 2018
governing competition went into effect on January 18, 2019 and August
1, 2019, respectively. According to the PDPL, individuals are granted
72 M. K. HASSAN ET AL.

several rights regarding the collection, processing, and storing of their

personal data. Organizations are now required to manage personal data in
new ways. To wit, ensuring fair handling of personal data, the informed
consent of individuals, and direct access to their rights (DinarStandard,
2021; Kukreja et al., 2021).
CBB has partnered with Bank ABC and Ila Bank, BENEFIT, Bahrain
Islamic Bank (BisB), and the National Bank of Bahrain (NBB) to create
FinHub 973, Bahrain’s first digital Fintech lab. Through the program,
financial institutions and Fintech startups can collaborate to create a
collaborative ecosystem in the Fintech sector. The success of Bahrain’s
Fintech sector is due in part to the collaborative efforts of the people
who are participating in the creation of an ecosystem which includes new
rules and regulations which fit into this framework. In the years to come,
the Fintech industry is expected to continue growing at a rapid rate as it
grows (Abbasi et al., 2021; Chinnasamy et al., 2021; Narayan, 2020).

4 Emerging Technologies
in the Kingdom of Bahrain
Bahrain is taking steps to enhance digital transformation. Economic
development in Bahrain follows the pillars of sustainability, fairness, and
competitiveness. Also, the Digital Government Strategy 2022 emphasizes
the use of emerging technologies to transform government services. In
this area, the Kingdom has established itself as a regional leader thanks
to its adoption of a range of emerging technologies. The government
has taken on a regulatory role to empower technology companies and
foster their growth. This has resulted in the growth of the economy, the
creation of jobs, and the progress of humanity for the Kingdom, thereby
improving the quality of life of its citizens.

Forms of Emerging Technologies in Bahrain

The Bahraini telecom industry became the first in the Gulf to liberalize
in 2011, resulting in a massive economic shift. It has one of the best ICT
infrastructures in the region, thanks to its well-established ICT infrastruc-
ture. The UN eGovernment Development Index describes the Kingdom
as the number one country in the Arab world for ICT Development Index
(IDI) and the fourth at the world level for Telecommunication Infras-
tructure Index (TII). Bahrain is ranked fourth in the global category of
 ISLAMIC FINTECH AND BAHRAIN … 73

internet penetration, according to the World Economic Forum Global

Competitiveness Report (Causevic, 2018; Meero et al., 2021).
The Kingdom uses artificial intelligence to enhance government
services. Thus, public sector procedures, including judicial procedures,
have been streamlined, supporting business continuity. In addition, there
are two international conferences in Bahrain related to artificial intel-
ligence and the judiciary. Moreover, the education sector was able to
manage smoothly thanks to the cloud-based remote educational gateway,
EDUNET, which were able to educate during the beginning of the
COVID-19 era. iGA (Information & eGovernment Authority) developed
BeAware Bahrain, an app developed in-house to prevent the spread of
the virus. Despite its rapid launch, it has been vital in limiting its spread
(Mohamed et al., 2021; Rabbani et al., 2020).

Developing Bahrain’s Tech Ecosystem

Bahrain’s economic growth is driven by advances in artificial intelligence,
biotechnology, materials science, and robotics. It is Bahrain’s intention
to foster innovation by creating a conducive ecosystem. It encourages
developers, designers, and deployers of new technologies to comply with
international standards and to adopt values consistent with the Kingdom.
Government Action Plan and Vision 2030 of the Kingdom will both be
facilitated by emerging technologies. Central Bank of Bahrain (CBB),
Economic Development Board (EDB), and other government agencies
continue to adopt new technologies and innovations (Daud et al., 2021;
Hassan et al., 2021).

Technology in the Financial Sector (Fintech)

Bahrain maintains one of the most stable financial services sectors in this
region and values innovation in a stable regulatory environment. As part
of Bahrain’s Fintech regulatory sandbox, the Central Bank of Bahrain
(CBB) launched a program in 2017 that allows companies to test out
their solutions under supervision for up to one year. It’s the region’s first
initiative of its kind and has the potential of creating opportunities for
Fintech firms to grow and flourish. For an application to be considered
for deployment after the sandbox period ends, solutions must demon-
strate innovation, a benefit for the customer, technical testing, and an
intention to deploy in Bahrain. Since the sandbox’s inception, several
74 M. K. HASSAN ET AL.

Fintech companies have emerged, the first of which is Tarabut Gateway,

which works with financial institutions in the region. Further, the initia-
tive will further enhance Bahrain’s position as a leader for financial services
across the GCC. This is because it provides a safe, partially deregulated
business environment. Additionally, CBB facilitates business innovation.
This unit ensures Bahrain’s financial services are properly regulated and
implemented (Information & eGovernment Authority, 2021). Bahrain
has established itself as a leading financial technology center within the
MENA region, and Fintech companies in Bahrain have been leveraging
the dominance of this regional hub for their success.

Accelerator for Startups

It has taken significant steps to develop Bahrain’s economy to attract
foreign direct investments into Bahrain and set the direction for the devel-
opment of the Fintech industry in Bahrain. Flat6Labs is an accelerator
based in Bahrain founded by Tamkeen with the aim of accelerating and
launching both local and international startup companies. Through the
accelerator, mentorship, business development, and capital opportunities
are offered to companies.

Open Banking
Bahrain’s position as a leader in Fintech has been further enhanced by
the implementation of the Open Banking initiative in June of this year.
In a move that is replicating the UK, Bahraini and other global finan-
cial centers have become the first Middle Eastern country to implement
Open Banking. In Bahrain, a new system has been launched based on the
Open Banking platform of the Fintech Tarabut Gateway, which has been
adopted by the National Bank of Bahrain (NBB).

In the Era of IoT (Internet of Things)

The first IoT connectivity standard of the GCC was devised by Bahrain
and supported the use of the Narrowband Internet of Things (NB-IoT)
within the international telecommunications system (IMS). A few coun-
tries from the Middle East have been selected to take part in ITU’s
harmonization project for the narrowband IoT spectrum. Government
entities have been provided frequency bands by the Information & eGov-
ernment Authority (iGA) in support of smart cities, the Internet of
Things, and the Machine-to-Machine (M2M) communication goals of
Vision 2030 (Information & eGovernment Authority, 2021).
 ISLAMIC FINTECH AND BAHRAIN … 75

Cellular networks, technologies, and platforms are key components of

Bahrain’s IoT and M2M networks. To support increased Internet speeds
and connectivity with 5G, the fiber networks and wireless were reor-
ganized. Internet of Things is used by many Bahraini companies and
government entities to support Bahrain’s economic development. NSSA
(National Space Science Agency) was established in Bahrain by the end
of 2018. Through events, NSSA is promoting science and technology
related to satellite manufacturing, monitoring satellites, tracking satellites,
and creating imagery in Bahrain. A satellite will be launched by Bahrain
in the third quarter of 2021. A satellite will use artificial intelligence tech-
nologies and their application in remote sensing as part of the Internet of
Things (monitoring of factories’ gas emissions).
“Lift,” the new online portal from APM Terminals Bahrain, allows
customers to check delivery status, track shipments, and collect shipping
information. Through the technology, customers can view real-time cargo
status in a box feature, allowing management of Terminal processes in all
their aspects. The Marasi integrated electronic portal provides a single
point of access and also offers a variety of port services.
Further, IoT is employed to automate its irrigation usage, increasing
efficiency, as well as the Electricity and Water Authority to automate
distribution, which includes data collection, analytics, and execution.
Batelco and Bahrain’s Economic Development Board (EDB) recently
launched “Brinc Centre,” with the aim of supporting IoT and free enter-
prise in the Gulf. International Airport of Bahrain has adopted the latest
unified communications, video clouds, and IoT solutions from Bahrain
Airport Company (BAC). These new systems result in more efficient,
safer, and more comfortable airport operations, as well as a more pleasant
passenger experience. Real-time connectivity for large volumes of data
is provided by these advanced systems (Information & eGovernment
Authority, 2021).

Technology Based on Blockchains

Several industry leaders have adopted blockchain technology with
major benefits, including increased efficiency, improved traceability, and
enhanced transparency, among other things, speedier transactions, and
lower costs. Kingdom-wide blockchain strategy has been developed by
the Economic Development Board in partnership with the Informa-
tion & eGovernment Authority (iGA) to set up the general direc-
tion and support adoption by the public and private sectors. Among
76 M. K. HASSAN ET AL.

the blockchain applications found in Bahrain’s public sector are first,

to achieve Bahrain’s Economic Vision 2030, the General Directorate
of Traffic (GDT) has established the Blockchain Vehicle Registration
project. Using modern technologies, Bahrain promotes the development
of services and promotes the private sector. Vehicle registrars now have
access to more accurate and up-to-date information about each vehicle
than ever before, while reducing costs associated with basic vehicle data
maintenance. Secondly, blockchain technology, adopted by the Univer-
sity of Bahrain (UOB), is used to award the first certificates in the region.
UOB academic certificates can now be verified using blockchain tech-
nology worldwide, providing enhanced security. As a result, employers
and universities can easily share digital certificates that cannot be falsi-
fied. Lastly, APM Terminals, which operates KBSPs, collaborates with
several stakeholders on blockchain adoption. As soon as KBSP has config-
ured its systems, a blockchain map will include Bahrain (Information &
eGovernment Authority, 2021).

Analytical Techniques
Government data is utilized by entities, organizations, and governing
bodies to make informed decisions, conduct research, and develop new
solutions. Bahrain’s Open Data Portal provides public sector data that
may be reused, analyzed, and shared without restrictions while adhering
to all rules regarding personal data protection.
The use of big data in Bahrain has enabled many projects, such as
the national census, to be implemented. This provides an analysis of
large amounts of data, reducing administrative costs, time, and effort.
Consumer Price Index reports provide real-time indicators of inflation
in the Kingdom by collecting data from a variety of sources. Bahraini
government records are a valuable source of information about foreign
visitors, Bahraini tourists, and hotel occupancy. National Space Science
Agency (NSSA) will collect data on the environment, agriculture, climate,
and other topics using the country’s first satellite. The Kingdom can
better analyze big data by utilizing this approach.

Suggest a Data Set

In assisting the Kingdom to create an infrastructure and economy that is
fit for the twenty-first century, the Information & eGovernment Authority
will produce large amounts of data, especially in the medical and educa-
tional fields. Through the Bahrain Open Data Platform, all stakeholders
 ISLAMIC FINTECH AND BAHRAIN … 77

have access to large official data sets. A variety of official data from
government agencies can be accessed using the Open Data Platform. The
information is available in a variety of graphical representations and raw
data formats. The Telecommunications Regulatory Authority (TRA) facil-
itates the dissemination of data by allowing you to fill out an appropriate
form or by allowing you to submit a proposal through the TRA website.

Cloud Computing
Bahrain is an early leader in e-Government. The country implemented
a government-wide digitalization initiative in the GCC region. Cloud
computing has reduced operational costs and increased productivity for
the government, and improved public services. As part of Bahrain’s
policy to adopt cloud technologies, a clear roadmap and guidance are
provided. Cloud Computing solutions should be considered as an inte-
gral part of government IT planning and implementation processes. AWS
was appointed as the kingdom’s official cloud infrastructure provider in
2017. Since adopting Cloud First, Bahrain has achieved several mile-
stones. The iGA, for example, has transferred 1357 IT operations to
Amazon cloud computing servers; transferred more than 14,500 govern-
ment emails to Azure cloud computing; and certified 550 government
and semi-government employees for use of Amazon cloud computing.

Innovation Center at the University of Bahrain

At the University of Bahrain, the Cloud Innovation Center will provide
students with a range of cloud-based technologies and opportunity to
work with other public sector organizations to solve urgent challenges
and engage in new ideas with the use of Amazon’s innovation process and
expertise. Participants work together, identify what lessons they learned,
and publish what they learned to come up with solutions to complex
problems.

Pay with an eWallet

Several innovative electronic payment solutions can be utilized in Bahrain
to conduct payments securely, quickly, and conveniently at the point of
initiating a transaction, in line with Vision 2030 goals. In Bahrain, some
of the most popular eWallets are b-Wallet and AFS. Other popular options
include StcPay by SMBC, Benefit Pay by BHA, and MaxWallet by Cred-
imax. Bahrain has chosen to make electronic wallets which is the National
Portal accepts this payment method as an official method of payment.
78 M. K. HASSAN ET AL.

Know Your Customer (KYC) Electronically

A key initiative for the Bahraini Central Bank (CBB) aims to transform the
financial services sector into a paperless one, by moving to the electronic
Know Your Customer (eKYC) initiated by the Kingdom’s financial insti-
tutions as part of their initiatives. The move will also involve the launch
of a national platform for digital identity and a platform for electronic
KYC in 2019. It is under the supervision of the Central Bank of Bahrain
(CBB) and in collaboration with the IGA that Benefit operates the coun-
try’s first automated KYC platform, which is targeted at commercial
banks, financial service providers, and money exchange networks. Many
banks and financial institutions realize that with the use of a national
digital identity database, they can verify the identity of their customers,
authenticate their information, and share the information digitally prior
to delivering products or services. The government is among the entities
that can access customer data, such as iGA. In addition to its platform,
Benefit has created an Application Programming Interface (API) that
integrates with financial institutions’ core systems and digital channels.
Fintech companies can verify customers’ identities using Open Banking
in Bahrain through their mobile and online apps.

Machine Learning, or Artificial Intelligence (AI)

The Bahrain government has improved the government’s service delivery
and has strengthened Bahrain’s e-Government achievements through the
application of modern technology such as Artificial Intelligence (AI).
Training programs are also available in Bahrain. The Bahrain Polytechnic
Artificial Intelligence Academy is a joint venture between Tamkeen and
the Bermuda Polytechnic and Microsoft Corporation. It encourages
creativity and innovation among students. Bahrain’s first academy of its
kind aims to train and qualify students and teachers in Bahraini universities
and schools.
First Deputy Chairman of the Supreme Council for Youth and Sports,
Shaikh Khalid bin Hamad Al Khalifa initiated a tournament to spur
innovation among students in artificial intelligence as part of his efforts
to encourage innovation. This competition provides students with the
opportunity to showcase their ideas in the business world. The World
Economic Forum’s Center for the Fourth Industrial Revolution will pilot
a new set of guidelines for government procurement of AI in Bahrain
in 2019. To help governments use artificial intelligence responsibly and
 ISLAMIC FINTECH AND BAHRAIN … 79

sustainably, we developed guidelines in collaboration with the Economic

Development Board and the International Governance Assembly.

Introducing Robotics
Several of Bahrain’s initiatives have been launched to demonstrate its
commitment to adopting robotics to enhance customer service delivery
in the kingdom. Fintech leaders in Bahrain are a great example of this
initiative. Fatema is the first digital employee to be developed by Bahrain’s
Arab Banking Corporation. Dana has been appointed as Bahrain Islamic
Bank’s first virtual employee. The World Robotics Olympiad in Bahrain
was a notable 2018) held in Bahrain. Participants from government
and private primary, secondary, and intermediate schools presented their
robotics designs and construction ideas. As The 2015 VEX robotics
competition organized by Bahrain was part of its participation in the
world VEX robotics championship, and there were several national qual-
ifying events for Middle School, High School, and Elementary School
students. Youths have been trained in how to install and program robots
as part of the training program funded by the Ministry of Labour and
Social Development. A major goal of the program is to inspire the
next generation of scientists and technology leaders to pursue careers
in science and technology. Additionally, Robotic Process Automation has
been implemented within the Ministry of Finance to increase productivity,
reduce human error, decrease costs, and improve efficiency (Russell et al.,
2015; Wisskirchen et al., 2017).

Oil & Gas 4th Industrial Revolution

As a result of the advent of the Fourth Industrial Revolution, Oil and
Gas 4.0, including artificial intelligence and the Internet of Things, will
transform downstream, midstream, and upstream activities. Industry 4.0
is a Smart Oil Economy initiative that seeks to transform manufacturing
into a Smart Oil Economy and Industry 4.0 initiative to improve the
efficiency and productivity of the Kingdom’s Oil & Gas Sector as well as
creating greater value.

Smart Cities
The progress that is being made in the Kingdom in terms of ICT
has a significant impact on the enhancement of sustainability, economic
stability, and the well-being of the citizens. Bahrain is, therefore,
preparing to become one of the next smart cities—areas built with the
80 M. K. HASSAN ET AL.

latest in economic and social technologies for improving the health of its
citizens without destroying the environment.

a. Smart traffic lights, which combine Sensors and artificial intelligence

in traditional traffic lights, are one of several smart city initiatives the
Telecommunications Regulatory Authority (TRA) has adopted.
b. Solar energy is being promoted by the Electricity and Water
Authority and affordable loans are available for the installation of
a complete solar energy system (Bell et al., 2017).
c. The 3rd Smart Cities Symposium, held by the University of Bahrain
in 2020, was designed to raise awareness of the forum which will
provide insight into the prospects of Smart Cities and be a place
where ideas can be shared.

Fourth Industrial Revolution Education

Curriculum development and education outcomes are significantly
impacted by the Fourth Industrial Revolution. As part of efforts to culti-
vate a knowledge-based, diversified, and sustainable economy, Bahrain
aims to ensure that all its citizens have access to a comprehensive and
fair education. This goal has been achieved by developing the Economic
Vision 2030 (Bandara et al., 2019; Eleftheriadis & Myklebust, 2018).

5 Gaps and Opportunities

in Bahrain Islamic Fintech
Islamic Finance Development Indicator—2021 (IFDI) ranks Bahrain as
the fourth-placed country in the world for Islamic finance and second
in the MENA region. It is worth noting that the Bahrain Islamic Bank
put into place the first set of Islamic banking regulations in 1978.
During this time, Bahrain has been dedicated to promoting Sharia compli-
ance in Islamic banks including principles, rules, and norms. This makes
them suitable for both mainstream Islamic finance and individuals devel-
oping Sharia-compliant products (Banna et al., 2021; IFSB & Secretariat,
2017). Bahrain’s history has consistently been a leading center for Islamic
finance development because it attaches great importance to innovation
and customer service. The largest concentration of Islamic financial insti-
tutions in the region is in Bahrain, which is responsible for almost all
aspects of Islamic finance and Islamic products. ICD’s Islamic Finance
 ISLAMIC FINTECH AND BAHRAIN … 81

Development Report 2021 places us second in the MENA region and

fourth globally for Islamic finance development.

A Leading Knowledge Hub

The number of wholesale Islamic banks in Bahrain is 11, the highest
concentration in the entire Middle East. There are six retail Islamic
banks in Bahrain. As a highly connected ecosystem, we offer expertise in
most areas of Islamic finance, including investment management, Sukuk
issuance, insurance, and reinsurance.

An Expanding Takaful Industry

There are currently six Takaful companies and two Retakaful companies in
Bahrain, which makes it an ideal jurisdiction for this industry. The Central
Bank of Bahrain has also implemented a Takaful model which assists in
assessing whether a company is a solvent.

Regional Leader in Islamic Finance

Bahrain is currently one of the largest Islamic finance and banking markets
in the region, with USD 32.6 billion in Islamic bank assets, according to
the results from the second quarter of 2021.

Promoting Innovation in Government

Bahrain’s central bank is continuously developing new initiatives and
policy tools for improving Bahrain’s position as a leading Islamic finance
country, including a new model for new issuance of Takaful insurance
products and Sharia-compliant investments such as the Wakalah.

Setting up a Successful Platform

Over the past few years, there has been an unprecedented growth of
Fintech companies around the world, especially in the Middle East, which
combines finance and technology. This ongoing digital transformation
is at the very core of Bahrain’s overall strategy, which aims to foster
new opportunities for innovation for both Fintech companies and global
financial institutions, opening new avenues of growth. Bahrain Fintech
82 M. K. HASSAN ET AL.

Bay is the leading Fintech hub for MENA, offering coworking spaces,
innovation labs, advisory services, and collaboration platforms.

Future-Oriented Governmental Policy

In Bahrain, the development of a Fintech ecosystem has been fueled
by unprecedented regulatory reforms in the region and established the
basis for new business models in sectors such as crowdfunding, insurtech,
robo-advice, and crypto-assets. Among the Central Bank of Bahrain’s
key objectives is to reform policies to boost activity and funding in the
financial sector, as well as to ensure quality and competitiveness.

Legal Sandbox
Fintech companies and digitally oriented financial institutions use regula-
tory sandboxes to test new products and services before they are launched
on the main market. Bahrain introduced regulatory sandboxes in 2016.
Several Fintech companies have been nurtured by the Fintech sandbox
since its inception.

Crowdfunding Initiatives
To facilitate the rollout of Sharia-compliant equity-based and debt-
based activities in Bahrain, the Central Bank of Bahrain will introduce
regulations to regulate crowdfunding activities.
 ISLAMIC FINTECH AND BAHRAIN … 83

Establishing a Local Test Market of Exceptional Quality

It’s one of the most connected economies in the Middle East, and its
young, digitally savvy population makes Bahrain an ideal place to launch
and fund financial technology startups and scale-ups, which can then
expand their products into regional markets and even internationally.

6 Conclusion
Even though Islamic Fintech is growing at an unprecedented rate, it is
unfair at this point to compare the development of this industry with that
of conventional Fintech companies. With the advent of Fintech in recent
times, Islamic finance has undoubtedly had the opportunity of catching
up with their conventional counterparts. In the world of finance, Fintech
has changed everything, and it is anticipated that the integration of AI
and blockchain technology will completely change the face of Islamic
banking. During the past few years, there has been a technological revolu-
tion occurring in the financial sector, better known as Fintech. There are
countless emerging technologies that have slowly made their way into the
world in recent years such as artificial intelligence, robotics, blockchain
technology, and others. There is no doubt that the Islamic banking sector
is not exempt from the influence of these innovations. In terms of Islamic
finance and banking, Bahrain is considered one of the major hubs, both
in the Gulf Cooperation Council and globally. In fact, Bahrain has the
highest concentration of Islamic banks in the world. The goal of this study
is to determine to what extent Fintech will have an impact on the future
of Islamic finance in Bahrain. The Bahraini telecom industry became the
first in the Gulf to liberalize in 2011, resulting in a massive economic
shift. It has one of the best ICT infrastructures in the region, thanks to
its well-established ICT infrastructure. As a result of the United Nations
eGovernment Development Index, the Kingdom is ranked fourth in the
world for ICT Development Index (IDI), and first in the Arab world for
Telecommunication Infrastructure Index (TII), by the United Nations. In
terms of internet penetration, Bahrain ranks fourth globally in the Global
Competitiveness Report by the World Economic Forum.
84 M. K. HASSAN ET AL.

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 The Future of Finance and Fintech:
Visualizing the Opportunities for Fintech
in the MENA Region

M. Kabir Hassan , Habeeb Ur Rahiman,

Mustafa Raza Rabbani , and Asem Alhomaidi

1 Introduction
A mature and developed Fintech ecosystem is essential to fostering the
type of technological innovation required to make commercial markets
and systems further effective and enhance the overall client experience
(KPMG, 2020). Moreover, provided the extent of financial technology,
a brilliant Fintech ecosystem can invigorate the wider regional economy

M. K. Hassan
Department of Economics and Finance, University of New,
Orleans, New Orleans, LA 70148, USA
e-mail: [email protected]
H. U. Rahiman (B)
College of Business Administration, Kingdom University,
Riffa, Kingdom of Bahrain
e-mail: [email protected]
M. R. Rabbani
Department of Economics and Finance, College of Business Administration,
University of Bahrain, Zallaq, Kingdom of Bahrain
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 89

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_5
90 M. K. HASSAN ET AL.

by enticing capable, motivated individuals and grow into a locus of

innovative thinking and commercial activity. Fintech ecosystems facili-
tate development opportunities for several sectors, comprising advanced
payment systems, big data analytics, and algorithmic-based asset manage-
ment system. The Middle East and North Africa (MENA) regions are one
of the world’s most divergent regions (Atif et al., 2022), covering three
continents and 21 countries, with a populace of close to 600 million.
This region is known to be diverse in its political, economic, and cultural
aspects and comprises the six Arab states that are participants of the Gulf
Coordination Council (GCC) (Rabbani, 2022a, 2022b). This multiplicity
is manifested in the enormously different junctures of progression of the
Fintech industries across the region. As per the major reports, Dubai,
Abu Dhabi, Bahrain, and Riyadh have been labeled MENA’s leading
Fintech ecosystems (Hassan et al., 2021a, 2021b; Rabbani et al., 2021).
Startup Genome a research institution explored heaps of countries around
the globe based on considerations comprising funding, exits, ability, or
talent, and focus as well as ecosystem players comprising policymakers
and founders (Startup Genome, 2020).
During 2020, the Fintech sector has the significant distinctions
between financial services and technology businesses. The basic difference
between these two kinds of Fintech is that the corporations delivering
financial services be likely to be the ones introducing the bigger amounts
of funding. Some of these firms are also engendering comparatively high
profits given their phase of advancement but at the same time experi-
encing comparatively high annual deficits. We examine little disparity in
terms of stakeholder returns to date between the segments. The Paytech
vertical, which comprises both types of Fintech, does stand up out from
the other verticals in periods of shareholder gains which might be asso-
ciated with the profitable exits carrying place away in this business line
(Dharani et al., 2022; Jreisat et al., 2021; Karim et al., 2022).
Currently, Fintech ecosystems are still in progress in the GCC and
MENA and confront impediments to development. For example, GCC
administrations have been boosting financial e-services and digitized

A. Alhomaidi
Department of Finance, King Saud University, Riyadh,
Kingdom of Saudi Arabia
e-mail: [email protected]
 THE FUTURE OF FINANCE AND FINTECH … 91

financial connections. However, several of these projects have been

delayed, and few private-sector firms with digital capability have joined
the effort. Therefore, this study is intended to understand the level of
eco-system existing in GCC and explore elements required to develop
Fintech ecosystems in GCC.
The Fintech literature has grown exponentially in recent years. It
started only after the global financial crisis of 2008 and has been on
the rise since then (Lee & Shin, 2018; Rabbani et al., 2020, 2021;
Thakor, 2020), identifying the banks’ prospects (Abu Daqar et al., 2020),
identifying the trend (Das, 2019), and investigating the expansion of a
startup (Goldstein et al., 2019). Study on officials’ reaction to innova-
tions in Fintech is yet evolving, with academics suggesting the testimony
of financial institutions and banks fostering innovative tech-based, digital,
or implementing supportive methodologies such as collaboration (Al
Nawayseh, 2020; Liu et al., 2020; Rupeika-Apoga & Thalassinos, 2020;
Zavolokina et al., 2016). However, the sensible procedure directing
banks’ measures continues unclear.
Banks today are facing enormous challenges from various small
payment gateway service providers (Hassan et al., 2021a, 2021b).
The underlying technologies such as Artificial intelligence, Quantum
computing, Blockchain, etc. used by the Fintech startups bring risk and
resistance to changes to the traditional financial institutions such as banks
(Asmarani & Wijaya, 2020; Muthukannan et al., 2020; Shin & Choi,
2019; Sugiarti et al., 2019). Over 20% of the total conventional finan-
cial institution in the world gaining will be dropped to the entry of
Fintech during 2020 (Goo & Heo, 2020; Hasan et al., 2020; Langley &
Leyshon, 2021; Muthukannan et al., 2020). One of the key points asso-
ciated with this modification however due to advanced solutions and
facilities linked with incubators and various new Fintech-based institutions
(Gazel & Schwienbacher, 2020; Liu et al., 2020; Zhang-Zhang et al.,
2020). The institutions like banks and technology companies such as
communication industry and mobile technology corporations are crafting
a new ecosystem of business services (Cheng & Qu, 2020; Legowo et al.,
2021; Ntwiga, 2020; Sheng, 2021; Wang et al., 2021). Thus, conven-
tional banks which are believed as the leading institutions have prospects
in the Fintech ecosystem, but nonetheless have challenges in supporting
their philosophy and methods with that of others in the ecosystem (Alam
et al., 2021; Moh’d Ali et al., 2020; Sun et al., 2020). In this respect, call
92 M. K. HASSAN ET AL.

out for an investigation into modern and evolving ecosystems as inno-

vative know-hows and services do not inevitably align with most current
banking standards and practices (Baber, 2020; Buchak et al., 2018; Mazza
Basya & Utami Silfia Ayu, 2020; Phan et al., 2020). Thus, examining
the Fintech programs of present institutions offers vital insights into the
nature and structure of the forthcoming financial eco-systems (Basole &
Patel, 2018; Muthukannan et al., 2020; Vovchenko et al., 2019).
To theoretically reinforce the growing method and actions of existing
financial institutions within the current setup, we derive within the
ideas of identifying and reacting. Sensing includes firms’ capabilities to
obtain sufficient expertise quickly and the associated adjustments that they
control within the organization (Sviridov & Nekrasova, 2020). Reactions
are firms’ capabilities and readiness to take action toward technology-
supported change (Buckley et al., 2019; Carbó Valverde et al., 2020;
Soloviev, 2018). Organizations with the capabilities to know risks or
prospects, but do not have the capabilities or readiness to take measures
driven by the outcomes resulting from their identifying capabilities are at a
threat of taking advantage of prospects and still fail (Buckley et al., 2019;
Carbó Valverde et al., 2020; Diemers et al., 2015; Hendrikse et al., 2020;
Sugeng et al., 2020). Also, organizations with the skills and inclination
to act involve proper expertise before accepting results. Knowing-and-
replying capabilities have been explored comprehensively in the ground
of management; for example, in executive science (Wójcik, 2021) and
advertising and promotion. Zhukov et al. (2019) described the capabili-
ties to feel managerial difficulties as a prerequisite for decision-associated
actions toward changing to modifications. Still et al. (2016) further
emphasized that detecting is an intellectual method of rapidly monitoring
and evolving meaning when confronted with a quickly changing atmo-
sphere (Jiao et al., 2021; Wójcik, 2021; Zarrouk et al., 2021; Ziyaad &
Mohamad, 2016) (Fig. 1).

2 Participants of Fintech Ecosystem

Banks and Financial institutions, venture capital funds, and non-public
equity firms might promote deep substance and market proficiency to the
ecosystem (Galazova & Magomaeva, 2019; Langley & Leyshon, 2021;
Söylemez, 2019). Also, several of these monetary institutions can invigo-
rate their own invention by creating alliances with Fintech startups (Lee &
Shin, 2018; Omarini, 2018; Pooley, 2020; Valero et al., 2020).
 THE FUTURE OF FINANCE AND FINTECH … 93

Government

FinTech

Banks and
Entrepreneurs
Financial Inst.

Fig. 1 Key participants of Fintech ecosystem (Author’s own architecture)

3 Fintech Ecosystem Design

Marketing Environment
Fintech ecosystems ought to generate an inclusive cost advantage for
operating in a country or territory if they are to succeed. This act will
facilitate affordable infrastructures such as land and real estate, appa-
ratus, technology, and services (Lynch, 2013; Shmuratko & Sheludko,
2019; Sudarto & Inggriantara, 2020). An Additional element is the
degree of incorporation and collaboration among the participants. Tech-
nology hubs, where financiers and entrepreneurs have related business
goals and are cohesive, make it simpler for the ecosystem to grow. These
groups stimulate the accessibility of various expertise such as banking
analysts, IT designers and developers, and other managerial workforce
(Beausoleil-Morrison et al., 2001; Decae, 1984; Yadav et al., 2011).
94 M. K. HASSAN ET AL.

Governance Support
In GCC, administrations can change many facets of the ecosystem,
including reducing regulation attached to business such as registration
formalities, copyright, initial public offering (IPO) obligations, etc. and
maintaining taxes and levies lower (Arli et al., 2021; Arner et al., 2020;
Nurfadilah & Samidi, 2021; Yang, 2017). However, the scope of the
government’s interest can differ (Abdullah & Rabbani, 2021). In compar-
atively strong Fintech ecosystems such as in certain developed countries
like China, United Kingdom, and United States, the private sector
overshadows the service provider landscape.

Financial Accessibility
Accessibility to financial source to Fintech ecosystem is possible in various
sources (Demir et al., 2020; Navaretti et al., 2018; Senyo & Osabutey,
2020). Mainly Rulings Authorities may support the building of the
Fintech hubs, by offering seed funds, interest-free loans, and grants, or
even via establishment of supportive infrastructure (Anshari et al., 2020;
Pambudianti et al., 2020; Suryono et al., 2021). This can be accomplished
with financial institution like banks in a confederation (Karim et al., 2021;
Rabbani et al., 2022). The government may additionally facilitate primary
monetary support to venture capital or private equity funds, financial insti-
tutions, and different incubators to promote financing in small businesses
(Allen et al., 2020; Fauzia, 2020; Philippon, 2019; Zarrouk et al., 2021).
Venture capital funds and private equities are conventional shareholders
in Fintech startups (Borgogno & Colangelo, 2020; Najib et al., 2021;
Ozili, 2020). Capitals’ contribution will usually rise as these small business
versions gain impetus and reach essential mass.

Financial Know-How
Comprehensive monetary know-how is essential to structure the propri-
etorship of a Fintech ecosystem (Khan et al., 2022). Advice-giving
facilities to entrepreneurs from the initial phases of idea cohort over
commercialization, and finally deliver legal and governing counseling
to guarantee devotion to resident law and levy guidelines is an essen-
tial element of Fintech ecosystem (Rasiwala & Kohli, 2020). These
specialists can also be involved in promoting economic or governing
 THE FUTURE OF FINANCE AND FINTECH … 95

measures to reduce the formation and procurement of startups. In addi-

tion, by fostering decreased commercial laws and policies like registration
and intellectual property rights, these specialists help entrepreneurs and
monetary services companies and improve the attraction of the overall
ecosystem (Jamaruddin & Markom, 2020; Mazza Basya & Utami Silfia
Ayu, 2020; Prayitno & Setyowati, 2020) (Fig. 2).
Currently in the Middle East, only 1% of the global Fintech investment
is reflected and represented. The Fintech sector throughout the Middle
East is expanding at a compounded annual growth rate (CAGR) of 30%.
It is estimated that by 2022 (Fig. 3), 465 Fintech firms in the Middle East
will bring in over $2 billion in venture capital funding, equated to the 30
Fintechs that amassed approximately $80 million in 2017. A Lot of the
capital spending in the province has surged to some of the more dynamic
sectors of Fintech. Startups concentrated on payments and transfers,
online lending, digital banking, blockchain, RegTech, crowdfunding, and

• Access to quality of • Relaxation in

Infrastrucuture. regulation

• Availability of skilled • Policy towards new

man power technology and
requirement

Marketing Governance
Environment Support

Financial Financial
Knowhow Accessibility

• Economic • Incubator and

Tranformation supporting meterials

• Intermediaries • Funding
(Government and
Financial Institution)

Fig. 2 Fintech ecosystem proposed framework (Source Developed based on

review)
96 M. K. HASSAN ET AL.

cryptocurrency companies are promising and most frequently surrounded

by the territory. It means most of the financing continues to focus on
the payments space and approximately 85% of Fintech companies in the
MENA province manage the transfer of funds, payments, and remittances
division. Justifiably, most of the investing in the region has surged to
the payments area, as the province stays a source for payments-associated
activity. Most of the Gulf regions particularly UAE and Saudi Arabia is
a powerful force in remittances due to a vast number of its expatriate
inhabitants, which signifies the majority of the country’s total popula-
tion. In 2017, expatriate transfer of funds from the UAE equaled $44.5
billion, three-quarters of which was remitted via money exchange firms
and one-quarter delivered through banks. The significant saturation of
mobile appliances and internet connectivity has partly led to this move-
ment in the territory. In the Middle East, mobile penetration surpassed
100% in 2017, at the same time as smartphone penetration reached 60%.
During 2019, Bahrain, the UAE, and Qatar are among the highly pene-
trated marketplaces in the globe. Saudi Arabia and Kuwait joined them
during 2019 in launching 5G networks.
The 2020 World Economic Forum’s Global Competitiveness Report
is devoted to explain the main concern for revival and recovery and
contemplating the developing blocks of a change in the direction of

2500 2282

2000

1500
1126

1000
565
465
500 149 287 276
1 3 15 33 78 163
6 4 96
0 1 1 2 3 5 13 30 55
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Number of FinTech Investment $ Million

Fig. 3 Middle East venture capital investment into Fintech companies (Source
The Dubai International Financial Centre [DIFC] Fintech Hive and Accenture)
 THE FUTURE OF FINANCE AND FINTECH … 97

new economic systems that merge “productivity”, “people”, and “planet”

targets. As per the report, the ITU world telecommunication estimates
that at the end of 2019, a bit additional than 51% of the worldwide popu-
lation, or 4 billion individuals, are using the Cyberspace or internet. For
example, in the United States, e-commerce has soared by 24% in one
single year from July 2019 to July 2020, which means it has subsequently
risen by an average of 10% per year from 2010 to 2019. Universally, the
total number of courses related to e-learning has grown sharply, as around
1.2 billion children are out of educational institutions due to COVID-
19 regulations. Working at home, online entertainment through OTT
(Over the top) platforms, and other, telemedicine, videoconferencing has
all remained on the rise ever since the beginning of the pandemic.
According to the World Economic Forum’s 2020 Global Competi-
tiveness Report (Startup Genome, 2020) (Fig. 4), out of 140 countries,
Bahrain ranked 38th for the adoption of information and communication
technologies (ICT). This is one of the vital factors for countries looking
for adoption of Fintech. Mobile-cellular telephone and mobile-broadband
subscriptions are the other key factors revealed in this report, and state
158% 10th position and 147% 5th position, respectively. Similarly, among
the user of internet, the country stands for 98% of the population which
is 3rd position.

4 Emerging Role of MENA in Investment Fund

Numerous investment funds have arisen over the years that compete for a
crucial role in the worldwide Fintech investing ecosystem (Fig. 5). Based
on our various observations, nearly six investments have taken place in
Bahrain and the UAE ever since late 2017 concentrated on relationships
with other projects or direct investment in pioneering firms. Entirely,
these funds have grown approximately $1.5 billion in investment. As a
later development, numerous of these Fintech-related funds started to
swing from concentrating on external prospects to relaying more of their
capital to promising prospects within the region. In several instances,
these resources associate with the strategic projects set by administrators
in Bahrain and the UAE. These programs seek out to attract world-
class ability to the province, additionally diversifying the economies within
every nation, and placing the province as a participant in the international
venture investing ecosystem.
98 M. K. HASSAN ET AL.

Fig. 4 Number of Internet users in a leading country (Source International

telecommunication Union [ITU])

100%

80%

60%

40%

20%

0%
2015 2016 2017 2018 2019 2020

Individuals using the Internet Population covered by at least a 3G mobile network

Population covered by a mobile-cellular network Fixed-broadband subscriptions
Active mobile-broadband subscriptions Mobile-cellular telephone subscriptions
Fixed-telephone subscriptions

Fig. 5 Trends of ICT development in MENA region (Source ITU World

Telecommunication/ICT Indicators database)
 THE FUTURE OF FINANCE AND FINTECH … 99

Frontier markets remain strong in terms of growth capability. While

short-term winds exist, we believe the long-term version of frontier
markets continues undamaged. The structural prospect is like developing
markets 30 years ago, excepting that the growth curve is expected to
be faster due to the availability of technology. For shareholders, frontier
markets recommend local diversity across the Middle Eastern and African
regions. We have seen frontier markets push eccentric changes to boost
macro development. The resource category continues in its initial phases
of growth compared to greater developing markets, with smaller over-
seas investor proprietorship and under-researched marketplace coverage.
The current motivation for coverage to frontier markets is certain to
contribute to a locally different asset class with alluring demographics and
improved understanding of goods all catalyzed by the implementation of
technology in methods industry earlier have not witnessed.
Compared to another region in MENA, UAE has a highly sophisti-
cated ecosystem, with numerous public and private programs encouraging
invention. These comprise the Dubai International Financial Centre,
which administers a $100 million Fintech deposit and the county’s initial
Fintech accelerator, Fintech Hive; and similarly, Global market in Abu
Dhabi, which established its RegLab (regulatory laboratory) explicitly to
support new businesses crack their governing issues. In other nations,
central banks are doing measures to promote digitization and innovation.
Lebanon just permitted electronic sign, which is likely to enhance virtual
banking, operations, and trade. Lebanon has one of the highly active
digital ecosystems in the province. This development is due to Banque
du Liban’s 2013 guarantee of more than $600 million to pledge up to
75% of all commercial banks’ funds in regional startups.
The proportion of digital products offered is yet extremely tiny linked
to Western countries, but the vogue is shifting, Fintechs are currently
further recognized than always before, and I think banks are far beyond
wide open to discovering alliances. Current examples of this comprise
Kuwait’s Ahli United, which introduced a rent-payment mobile appli-
cation; Beirut-based start-up FOO, which offers digital solutions for
local banks and telecom service providers; and even global compa-
nies like US-based Fintech Ripple, which engaged cross-border payment
contracts with three MENA banks namely, Kuwait Finance House,
National Commercial Bank, and National Bank of Kuwait. Several orga-
nizations are pressing more, capitalizing clearly on grassroots visionaries.
The previous year, Arab Bank was the earliest investor in the region to
100 M. K. HASSAN ET AL.

establish its own $30 million Fintech venture capital finance, and telecom
service suppliers Alfa and Touch launched a $48 million Beirut-based
finance to invest in data and communication know-hows. Support from
conventional investors such as these delivers Fintechs with faith, grip, and
the capability to size quicker. Financial organizations and larger firms, for
their role, gain from the suppleness, quickness, and technological skills
of young businesspersons. They are instantaneously competent to extend
consumers a facility that would have transferred more time and money to
build internally.

5 Fintech Investment in MENA Region

The United Arab Emirates is prominent in the approach when it comes to
applying Fintechs to promote and build smart cities. Following is the list
of forecasts for the finance and banking industry in the MENA region.

Investment in Fintech
Clifford Chance has identified the UAE as the MENA prominent financial
technology marketplace, forecasting that it will rise to $2.5 billion by
2022. The rise in Fintech ventures clearly focuses on the growing need
for tech-empowered and customer centrical banking. Consequently, the
digital drive that was inflicted on businesses by COVID-19 suggests we
can anticipate seeing several digital banks remain to come to life cycle as
financial organizations make the switch from conventional to online.
Comparably, we too go to see those substantial adjustments in
customer expenditure patterns because COVID-19 is affecting require-
ments for digital banking. Corresponding to the National Economic
Register stated by Emirate’s news report organization WAM, UAE’s e-
commerce region released the maximum quantity of permits—196—in
May 2020, while the initial five months of 2020 witnessed a 300% increase
in customer need for e-commerce facilities. It is expected that customers
will remain to choose online spending and that will remain to raise the
need for digital payments in 2021 and beyond.

Relationship Banking
The shift away from client-centric banking remained so steady that we
hardly observed it. There was a moment while having a special connection
 THE FUTURE OF FINANCE AND FINTECH … 101

with the regional branch common place (Jakšič & Marinč, 2019; Kotarba,
2016; Li et al., 2017). Digital expertise altered this, aiming at accessi-
bility, growing rivalry, and creating the mobile consumer experience as
the crucial differentiator (Srivastava, 2020). Whilst these innovations have
helped clients in several ways, in some cases, it has positioned the impor-
tance away from the consumer-centrical model which then well-defined
banking (Musabegović et al., 2019).
The rise of pandemic became this gradually evident and underlined
that there is nevertheless a demand for relationship banking, especially
for susceptible and non-digital consumers. The disaster squeezed several
people’s business strengths and offered rise to many queries on the
financial assistance offered to customers. Additionally, clients availing
from banking facilities throughout this period that usually necessary
face-to-face communication, such as mortgages, we’re currently going
all through this process digitally. COVID-19 has stressed the various
demands of clients varying on their condition and shows the signifi-
cance of focusing on bespoke and custom-made services reliant on clients’
individual demands and desires. The study has observed a revert to rela-
tionship banking in 2021 as the main concern but is now blended with the
accessibility and advantages presented by digital banking. It is a compli-
cated balance out but using the appropriate technology will be crucial
for banks to pact with consumers in the proper way, matching their
expectations.

Increase in Cloud Banking

Cloud banking has stood on the cliff over current years, the recognized
technology threat has avoided this from being fulfilled in any substantial
manner. Though, now the company’s threat to not execute cloud tech-
nology has overhauled this technology threat. Considering the current
pandemic and client requirements make banks adopt procedures and
policies quickly in reaction to altering control and client needs, which
relic, on-premises methods were not constructed for. As the catastrophe
remains to grow, banks are steering screens on just how to continue.
This has highlighted the necessity to get a structure that permits banks
to turn swiftly and efficiently. Cloud technology is vital to banks playing
and remaining in this new era. Whilst this change was forever predictable,
changes in 2020 have rendered this a non-negotiable, and therefore, we
will see the extensive implementation of cloud banking in 2021.
102 M. K. HASSAN ET AL.

Embedded Finance
Though the market will not see great expertise and non-banking
performers joining the banking business in any substantial way in 2021,
we are able to anticipate these participants to take cautious, strategic
movements in the direction of creating a significant, long-lasting exis-
tence. Large technology and banks believe in a different way and move
about at various times, which poses questions to both players. Govern-
ment is additionally a lingering concern for large technology firms.
There are essential measures to take over to steer these problems which
non-banking companies will remain to meet through 2021.

6 Fintech Startups Distribution

Among MENA Countries
Amongst the MENA nations, the Fintech market prospects, products, and
services in seven Arabian nations, with certain instances indicating the
development of their ecosystems. The UAE, Egypt, Jordan, Lebanon,
Morocco, Kuwait, and Saudi Arabia. The choice of those nations is
ascribed to the statistic that those nations’ deposit accounts for nearly 92%
of the total quantity of startups in 12 Arab Nations in MENA. In partic-
ular, UAE only accommodates 30 Fintech startups, followed by Egypt
(17), together of Jordan and Lebanon (15), Morocco (8), and equally
Kuwait and Saudi Arabia (6) each.
Fintech is gained better prominence after 2020 with the payments
segment previously displaying indications of merging, particularly in the
GCC province (Fig. 6). Crowdfunding and loaning platforms are estab-
lished to remain to develop particularly programs with a concentration on
geographies. For example, Eureeca, one of the equity crowdfunding plat-
forms, is one of MENA’s openings Fintech startups that ran worldwide.
For 2020, startups from the second wave segments, involving payments,
wealth management, insurance, and blockchain, have raised to fame.
The overall observation in various research and reports reveals two
different approaches, one part of the observation reveals banks’ adoption
of Fintech considering various intermediaries’ interference in payment
bypassing traditional banking system. This development could create a
major challenge to traditional banking operators like commercial and
investment banks. Middle East can be considered as an important example
to notice changes taking place in the region. The Fintech ecosystem in the
 THE FUTURE OF FINANCE AND FINTECH … 103

2020 36 33 31

2015 50 34 16

2010 90 5 5

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Payments Lending and Capital raising second wave sector

Fig. 6 Fintech startup creation MENA (Source Fintech Focus, KPMG)

Middle East is considered by a convinced level of flaw and contrast: The

ecosystem is embryonic quickly once it originates to organizing advanced
explanations, yet it is stressed to entice supplementary funding that will
increase its footmark and influence. Banks are eager to participate with
Fintechs in a wide variety of experimental schemes; however, they are hesi-
tant to incorporate Fintechs into their approach, as they prefer to follow
a “wait and see” attitude. Customer behavior around the Middle East,
mainly in KSA, is exemplified by a readiness to embrace advanced solu-
tions proposed by banks; in specific, when it occurs to peer-to-peer cash
transfers, bank account aggregation, and computerized investing advice.
Though banks are not leveraging the extensive suite of Fintech features
to deliver clients’ requirements and needs to improve the regular banking
journey and knowledge.

7 Conclusion
The present study has observed an increase in Fintech-related movement
in various parts of the MENA region especially in Bahrain and the UAE. It
can be noticed that regulators and policymakers encourage by extracting
to expand their economies and financial scope beyond their traditional
framework. The Gulf region is currently considered to be the most effec-
tive region by adopting all the advanced and innovative technologies.
The world has witnessed Dubai as one of the most prominent places
for the most recent technologically experienced country. One of the key
104 M. K. HASSAN ET AL.

outcomes of the MENA region is establishing a welcoming permissible

and regulatory atmosphere for Fintech startups and matured development
proposals through progress-thinking programs. An essential part of this
approach is establishing a facilitating environment adept of inviting and
encouraging foreign firms contained by their corresponding countries.
The information transfer likely to result from this will push the advance-
ment of a lively, regional Fintech ecosystem. Most noticeably, counties
like Bahrain and the UAE are initially on in their attempts to build into
the Fintech hub in the area. Most of the counties in the MENA region
are adopting and considering the outcome of Fintech and putting their
efforts in effectively establishing a bright Fintech ecosystem.

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 Fintech Trends: Industry 4.0, Islamic
Fintech, and Its Digital Transformation

M. Kabir Hassan , Zehra Zulfikar,

Mustafa Raza Rabbani , and Mohd. Atif

1 Introduction
The technological advent in finance and banking started in 1945 when
cheques were introduced as a new medium of paying money. In 1958,
the Bank of America came up with the concept of credit card. Afterward
in 1967, Automatic Teller Machines (ATMs) were developed, followed by
the arrival of a debit card as a financial transaction instrument (Agarwal &
Chua, 2020; Li et al., 2020). Subsequently in the mid-1990s, Internet
banking came into existence because of the progression of the Internet.
Almost after a decade, in the 2000s, crowdfunding and mobile payment

M. K. Hassan
Department of Economics and Finance, University of
New, Orleans, New Orleans, LA 70148, USA
e-mail: [email protected]
Z. Zulfikar (B)
Department of Business Process Management, Delhi Skill
and Entrepreneurship University, New Delhi, India
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 113

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_6
114 M. K. HASSAN ET AL.

started because of Fintech development. In 2009, Bitcoins were intro-

duced by Satoshi Nakamoto as a digital currency (Ashta & Biot-Paquerot,
2018; Holmes & King, 2019; Zavolokina et al., 2016).
According to Stewart and Jürjens (2018) Fintech is defined “as the
use of platforms of technology and mobile devices to access transac-
tion notifications, bank account and credit, as well as debit alerts via
push notifications through short message service, application or another
way of getting notifications” (Stewart & Jürjens, 2018). Whereas Islamic
Fintech, is explained as “Fintech with Shariah principles and Islamic
values” (Goud et al., 2021; Khan et al., 2022; Shaikh, 2021).
In the last two decades, the volatile advancement in the field of arti-
ficial intelligence, machine learning, and big data handling techniques
has been witnessed in the banking sector too resulting in the increase
in the productivity and profitability (Hassan et al., 2020; Rabbani et al.,
2020, 2021a). The practice of applying the models of Artificial Intelli-
gence on the data collected, warehoused, and administered by banks have
attained the generic nomenclature as Fintech and BigTech (Frost, 2020).
This data has an ever-increasing size, complexity, and variability which
requires the use of computer assisted statistical software to deal with it
in a way that it helps in developing business strategies for the future.
The five ways in which Fintech can propose improvements in business
models for the banks are using the digital platforms, including prospective
customer sections, having better accuracy in the selection of customers,
minimizing operational costs, and business process optimization (Hill,
2018; Vershinina et al., 2018).
In the present time, the requirements of the banks’ customers have
changed because a major section of the consumers consists of young
and middle-aged people who are very well versed with technology and
do not like to physically visit the banks for their investment and saving

M. R. Rabbani
Department of Economics and Finance, College of Business Administration,
University of Bahrain, Zallaq, Kingdom of Bahrain
e-mail: [email protected]
Mohd. Atif
Department of Commerce and Business Studies, Jamia Millia
Islamia, New Delhi 110025, India
e-mail: [email protected]
 FINTECH TRENDS: INDUSTRY 4.0, ISLAMIC FINTECH … 115

needs (Karim et al., 2021a; Rabbani et al., 2021b). Traditional bank

models are incapable of catering to their needs and choices. Industry 4.0
aids in satisfying ever-changing customer needs and increasing the output
by introducing innovative banking products and automating routine and
specialized processes (Nugroho Soebandrija, 2019).
The development of any financial system must be done on the basis
of sustainability (Karim et al., 2021a). Sustainability of any system is
explained as “the situation of creating a system where it meets the demand
of the current generation without compromising the future generation
or providing an ability to the future generation to meet its own needs”
(Rabbani et al., 2021c). The notion of “sustainable development” was
introduced in 1960s, which was based on following ethical and moral
values. Conserving and preserving environment from the detrimental
effects of the growing industrial development is the primary goal of the
sustainability theory (Memili et al., 2018; Merello et al., 2022; Wüsten-
hagen, 2003). The standards and procedures for practicing sustainability
are laid down by United Nations’ 2015 agenda of Sustainable Devel-
opment Goals (SDGs) (Atif et al., 2021). Protocols in line with United
Nations’ SDGs can assist in bringing sustainability to Finance sector too.
The concept of Fintech is based on principles of sustainability provided
that the regulators make sure that financial integrity, consumer data secu-
rity, and financial inclusion are properly handled (Jreisat et al., 2021;
Rabbani, 2022a, 2022b).
Although the regulation in Fintech is becoming far more active in
Fintech space due to the inherent risk possessed in terms of product inno-
vation and potential disruption it brings to the overall functioning of the
global financial system (Banna et al., 2021; Clements, 2021). There is an
absence of any widely acknowledged one regulatory organization that can
act as an umbrella body for all the Islamic financial institutions especially
for the newest and state-of-the-art division known as the Islamic Fintech
(Hassan et al., 2021; Naeem et al., 2021).
Much expected, as alike to the availability of traditional financial
services regulation, guidelines of Islamic financial institutions, including
Islamic Fintech’s, are dealt through the formal channels only (Nguyen
et al., 2021; Valerio, 2020). Islamic finance and its innovations must go
through the strict Shariah norms. As such, the major regulators involved
in the development of code of practice and the lawful facilitative struc-
ture for Islamic Fintech are seen where there is significant activity already
taking place. Few of the major regulators are Bank Negara Malaysia and
116 M. K. HASSAN ET AL.

Securities Commission (Malaysia), Central Bank of Saudi Arabia (SAMA)

Financial Services Authority (Indonesia) and, policymakers in Western
countries for instance, Financial Conduct Authority in the UK, who
allows Islamic Fintech’s to function within their conventional regulatory
framework. However, at the international level, Bahrain-based AAOIFI
(the Accounting and Auditing Organization for Islamic Financial Institu-
tions) is actively defining Sharia standards for certain segments of Islamic
Fintech activities, e.g., crowdfunding, cryptocurrency voluntarily (Brika,
2022; Hassan et al., 2020; Muryanto et al., 2021). According to reports
generated from the industry by performing a global survey on Islamic
Fintech’s, among the 100 survey respondents approximately 56% of the
Islamic Fintech’s expect to gather equity funding in 2021 with an esti-
mated round size of USD 5 million. This shows a persistent trust in
the growing Islamic financial services worldwide. The respondents of the
survey also illustrated the major obstacles in its success path, namely, Lack
of Capital, Finding Talent, and Consumer Education. Also, the survey
results show that Payments, Deposits & Lending, and Raising Funds are
the top growth segments in 2021 (Dinar Standard, 2021).
The remaining chapter proceeds as follows. In section two we provide
an extensive review of literature related to the overall Fintech industry,
Industry 4.0, Islamic Fintech, and digital transformation. Section three
provides the discussion part of the chapter and finally in section four we
conclude.

2 Review of Literature
In this section we provide the extensive review of literature related to
the overall Fintech industry, Industry 4.0, Islamic Fintech, and digital
transformation. The literature review is divided into four sections covering
the developments in Fintech, Industry 4.0, Islamic Fintech, and its digital
transformation.

Fintech
In the present, the working definition of the Financial Stability Board
(FSB) for Fintech is “technologically activated financial innovation, which
could result in new business models, applications, processes or products
with an associated material effect on financial markets and institutions
 FINTECH TRENDS: INDUSTRY 4.0, ISLAMIC FINTECH … 117

and in the provision of financial services” is most widely used in the avail-
able literature. Therefore, it can be said that the term Fintech refers to
a wide range of software which brings innovation that can be applied
in existing banks and new entrants or which are in the process of being
restructured (Duran & Griffin, 2021; Omarini, 2020; Wu & Yuan, 2021).
According to some researchers it is said that Fintech is not only restricted
to information technology in finance, but it can also be used in explaining
start-ups, new generations, technologies, companies, products, chance,
digitalization, and threats (Pawłowska & Staniszewska, 2021; Schueffel,
2016).
Financial technology abbreviated as Fintech also means as financial
services provided with the help of technology with an objective to
produce innovative financial and banking products and to provide a
hassle-free experience to the users and customers (Hassan et al., 2020;
Khan & Rabbani, 2020; Rabbani et al., 2021d).
Fintech is also defined as “The fusion of Information Technology and
Finance for providing the financial services at an affordable cost with a
seamless user-friendly experience” (Hassan et al., 2020). Fintech includes
all financial services ranging from crowdfunding, mobile payments,
robot advisory services, digital currency like Cryptocurrency/Bitcoin,
Blockchain technology, etc. (Rabbani et al., 2021a, 2021b, 2021c,
2021d).

Industry 4.0
The term “Industry 4.0” refers to the idea of penetration of technology in
all areas of society like communication, production, finance, transporta-
tion, and services (Bandara et al., 2019; Nugroho Soebandrija, 2019).
These developments are a result of digital integration between devices
and processes that can exchange and process massive amount of data.
Automation, which means the accessibility of such machines that can
perform highly complex tasks, also plays a vital role in it. Technologies
like Artificial Intelligence, Internet of Things, Biometrics, Data Analytics,
Blockchain, etc., have enabled organizations in building customized prod-
ucts and delivering personalized services along with the help of Internet
and smart electronic devices (Eleftheriadis & Myklebust, 2018; Riyanto
et al., 2019). The ten major pillars of Industry 4.0 are Internet of
118 M. K. HASSAN ET AL.

Things, Big data, System integration, Cloud computing, Additive manu-

facturing, Augmented reality, Simulation, Robotics, Artificial Intelligence,
and Cyber Security (Riyanto et al., 2019).
Apparently, it may seem that human labor and insights are substituted
by Industry 4.0; however, on the contrary, human intervention is required
in the decision-making process and they play a vital part in the installa-
tion, maintenance, and upgradation of the entire process (Naeem et al.,
2021; Rabbani et al., 2021d). Thus, it can be said that Industry 4.0 works
in synchronization with the human resource system. Generally, there has
been a suspicion that the physical–digital integration can leave negative
effects on the society and the environment due to its nature of being
overly complex to monitor and administer. However, effective framework,
multi-stakeholders’ approach, and open dialogs can help in fighting out
its consequences (Bandara et al., 2019). The very nature of Industry 4.0,
i.e., automation, big data analysis, and transparency makes it to be an apt
supporter of Fintech’s and especially Islamic Fintech’s (Sun et al., 2020).

Islamic Fintech
Islamic financial technology means providing sharia-obedient financial
services to the customers of Islamic banks and Islamic financial institu-
tions with the help of financial technology. Islamic Fintech emphasizes
on providing the financial services, products, and investments by fulfilling
the requirements of sharia at a reasonable cost with advanced technology
(Hassan et al., 2021; Rabbani et al., 2021c).
Islamic Fintech is comprehensive, transparent, ethical, and favorable to
all the stakeholders and follows the principles of sharia as compared to the
traditional financial institutions (Rabbani, 2022a, 2022b). In the forth-
coming period it is expected that different governments take steps toward
adopting this concept. Islamic financial institutions need to make strategic
moves and make their portfolio Fintech attractive by including finan-
cial services based on artificial intelligence, blockchain and data analytics.
Crowdfunding, P2P lending, digital payments, digital authentication, and
sharia-compliant cryptocurrencies are some of the significant areas in the
development of Islamic Fintech. Likewise, novel and innovative solutions
could be proposed by Fintech developers for the prevailing issues by using
the dynamics of cloud computing, big data analytics, cryptocurrency, etc.
(Rabbani et al., 2022).
 FINTECH TRENDS: INDUSTRY 4.0, ISLAMIC FINTECH … 119

“Fintech promises to reshape the Islamic financial landscape by

improving processes’ efficiencies, cost-effectiveness, increased distribu-
tion, Sharı̄ah compliance and financial inclusion” (Razak et al., 2021).
Islamic Finance services providers are currently in a process of fully or
partially embracing Fintech. Some of the torch bearers in this arena are
Saudi Arabia, the UAE, Malaysia, Bahrain, Brunei, Indonesia, Oman, and
others (Soloviev, 2018; Söylemez, 2019).
Islamic financial institutions have happily accepted Fintech as a way of
an innovative technique to provide financial services with open arms, as
it gives the flexibility of operations based on the principles of sharia. It
is evident that Fintech supports the concept of sustainable development
and therefore, Islamic countries are enthusiastically adopting it. A recent
initiative is taken by Fintech Bay in Bahrain where it has recently launched
“Global Islamic and Sustainable Fintech Center” (GIFSC) in associa-
tion with its local, regional, and international collaborators (Meero et al.,
2021). Islamic countries like Malaysia, Saudi Arabia, Bahrain, and Iran
have introduced regulatory “sandboxes” for making alterations in their
regulatory framework in order to supplement and support modernization
required in Islamic finance. The idea behind creating such institutions
and amendments in policies is to introduce, adopt, and merge Fintech
with Islamic finance in order to bring sustainability and innovation in the
system (Karim et al., 2021b; Meero et al., 2021). Generally, such insti-
tutions also aim to identify and meet the unrecognized demands of the
prospective Islamic financial service users so that continuous development
and long-lasting growth could be achieved.
Even though there is a high growth in the number of countries which
are involved in Islamic Fintech activity, or are well-equipped to facilitate
such activity, no specific ranking criteria existed to compare such coun-
tries in the Islamic Fintech space until Global Islamic Fintech Report,
2021 presented the first Global Islamic Fintech (GIFT) Index. This
Index shows the countries that are most prepared for the growth of
Islamic Fintech Market and Ecosystem in their dominions (Elipses, 2019;
Hasan et al., 2020; “Leveraging Islam. Fintech to Improv. Financ. Incl.,”
2020). An aggregate of 32 indicators across 5 different categories for
each country was used by the index. The five categories were namely,
Regulation; Capital; Infrastructure; Talent; and Islamic Fintech Market &
Ecosystem. The index included 64 OIC (Organization of Islamic Coop-
eration) and non-OIC countries which were included on the basis of
their current Islamic Fintech market activities like the existence of Islamic
120 M. K. HASSAN ET AL.

finance capital (an indicator of development in Islamic Fintech), and their

preference to the global Fintech ecosystem (e.g., China, Japan). Among
64 countries, 9 out of the Top 10 (90%) countries are a member of OIC,
Muslim majority countries; except UK, which has a flourishing Islamic
Fintech ecosystem because of various factors like active Islamic Fintech
Muslim population, the existence of several Islamic Fintech’s; developed
regulatory system; a growing Fintech sector; availability of experts from
developed Islamic Fintech. Whereas 8 out of top 20 countries are non-
OIC member countries including the USA, Canada, etc. (DinarStandard,
2021; IFSB, 2020).

3 Discussion
Digital Fintech research basically starts with analyzing Fintech comprising
financial instruments and machines (Gün, 2019). Fintech consists of six
business models mainly, lending, wealth management, insurance services,
crowdfunding, payment, and capital markets. Innovative and creative
technological ideas resulting in growth of Fintech are somehow depen-
dent on the use of artificial intelligence, big data, and machine learning
(Baber, 2020; Daud et al., 2022; Suryanto et al., 2020). The impact
of using data may be complex or multidimensional but the industry is
required to have proper surveillance on its protection. It is to be under-
stood that not only technology requires being in safe hands but also the
data. Anonymity and confidentiality of consumers’ personal data, data
leaks, and data access restrictions must be assured by Fintech. Proper
policies should be framed regarding personal data protection. Consumers
must be educated about internet usage and its threats. Also, technology
integration can be used by Fintech to sustain the quality of software and
avoid fraudulent practices (Acar & Çitak, 2019).
It is evident from the Fintech trends that more the growth in finan-
cial technology services more will be the competition in industry. The
side effects of online loan services like moral hazard, information asym-
metry, and loan defaults are widely observed. The problems of money
laundering arising from the prevalence of Bitcoins are another area of
concern for the Fintech’s (Hassan et al., 2020; Khan & Rabbani, 2020).
Principles of consumer protection and risk management are the two main
factors that should be taken care by promoters and regulators in the
 FINTECH TRENDS: INDUSTRY 4.0, ISLAMIC FINTECH … 121

finance and banking industry to encourage innovation and technology

usage (Hernández et al., 2019; Yuniarti & Rasyid, 2020).
Payment model is somehow also affected by the innovation in
the Fintech sector as it is a part of Fintech business models. Various
advancements in payment methods including electronic wallets, payment
gateways, and electronic money have taken place (Kang, 2018; Moon &
Kim, 2017). It has become possible because there is a huge level of
distinction between payment designs in the sense of transaction settlement
methods and e-commerce developers who develop different payment
techniques according to the requirements of the clients (Andria et al.,
2021). Due to the presence of different methods of payment, adoption
research is widely undertaken by the researchers (Daragmeh et al., 2021).
Irrespective of using a multidimensional network with the same shared
infrastructure, mobile payment system strives to provide value by assisting
in speedy transactions along with resolving the customers’ problems and
creating satisfaction. Biometrics are found to be useful according to some
studies concerning benefits received, individual security issues, and trust
in electronic payments for e-commerce. One of the drawbacks of online
payments availability of a huge number of online currencies making it
difficult for the regulators to control and authenticate the transactions
(Daragmeh et al., 2021; Khiewngamdee & Yan, 2019; Natarajan, 2021).
P2P lending is such a financial service that gathers both lenders and
borrowers at one unified podium. Studies have determined the reason
behind what makes it difficult for investors to invest in P2P lending, which
is called as information asymmetry. Investment decision in P2P lending
is also affected by moral hazard which tends out be a huge problem.
Finally, to ascertain the benefit of P2P lending, policies and regulations
are to be examined continually. Consequently, P2P lending is developing
day-by-day as people are becoming more aware (Rabbani et al., 2022).
The Global Islamic Fintech Report presented the data collected from
the industry as global investigation of Islamic Fintech’s. Approximately
100 survey respondents were included in the study out of which 56% of
Islamic Fintech’s are expected to raise equity funding in 2021 with an
average amount of USD 5 million (DinarStandard, 2019). This depicts
that the Fintech is continuously growing and spreading its reach and
operations. The study also performed exploratory research on finding the
obstacles in the growth of Fintech’s. Some of the major obstacles explored
are Lack of Capital, low consumer literacy, and Talent acquisition. On the
122 M. K. HASSAN ET AL.

other hand, the study revealed the fastest growing areas in the industry are
Payments, Raising Funds, and Deposits & Lending (Daud et al., 2021).
“Tayyab” is an example of an Islamic bank which acts as a perfect
example of digitalization of Islamic Fintech’s. It provides all the services
which a traditional bank offers but on the digital platform. The services
include online account opening, delivery of cards electronically, electronic
payments, electronic Sadaqah and Zakat services, Salah and Adhan
timetable, Tasbih, Qibla direction, maps to locate mosques, halal restau-
rants, etc., are provided through their banking application. Tayyab ensures
that its customers perform all the financial and religious responsibilities
and operations strictly in compliance with Shariah laws and keeping them-
selves away from interest and Riba. It has also obtained a certification
from Shariah Review Bureau.
Another notable research undertaken in the area of digitalization of
Islamic Fintech is the establishment of “IslamicFintech4SD Gearbox”
model. It has been developed to establish an association between various
financial and non-financial institutions like multinational companies, start-
ups, P2P lending, and crowdfunding organizations (Deng et al., 2019;
Goud et al., 2021; Vergara & Agudo, 2021). This model ensures that
the association is made strictly in accordance with the Shariah laws. The
model guides Islamic Fintech’s to work on the principles of sustainable
development, for which it has proposed a five-step framework. The five
steps include easy online account opening along with e-KYC and Digital
ID creation, digital payment system, customized Islamic financial services
offered with the help of Artificial Intelligence and Blockchain technology,
providing government services following the previous steps in order to
achieve financial inclusion and lastly, the Shariah compliance (Atif et al.,
2021).

4 Conclusion
It was after the global financial crisis (2008), the development of e-finance
and mobile upgradation for the finance sector took place which created
an urge to develop Fintech. The advancement in technology comprised a
combination of social networking services, artificial intelligence, e-finance
innovation, internet technology, social media, and huge analytic data. This
evolution in the finance sector forced conventional financial institutions
including banks, to upgrade their systems in a more precise manner. Even-
tually, it created an opportunity for start-ups to enter the financial service
 FINTECH TRENDS: INDUSTRY 4.0, ISLAMIC FINTECH … 123

sector. The increasingly widespread use of Fintech enables the automa-

tion of banking transactions, and customers can make payments using
mobile phones and tablets (mobile banking). Therefore, bank employees
need to play more of a consultant role rather than conducting transactions
directly. Fintech should be considered as an integral part of business rather
than claiming to be disturbing. It should help the economy to change and
grow. Government should consider Fintech as a way of developing the
finance industry and therefore, assist people in using digital methods of
payment and electronic money. This would help people to make payment
from anywhere and anytime which makes it easier and reasonable.
Industry 4.0 is complementing the growth of the Fintech industry.
The concept of Industry 4.0 can be summarized as an integration of
the influencing power of the web, advanced devices, and technolog-
ical advancement like processing of huge algorithms through advanced
analytics, artificial intelligence, etc. It has encouraged firms and big
companies to give more emphasis on customer needs and to produce
those goods and services which are required and liked by customers. It
is essential to use the state-of-the-art computer vision techniques, such as
deep learning, to identify tools, components, and actions by visual control
systems. Industry 4.0 is proving to be a boon for Islamic Fintech’s as well
because it is bringing automation and synchronization in financial service
products and their regulatory framework of Shariah laws.
Greater focus on well-individualized services enables Fintech and
BigTech companies to provide efficient services with new technologies,
including those based on artificial intelligence. Artificial Intelligence algo-
rithms play an increasing role in determining customer scoring, identi-
fying bank frauds, or segmenting customers. The increasingly widespread
use of Fintech technology enables the automation of banking trans-
actions, and customers can make payments using mobile phones and
tablets (mobile banking). Therefore, bank employees need to play more
a consultant role rather than conducting transactions directly.
Islamic Fintech’s are becoming popular day-by-day not only in OIC
countries but also in non-OIC countries especially in the UK where a
growth of around 10% is expected to be seen by the next year followed by
Singapore, Hongkong, USA, Australia, Switzerland, Canada, Bangladesh,
and Luxemburg. Regulators and promoters of Islamic Fintech’s need to
focus on issues like consumer technology awareness and literacy, manage-
ment of risk, creation of an apex regulatory institution, cyber security, and
124 M. K. HASSAN ET AL.

availability of sustainable standards, procedures, rules and regulations, and

impact of COVID-19 on the sector.
The Accounting and Auditing Organization for Islamic Financial Insti-
tutions (AAOIFI) has established standards for Islamic Fintech’s. At
present, twenty-one Islamic countries have adopted these standards.
These standards and protocols are developed according to Islamic laws,
values, and ethics. It is highly expected that other countries would
also take notice of these standards and the regulators would include
them in their setups as well. Fintech inevitably poses a challenge to
traditional banking because of its dynamism and accuracy in targeting
customers. Therefore, Islamic financial institutions should also adopt
Fintech practices in their operations.

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 An Insight into the Fintech and Islamic
Finance Literature: A Bibliometric
and Visual Analysis

M. Kabir Hassan , Abu Bashar, Mustafa Raza Rabbani ,

and Tonmoy Choudhury

1 Introduction
The finance industry has achieved unprecedented growth during the last
two decades mainly due to the emergence of technological innovation

M. K. Hassan
University of New, Orleans, New Orleans, LA 70148, USA
e-mail: [email protected]
A. Bashar (B)
School of Management, IMS Unison University, Dehradun 248009, India
e-mail: [email protected]
M. R. Rabbani
Department Economics and Finance, College of Business Administration,
University of Bahrain, Zallaq, Kingdom of Bahrain
e-mail: [email protected]
T. Choudhury
Department of Accounting & Finance, KFUPM Business School, King Fahd
University of Petroleum and Minerals, Dhahran, Kingdom of Saudi Arabia
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 131

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_7
132 M. K. HASSAN ET AL.

(Rangkuti et al., 2020; Wang et al., 2021). Growth of performance

in the finance industry can be attributed to increased communica-
tion, faster back-office processing, and efficient client interface (Pwc,
2017). Gradually the industry has seen a shift from traditional financial
services to digitisation, product innovation and new innovative business
models among the financial services firms (Abdullah & Rabbani, 2021;
Rabbani et al., 2021b). New and innovative financial services include
Fintech-based financial services with the use of disruptive technologies
such as Internet of things (Moh’d Ali et al., 2020), artificial intelli-
gence (Sun et al., 2020), blockchain (Khan & Rabbani, 2020; Rabbani
et al., 2021a), Regtech (Rabbani et al., 2021c), robotic automation
(Mehrotra & Menon, 2021), machine learning (Hassan et al., 2020a,
2020b, 2020c, 2021) and quantum computing (Habeeb et al., 2021;
Rabbani et al., 2021d; Rabbani et al., 2022a, 2022b). The Fintech-based
financial services include, crowdfunding, P2P lending, Robo-advisors,
Insuretech and Regtech, etc. (Rabbani, 2022; Sun et al., 2020). The
traditional development model of the finance industry has completely
changed with the advent of this disruption in the finance sphere (Jreisat
et al., 2021; Bureshaid et al., 2021). In view of this, the research in
finance and banking industry has taken a new shift to examine the influ-
ence of technology on the finance and banking industry (Rabbani et al.,
2022a, 2022b; Khan et al., 2022).
Moreover, scholars have done studies on Fintech adoption (Bureshaid
et al., 2021), Fintech during the time of COVID-19 and challenges
for Fintech in the post-COVID era (Banna et al., 2021; Hassan et al.,
2020a, 2020b, 2020c; Yan et al., 2021), Fintech-enabled financial inclu-
sion and the role of Fintech in removal of poverty and income distribution
(Demir et al., 2020; Kandpal & Mehrotra, 2019; Wibowo & Aume-
boonsuke, 2020), role of Regtech in Fintech governance (Arner et al.,
2017; Chirulli, 2021; Pantielieieva et al., 2020), the impact of Fintech on
the performance of banks and financial institutions (Banna et al., 2021;
Bashayreh & Wadi, 2021; Fadhul & Hamdan, 2020). Additionally, the
research in the Fintech area peaked during the last few years as Fintech
found its space in the finance world due to the repercussions of the global
financial crisis and ongoing global pandemic (Rabbani, 2022).
Fintech has played a key role in transforming business decision-making
and providing choices to customers as well as financial institutions (Abu
Bashar & Rabbani, 2021). It has fostered the development of the finance
 AN INSIGHT INTO THE FINTECH … 133

industry with its innovative financial services resulting in improved finan-

cial services at reduced cost and increased transparency (Gimpel et al.,
2018; Lee & Shin, 2018). Trading and investment with the use of
artificial intelligence, blockchain and big data can result in improved effi-
ciency, increased speed, promoting liquidity and enhancing efficiency and
stability of the financial market (Li & Xu, 2021). Regulators can analyse,
warn, prevent and can estimate the risk associated with innovation and
disruption more efficiently (Arner et al., 2017). Additionally, with the
use of big data analytics, it is possible to save huge costs by reducing staff
duplication. Finally, it has resulted in a massive transformation in the lives
of the poor and vulnerable during the COVID-19 pandemic as Fintech
became the only option to reach them due to social distancing and lock-
down measures and additionally, it resulted in the huge financial inclusion
(Hassan et al., 2022; Khan et al., 2022).
To reconnoitre the boundaries and research pattern in the Islamic
finance and Fintech domain that has completely transformed the lives of
the multitudes, the present chapter analysed the current research pattern
in the Islamic finance and Fintech domain. Most of the research papers
retrieved were published post-2015 (Scopus database). The present
chapter explores the most prolific authors, most cited documents, most
influential institutions, most contributing countries, etc. to the Islamic
finance and Fintech literature. Moreover, the chapter investigated the
emerging research topics in the area, and acknowledged the challenges
and future development trends.
Bibliometrics has been one of the most widely used techniques in the
academic literature for quantitative and statistical analysis of the academic
literature. It uses advanced computer programs such as VOSViewer, R-
Studio and biblioshiny, etc., thereby improving the presentation of the
results and improving the experience of the readers. It has been adopted
widely by academic scholars in different fields of study such as finance,
banking, human resource and marketing (Janková, 2021; Khan et al.,
2020; Zheng & Kouwenberg, 2019; Zhang et al., 2019).
The contribution of the chapter is summarised as follows. It
summarises the basic features of Islamic finance and Fintech application,
annual production, types of publication, current research trend and future
research direction using co-occurrence analysis. Second, it explores the
most prolific authors, most influential countries, document, organisation
and affiliation and collaboration research network of journals, authors,
and affiliations, etc. Third, with the current trends, the study provides
134 M. K. HASSAN ET AL.

future research directions in the Islamic finance and Fintech area and
possible development directions.
The remaining chapter is organised as follows. In the next section,
we provide the research methodology used for the chapter and the
data extraction method. Section three presents the results obtained
using VOSviwer and R-studio. Section four provides the future research
direction and finally in section five we conclude.

2 Methodology
This review study used bibliometric analysis tools to assess and visu-
alise the trends and substances of Fintech and Islamic finance literature.
According to (Alshater et al., 2021a, 2021b; Campbell et al., 2009)
bibliometric tools can be used by scholars to evaluate the effectiveness
of a journal or an individual researcher (Bashar et al., 2021). Citations
and co-citations analysis can be applied to evaluate the intellectual struc-
ture of the state of the subject and information regarding evolution of
themes and subthemes can be retrieved (Han et al., 2021).
Scopus database is used for data collection, it is one of the most
comprehensive abstract and citation databases and is widely used for
bibliometric studies (Costa et al., 2017; Khan et al., 2020). A combi-
nation of boolean search strings containing keywords such as Fintech,
financial technology, Islamic finance, big data, artificial intelligence,
blockchain, bitcoin, recommenders, chatbots, automated services with
OR and logical operators is applied to abstract, title and keywords on the
Scopus search engine interface. This search query returned 4678 docu-
ments between 2001 and 2021. The extracted data is then examined
carefully by researchers to assure that it is having a central idea of finan-
cial technology, cleaning of data is done using exclusion criteria like it
must be written in English language, it should be journal articles, review
articles and book chapters. This step excludes all irrelevant literature from
the dataset, remaining only 2248 kinds of literature which are arranged
properly to be used in further analysis. The excluded documents included
filtering all the documents one by one based on the title and abstract and
unrelated studies were excluded. For descriptive and bibliometric analysis
Biblioshiny interface of R application is used, while VOSviewer is used for
network visualisation. Similar methods were used by (Khan et al., 2020;
Xue et al., 2020).
 AN INSIGHT INTO THE FINTECH … 135

3 Data Analysis and Visualisation

The data accessed from Scopus database consists of 2248 kinds of liter-
ature that have been published by 726 sources (Journals, books, etc.)
with average citations of 7.6 documents. The assessment of the dataset
reveals that 3404 authors are engaged in publishing this literature.
Figure 1 shows the subject category in the Scopus database. The cate-
gory Economics, Econometrics and Finance contains 654 articles which
amount to 26% of the total literature. The next major subject category
is Business, Management and Accounting that have published 19% of the
current dataset (19%). There are other subject categories like engineering,
computer science and multidisciplinary which have been published about
Fintech in Islamic finance. Most of these studies published in engineering
and computer science journals are addressing the technological compo-
nents of Fintech and its possible application in the Islamic finance and
banking industry.
The publication trend in Fintech research is illustrated in Fig. 2. It can
be observed that the research trend in Islamic Fintech and Islamic finance
have grown over the years. The research in the subject has encountered
exponential growth from the year 2010 onwards. This trend reveals the
fact that Fintech has been an integral part of Islamic finance and has
investigated its varieties of applications to gain efficiency and provide an
excellent customer experience.

Most Influential Author

Figure 3 presents the most influential authors with the maximum number
of publications. The top author is Hassan MK with 62 publications in
Islamic finance and Fintech. Saiti B is the second top author in this list
having 34 scientific literatures. Third ranked author is Oseni UA and has
published 26 articles. The fourth rank is the same as the first ranked
author i.e. Kabir Hassan M with 21 publications. Kabir Hassan is the most
prolific author in Islamic finance and Fintech and contributed significantly
to the advancement of the subject.
136 M. K. HASSAN ET AL.

700 654

600

500 473
No. of Papers

400

302
300 271

200 172
110
100 73 66
49 36 34
8
0

Subjects

Fig. 1 Scopus research category

Annual Publication Trend

350
300
250
200
150
100
50
0
2001 2002 2003 2004 20052006 2007 2008 2009 2010 2011 2012 20132014 2015 2016 2017 2018 2019 2020 2021

Fig. 2 Annual scientific publication

 AN INSIGHT INTO THE FINTECH … 137

Fig. 3 Most relevant authors

Most Important Documents

Top 10 most influential documents are presented in Table 1. The top-
ranked document is “Shaping Halal into a Brand” written by Wilson Jaj
in the year 2010 and attracted 313 citations. The second document in
this list is “How ‘Islamic’ is Islamic banking?” authored by Khan F and
has been cited by 277 since 2010. The third document written by Hayat
R., has been cited 173 times since it was published in 2011. The other
documents in the list have also significantly contributed to the develop-
ment of academic literature on the overall growth of Islamic Finance and
Fintech. The documents on the theme of Islamic mutual funds (Causse,
2012; Oseni et al., 2012), Islamic stock markets (Ghlamallah et al., 2021)
and Islamic stock pricing (Naifar & Mseddi, 2013) had substantially
contributed in Islamic finance research.

Influential Journals
Table 2 reports the sources with maximum publication on the subject.
The sources are ranked based on their h-index, while g-index and m-index
is also included for better understanding of the impact of these jour-
nals on Islamic finance. The top journal is “ARAB LAW QUARTERLY”,
having an h-index of 7, attracted 137 citations and published 25 papers
since 2007. This journal is publishing articles related to the laws of Arab
nations, Islamic banking and shariah-compliant financing which are in the
138 M. K. HASSAN ET AL.

Table 1 Most influential documents

Author Year Tittle Total citations TC per Year

Wilson JAJ 2010 Shaping Halal into a Brand 313 24

Khan F 2010 How “Islamic” is Islamic 277 21
banking?
Hayat R 2011 Risk and return characteristics of 173 14
Islamic equity funds
El-Gama MA 2006 Islamic finance 167 10
Ho CSF 2014 Understanding Islamic finance 155 17
Jawadi F 2014 Conventional and Islamic stock 130 14
price performance: An empirical
investigation
Rosyl SA 2003 Performance of Islamic and 114 6
mainstream banks in Malaysia

Note TC, Total Citations

Table 2 Most influential journals

Sources h_index g_index m_index TC NP PY_start

Arab Law Quarterly 7 10 0.44 137 25 2007

Al-Shajarah 4 4 0.50 48 21 2015
Applied Economics 4 9 0.40 117 9 2013
Advanced Science Letters 3 5 0.38 36 8 2015
Academy of Accounting and 4 6 0.80 75 6 2018
Financial Studies Journal
Applied Economics Letters 2 3 0.25 14 4 2015
Academy of Strategic 2 2 0.29 7 3 2016
Management Journal
Accounting Research Journal 2 3 0.18 49 3 2012
Afro-Asian Journal Of 2 3 0.20 18 3 2013
Finance and Accounting
Accounting and Finance 2 2 0.33 28 2 2017

preferable scope of the journal. The second most contributing journal is

“AL-SHAJARAH”, it has contributed 21 research articles, having an h-
index of 4 and cited 48 times since 2015. This journal is the Journal of
the International Institute of Islamic Thought and Civilization engaged
aggressively in publishing quality literature on Islamic finance.
The growth of the sources publishing on Islamic finance and Fintech is
shown in Fig. 4 Majority of these journals started publishing from 2005
 AN INSIGHT INTO THE FINTECH … 139

Fig. 4 Source growth

onwards, these journals have published substantial literature on Islamic

finance and achieved growth at an increasing rate. International Journal
of Islamic and Middle Eastern Finance AND Management has witnessed
growth the most. However, it started contributing to the research growth
of Islamic finance and Fintech from 2007 onwards and gained tremen-
dous attraction from scholars. The other important sources growing at
a fast pace in the space of publishing literature on Islamic finance and
Fintech are Arab Law Quarterly, Al-Sharjah and Journal of King Abdu-
laziz University, Islamic Finance. These findings are consistent with the
findings of the most influential sources discussed in the previous section.

Country and Affiliations

The contribution of the countries and affiliations are important to under-
stand the intellectual contribution to the growth of Islamic finance and
Fintech. Countries are ranked based on the number of articles it has
published, total citations, average article citation, single country paper,
multiple country paper and presented in Table 3. Malaysia is the top
country, contributing 397 articles and its articles are cited 3212 times.
The majority of the literature is written alone by Malaysian scholars (341),
and only 56 articles are published with international collaborations. This
journal has only 8 average article citations which is far lower than the
other important countries publishing on Islamic finance and Fintech. The
United Kingdom and the USA are placed in second and third rank with
140 M. K. HASSAN ET AL.

Fig. 5 Co-citation analysis of cited Authors

Table 3 Most important countries

Country Articles TC AAC SCP MCP

Malaysia 397 3212 8 341 56

United Kingdom 107 2024 19 78 29
USA 105 1769 17 69 36
Australia 50 751 15 32 18
France 24 530 22 15 9
Saudi Arabia 71 517 7 53 18
Tunisia 40 440 11 34 6
Turkey 54 293 5 32 22
Pakistan 71 239 3 39 32
Indonesia 92 221 2 81 11
Bahrain 32 206 6 21 11

Note TC, Total Citations; AAC, Average Article Citations; SCP, Single Country Production; MCP,
Multiple Country Production

107 and 105 articles, respectively. These countries have attracted a signif-
icant number of citations on the literature they have published, and they
have also achieved substantial average article citation scores.
 AN INSIGHT INTO THE FINTECH … 141

Table 4 Top
Affiliations Articles
affiliations
International Islamic University Malaysia 179
Universiti Kebangsaan Malaysia 82
University Of Malaya 82
Universiti Utara Malaysia 68
University of New Orleans 62
Universiti Teknologi Mara 57
International Islamic University 48
Universiti Sains Islam Malaysia 43
Universiti Sains Malaysia 41
Universitas Airlangga 33

In continuation to the findings of the important countries, top affil-

iations are presented in Table 4. The top 4 affiliations in the list
are International Islamic University Malaysia (179 articles), Universiti
Kebangsaan Malaysia (82 articles), University of Malaya (82 articles) and
Universiti Utara Malaysia (68 articles) are from Malaysia. The University
of New Orleans (62 articles) of the United States has also contributed
substantially to the development of research in Islamic finance and
Fintech.

Co-Citation Analysis
Co-citation analysis is a semantic similarity examination of literature, it
determines the frequency of two documents cited together by other docu-
ments (Alshater et al., 2021a, 2021b). VOSviewer application is used to
analyse the co-citations of authors. The science mapping of co-citation of
cited authors is presented in Fig. 5. Minimum citations of an author are
kept at 30 for better visualisation, 443 authors meet the minimum criteria
and included in the visualisation network. The network thus obtained
consists of 4 clusters which are represented by different coloured clusters.
The largest cluster is red coloured and contains 158 authors, the second
largest cluster is represented by green colour and made up of 107 authors.
The blue-coloured cluster consists of 104 authors and the smallest cluster
in the network contains 74 authors and represented by yellow colours.
The first cluster is combining the authors researching and publishing
on core Islamic financial topics and includes a range of subtopics of
142 M. K. HASSAN ET AL.

Islamic finance like Islamic asset pricing (Al Mamun et al., 2021), risk
sharing finance (Shafique et al., 2013), risk sharing index (Doumpos et al.,
2017), Islam and economic performance (Kuran, 2018), Islamic financial
contracts (Rabbani et al., 2022a; Lajis, 2019), ethical issues in decision-
making (Khan et al., 2021a, 2021b, 2021c), Islamic financial product
development (Warsame, 2015). Green cluster is combining the literature
related to shariah compliance and regulations, the scholars have inves-
tigated various aspects and perspectives of Islamic finance. Few of the
important topics in this cluster are dividend pay-out and shariah compli-
ance (Bugshan et al., 2021), determinant of fees in Islamic finance (Al
Mamun et al., 2021), shariah-compliant equity investment (Yildirima &
Ilhanb, 2018), Islamic equities (Walkshäusl & Lobe, 2012), Islamic
commodities (Dewandaru et al., 2017), shariah-compliant mutual fund
(Wilson, 2012) and Islamic stock markets (Ashraf et al., 2020).
The blue-coloured cluster has combined the literature on the appli-
cation of technology in Islamic finance. The major topics in this cluster
are the adoption of artificial intelligence (Elrefai et al., 2021), blockchain
technologies (Khan et al., 2021a, 2021b, 2021c), chatbots (Kopalle et al.,
2021), automatic response mechanism (Elrefai et al., 2021), online finan-
cial advisor (Saadna et al., 2022) and other important application of
disruptive technologies in Islamic finance. The last and smallest cluster
(yellow) of this network has accommodated literature on marketing and
consumer behaviour towards Islamic finance.

4 Keyword Co-Occurrence Analysis

It refers to the common presence of keywords in the dataset, the visuali-
sation network is based on the frequency of the most occurring keywords
which are similar to each other and refer to a particular subject (Khan
et al., 2021a). VOSviewer is used to create the network of co-occurrence
of the author’s keywords. A minimum number of occurrences of a
keyword is kept at 5, 238 keywords met the criteria out of 4366 keywords.
The obtained network is based on four clusters (Fig. 6), the first cluster
is represented by red colour and contains 81 items, the green-coloured
cluster is made of 78 keywords, cluster represented by blue keywords
consists of 43 keywords, the smallest cluster contains 35 keywords and
is represented by yellow colour.
 AN INSIGHT INTO THE FINTECH … 143

Fig. 6 Co-occurrence of author’s keywords

The keyword occurrence network shows that Islamic finance is the

most important keyword that has occurred the maximum number of
times (size of the node denotes the strength of the frequency of occur-
rence). The second important keyword is Islamic banking, which is one
of the core and common keywords of the subject. These keywords are
clustered according to their nearness and similarity with other keywords.
The major keywords which have occurred in the above network are
“Islamic economics”, “Islamic Microfinance”, “Corporate Governance”,
“sukuk”, “Islamic Financial Institutions”, “Waqf”, “Shariah”, “Taka-
ful”, “Fintech”, “Risk Management”, “Corporate Social Responsibil-
ity”, “Sharia Compliance”, “Portfolio Diversification”, “Asset Pricing”,
“Crowdfunding”, “Economic Growth”, “religion”, “Islam”, etc. These
topics are highly interrelated and depict the state of research in Islamic
finance and Fintech.
144 M. K. HASSAN ET AL.

Bibliographic Coupling of Documents

Bibliographic coupling is a comprehensive tool for visualising the intel-
lectual structure of the scientific literature, two documents are said to
be bibliographically coupled if they cite a third document in common
in their references (Costa et al., 2017). Bibliographic coupling network is
created using VOSviewer application and presented in Fig. 7. For creating
a bibliographic network, the minimum number of citations of a document
is kept at 20, 236 documents met the minimum criteria of inclusion and
hence included in the analysis.
The network map shows the growth of Islamic finance literature over
the period. Before 2008 the research in Islamic finance was focussed on
its fundamentals and its growth, from 2012 onwards the scholars focussed
more on customer-centric research i.e. customer’s attitudes and percep-
tions towards Islamic finance (Ahmed et al., 2020; Amin et al., 2014),
while the research focus shifted more towards reporting (Alhabshi et al.,
2018; Laila et al., 2021; Ryder & Turksen, 2009), value-based Islamic
banking and its reporting (Algabry et al., 2020), evaluation of Maqāsid ul-
Shari’āh’s in financial reporting standards for Islamic financial institutions
(Mukhlisin, 2021). The performance of Islamic banks is investigated by
scholars to understand the difference between conventional and Islamic
finance, the role of the shariah committee in the overall performance
of the Islamic financial institutions (Khalil & Boulila Taktak, 2020), the

Fig. 7 Bibliographic coupling of documents

 AN INSIGHT INTO THE FINTECH … 145

objectives and metrics for gauging the performance of banks (Almansour,

2019; Doumpos et al., 2017; Mohd Noor et al., 2019). The efficiency
of Islamic banking firms is studied to understand the determinants of
technical efficiency of the Islamic banks, the role of regulations on bank
efficiency, the role of oil prices on the performance (ElMassah et al., 2019;
Khan et al., 2021b; Kuanova et al., 2021) and adoption of Fintech such as
artificial intelligence, blockchain technologies and machine learning algo-
rithms (Abu Basha et al., 2021; Hafssa & Oumaima, 2020; Hassan et al.,
2020a, 2020b, 2020c; Rabbani et al., 2020) from 2015 onwards.

5 Future Expansion
The bibliometric analysis and scientific mapping help us in indicating
several future research directions for the further development of Islamic
finance literature. The themes and subthemes which have evolved over
the period are presented in Table 5.
Most of the existing literature is qualitative in nature, there is a need
for empirical studies that can help in better understanding and generali-
sation of the concepts of Islamic finance. There is a need for examination
of the differences and similarities of shariah frameworks and regulations.
Research can be extended to evaluate the cross-cultural analysis of Islamic
finance; most of the existing studies are either conducted for a country or
a specific geographical area. The role of sustainable finance in the overall
performance shall be investigated. Moreover, the behavioural aspects
of finance shall be empirically investigated using developed consumer
behaviour theories and its applications in Islamic finance. The adoption of
technologies has disrupted Islamic finance, the technologies can be eval-
uated from various applicability and its overall impact on the customer
experience, reporting and performance of Islamic financial institutions.

6 Conclusion
The chapter contributes to the understanding of Islamic finance and
Fintech literature with the use of bibliometric analysis using 2248 docu-
ments obtained from the Scopus databases between 2001 and 2021. First,
Fintech is an ongoing financial innovation that has attracted a lot of
buzz in the financial market and second, Islamic finance has proved its
worth as the fastest growing financial system and emerged as the main
contender to the conventional finance world post the global financial crisis
146 M. K. HASSAN ET AL.

Table 5 Evolving themes and subthemes in Islamic finance

Research Themes Sub Themes Citations

The fundamentals of Growth of Islamic Finance Doumpos et al. (2017)

Islamic Finance
Shariah Regulations Kuanova et al. (2021)
Shariah Regulatory Framework Aziz et al. (2021)
Islamic Risk Sharing Models Hassan et al. (2020a,
2020b, 2020c)
Islamic Financial product pricing Khan et al. (2021a,
2021b, 2021c)
Sustainable Islamic Finance Khan (2019)
Customer Centric Attitude and perception towards Masvood (2019)
Approach Islamic finance
Behavioural finance Kumari and Sar (2017)
Religion and Islamic financial Laila et al. (2021)
behaviour
Marketing theories and financial Calzadilla et al. (2021)
behaviour
Cross-cultural customer Alzadjal et al. (2021)
behaviour towards finance
Reporting of Islamic Accounting of Islamic finance Laila et al. (2021)
Finance
Local accounting standards and Hassan et al. (2019)
Islamic accounting standards
Islamic institutions Determinants of efficiency Alshater et al. (2020)
performance
Role of shariah committee Juhro et al. (2020)
Islamic reporting and Laila et al. (2021)
performance
Role of regulations Biancone and Radwan
(2018)
Adoption of Fintech AI in Finance Königstorfer and
Thalmann (2020)
Blockchain Aziz et al. (2021)
Bitcoin Rabbani et al. (2020)
Machine learning Rabbani et al. (2020)

of 2008. From various aspects, the chapter analysed the publications in

the Islamic finance and Fintech area using data visualisation tools such as,
VOSViewer, R-studio and biblioshiny.
The development of literature in Fintech and its application in the
Islamic finance literature, Fintech is a growing field and benefits from the
innovations in the fields, such as, big data, machine learning, contributing
 AN INSIGHT INTO THE FINTECH … 147

country to the literature, followed by the United Kingdom, USA and

Australia. The most contributing institution emerged as the Interna-
tional Islamic University, Malaysia. As far as the most prolific author
contributing to the field of Islamic finance literature, Prof. M. Kabir
Hassan from the University of New Orleans, USA has contributed the
maximum number of research articles and deservingly also received the
maximum citations.
The chapter also performed the keyword co-citation analysis of the
cited author, keyword co-occurrence analysis and bibliographic coupling
of the documents. The results of the analysis indicated 4 clusters (see
Fig. 5) which are represented by different coloured clusters. The largest
cluster is red coloured and contains 158 authors, the second largest
cluster is represented by green colour and is made up of 107 authors.
The keyword occurrence network shows that Islamic finance is the most
important keyword that has occurred the maximum number of times.
Bibliographic coupling network is created using VOSviewer applica-
tion and presented in Fig. 7. For creating a bibliographic network, the
minimum number of citations of a document is kept at 20, 236 docu-
ments met the minimum criteria of inclusion and hence included in the
analysis.
The findings of the study play a key role in the further growth of the
academic literature on Fintech and its application in Islamic finance by
encouraging future researchers and academicians. However, the content
used in the chapter is limited to the keyword Fintech and Islamic finance
and the use of Scopus database only, the use of more diverse keywords is
expected to give a more enriched result.

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 Fintech Innovation and Its Application
in Islamic Banking from Pakistan

Sitara Karim, Mustafa Raza Rabbani , Abu Bashar,

and Ahmed Imran Hunjra

1 Introduction
The current dynamic environment with multiple advancements and inno-
vations has sparked the need to adopt and adapt to the present challenges
to sustain businesses. Financial technology, one of the fast-emerging

S. Karim
Nottingham University Business School, University of Nottingham Malaysia
Campus, Semenyih, Malaysia
M. R. Rabbani
Department Economics and Finance, College of Business Administration,
University of Bahrain, Bahrain, Kingdom of Bahrain
e-mail: [email protected]
A. Bashar (B)
School of Management, IMS Unison University, Dehradun, India
e-mail: [email protected]
A. I. Hunjra
Department of Business Administration, Ghazi
University, Dera Ghazi Khan, Pakistan

© The Author(s), under exclusive license to Springer Nature 157

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_8
158 S. KARIM ET AL.

paradigms of the present businesses has evolved as a significant bench-

mark to set a business distinctive and competitive (Khan et al., 2022;
Rabbani et al., 2022). The applications of Fintech innovations are evident
in multiple businesses and organizational processes to be successful in
the global environment. The history reveals three significant eras of
the Industrial Revolution (IR). The first industrial revolution (IR 1.0)
has occupied the usage of water and power machines to enhance the
production. The second industrial revolution (IR 2.0) shifted to electric
power for increasing production capacity. The third industrial revolution
(IR 3.0) is the period of advanced electronic devices and information
technology to automate the production and increase the power plants’
capacities manifold (Ali et al., 2019). The fourth industrial revolution
(IR 4.0) is the current era, which is marked with digital advancements
through the usage of internet and information technology (Rahim et al.,
2018). Due to abrupt innovation, the digital is changing at a rapid
rate where organizations failing to adopt these technologies may suffer
financial losses in the long run.
The present global environment demands the adoption of technolog-
ical innovations as it is impossible to live without internet, handheld
mobile, and tablet devices. The financial industry, without exception,
has been undergoing rapid technological innovations to facilitate its
customers and to provide financial services without disruption (Rabbani
et al., 2021a). Since, the financial sector is occupied with several regu-
latory and financial constraints blocking its way to completely adopt
technological innovations, but an increasing trend in the usage of finan-
cial technologies is commendable (Rabbani, 2022). Moreover, due to its
fast pace, the Fintech adoption is creating disruption for some of the
financial and banking industry areas (Hassan et al., 2020a). In the same
vein, Islamic finance and banking industry is also facing an increase in
cost, implementation bottlenecks, limited awareness by employees, and
greater pressures faced due to competition from the conventional banks
(Abdullah & Rabbani, 2021).
The investment in the Fintech-based operations reveals growth of
Fintech at extremely sharp pace where the year 2017 tracked the highest
financing in Fintech of $16 billion as compared to 2016 where the
investment was about $13 billion (CB Insights, 2018). Correspondingly,
in 2018, Fintech-based venture capital funding was dominant in Asia
with the investment of approximately $23 billion for 563 contracts. The
United States, second to Asia, has invested around $12 billion, with 569
 FINTECH INNOVATION AND ITS APPLICATION … 159

agreements, and Europe revealed approximately $4 billion investment in

363 contracts (Insights CB, 2019). With these magnificent investments
in Fintech all around the globe, the adoption of Fintech innovation in
the Islamic banking industry is still emerging (Rabbani et al., 2021b).
In the GCC region, Bahrain is striving to be the leader in Fintech
innovations through its continuous efforts and developments (Ali et al.,
2019). Malaysia, among other Islamic countries, is also taking an active
participation in adopting digital parameters in their banks (Karim et al.,
2020a). Malaysia has also integrated its Islamic finance industry with
the Halal economy to create a comprehensive ‘halal ecosystem’ (Hassan
et al., 2021a, 2021b). Pakistan is also among those countries that are still
evolving in the adoption of Fintech innovations in the Islamic banking
sector. The conventional banks in Pakistan have shown remarkable devel-
opments and growth in the application of Fintech innovations, but the
concept of Fintech innovations in its ripened form is still nonexistent in
the Islamic banks of Pakistan (Saba et al., 2019).
Pakistan is an emerging economy, according to the statistics of the
World Bank (2019). The banking sector in Pakistan is regulated by the
State Bank of Pakistan (SBP). Banks in Pakistan are divided into five main
categories: public sector commercial banks, specialized banks, local private
banks, Islamic banks, and foreign banks. The current study considers
only Islamic banks to investigate the application of Fintech innovations
in banking industry.
As a regulatory body for Islamic Financial Institutions (IFIs), the
Shariah regulatory body is Accounting and Auditing Organization for
Islamic Financial Institutions (AAOIFI) that provides guidelines for
compliance and adoption of several types of financial innovations. Being
a regulatory body, AAOIFI needs to monitor the compliance of Islamic
financial institutions with the rules and policies offered by the organiza-
tion (Selim & Hassan, 2019). The Pakistani Islamic banks have found
Shari’a Compliance Board (SCB) under the constitution of 2000.
To fulfill the research objective of the present chapter, the content
analysis approach of keywords selection and thematic method through
the annual reports of Islamic banks in Pakistan were used to extract the
information on the adoption of Fintech solutions in the Islamic banks of
Pakistan. The period covered for the content analysis was from 2006 to
2020 to highlight the level of Fintech applications in the Islamic banking
industry of Pakistan. The extracted information revealed five significant
Fintech applications namely, digital wallets, biometrics, smart contracts,
160 S. KARIM ET AL.

distributed ledger, and machine learning adopted by the Islamic banks

in Pakistan. Further analysis using the system Generalized Method of
Moments (S-GMM) revealed that digital wallets, biometrics, and smart
contracts have been fully adopted by the Islamic banks in Pakistan whereas
distributed ledger and machine learning are still evolving.
The findings of the study have provided substantial implications for
the academicians and practitioners of the current competitive environ-
ment where academicians can extend this work in different emerging and
developed economies. And for policymakers, the study has drawn signif-
icant takeaways to facilitate banks with sufficient funding to completely
apply the Fintech innovations and enhance the overall performance of
banks. In this way, banks can provide a user-friendly experience to the
customers without disruptions by implementing Fintech innovations in
their banks.
The rest of the chapter is arranged in the following manner. Section
two presents the literature review of earlier studies. Section three gives
methodology used for the study. Section four provides results of content
analysis along with discussion. Finally, the chapter concludes in section
five with research implications and recommendations.

2 Literature Review
Application of Fintech Innovations in the Islamic Banking Industry
In present era, the need to adapt to the changing global environments
has been surmounted significantly. Digital literacy is one of the key mech-
anisms which cover Fintech innovations and Fintech solutions to provide
ease to the customers’ experiences. Fintech has changed the lifestyles,
working preferences, and modes of communication across the world.
With the recent technological advancements, financial technologies are
assisting human beings to reduce human errors and accelerate the perfor-
mance in different ways (Hassan et al., 2021a, 2021b). As mentioned
earlier, the history shows gradual evolution of technology over four indus-
trial revolutions (Rahim et al., 2018). Figure 1 presents the pictorial form
of evolution of digital banking system over the last two decades and it is
evident that commencing with internet banking and customer relation-
ship management (CRM), Fintech innovations have broaden its scope in
the 2021 in the form of branchless banking and cloud interaction.
 FINTECH INNOVATION AND ITS APPLICATION … 161

In particular, the three main categories where financial sector can

benefit from technological innovations are conversational (face-to-face)
banking termed as front office; secondly there is a middle office where the
application of Fintech is based on fraud detection and risk management
practices such as cyber-security, mobile hacks, and other malpractices
(Bashar et al., 2021, Bashar & Rabbani, 2021). Additionally, there is a
back office in the financial industry which underwrites the risks associ-
ated with financial activity (Hassan et al., 2021a, 2021b). This report
concludes that major applications of Fintech solutions in the financial
sector are related to front and middle offices providing recommendations
to the industry on how they can adopt Fintech-enabled approaches to
overcome the challenges associated with risk exposures and financial crisis.
The major takeaways for Islamic financial industry from this report are
the ways how Fintech can be implemented in all the Islamic banking
operations. From the point of view of Islamic Shari’a, Islamic financial
industry can also adopt Fintech innovations that are used to protect the
industry as well as the customers from the fraudulent practices, cyber-
security issues, default risk, liquidity risk, credit risk, etc. Additionally,
there are several other technologies that need to be adopted by the Islamic
financial industry to enhance its growth and provide user-friendly mecha-
nisms for its customers. Deloitte and the European Financial Management
Association conducted a survey which revealed that Fintech innovations
in Islamic financial system are still in their infancy (Deloitte, 2017).
This gap can be covered by the Islamic finance sector by taking some
significant steps in developing strategic plans, integrating technology with
the business operations, creating more awareness among the public, and
recruiting the individuals who are experts in artificial intelligence and
financial technology.
Prior literature also highlights that Fintech innovations will have a huge
influence on the future growth and prospects of Islamic financial industry
with the relevant adoption of different technologies to provide efficiency
to the whole banking mechanism (Rabbani et al., 2020). It is argued that
Islamic financial industry, having significant implications for Muslims and
religious ethnicity, cannot deny the importance of adoption of Fintech
innovations into its processes and operations. In addition to the appli-
cation of Fintech solutions in the general finance industry, it has very
specific application in the Islamic financial services industry ranging from
interactive Chatbots (Khan & Rabbani, 2020a, 2020b), Fintech model
on Zakat , Qardh-Al-Hasan and Awqaf to help the COVID-19 affected
162 S. KARIM ET AL.

SMEs and individuals (Dharani et al., 2022; Rabbani et al., 2021a), smart
Islamic banking, and use of RegTech technology for Shari’a compliance
of the Islamic financial institutions.

Islamic Finance and Adoption of Fintech Solutions

Scholars of Islamic finance have recently grabbed their attention toward
Fintech innovations. It is important to note that research on Islamic
finance and adoption of Fintech innovations in the Islamic banking
industry has not reached a consensus. These studies discussed some of
the technologies and ignored others. In other words, the scope of the
earlier studies has remained limited to specific themes of Fintech innova-
tions (Lutfi & Ismail, 2016; Ng et al., 2015; Torabi, 2017; Wahjono &
Marina, 2017). Given the fact that adoption of Fintech innovations on
Islamic banking industry is still juvenile, yet some studies provide evidence
on the effectiveness of Fintech-based innovations to help increase the
performance (Karim et al., 2020a, 2020c). In this stream, Finocracy and
Mirakhor (2017) presented a research study on how Fintech solutions and
inventions can accelerate the risk-sharing mechanism of Islamic finance
and concluded that blockchain technology with its effective and effi-
cient processes tends to speed up the risk sharing in the Islamic finance.
Similarly, Lacasse et al. (2017) evidenced on blockchain technology and
provided grounds that the technology provides surety of the Shari’a
compliance in Islamic financial industry.
Like blockchain technology, there are several other Fintech innova-
tions that are being implemented in the Islamic banking industry. To
name a few, there are smart contracts, biometric systems, personalized
identification, Big Data, Artificial Intelligence, and crowdfunding. Litera-
ture suggests that Fintech operations and innovations provide significant
challenges and opportunities for Islamic finance. Taking the consumer
perspective, Fintech offers unique enabling opportunities to the individ-
uals which are aligned with their choices. Based on current technologies,
the consumers have experienced user-friendly and convenient modes
of transactions that have accelerated their satisfaction (Global Islamic
Finance Report, 2017). Contrarily, on the supplier perspective, the tradi-
tional Islamic financial institutions are faced with intense competitors
who are leading in adopting the Fintech innovations. As a solution to
this competition, Islamic banks and financial institutions must focus on
 FINTECH INNOVATION AND ITS APPLICATION … 163

developing collaborations with major Fintech players and technology

providers.
In sum, there are significant developments observed by the Islamic
banks and Islamic financial institutions in terms of Fintech innovations.
In this way, the current study provides fresh insights on the application of
Fintech innovations in the Islamic banks of Pakistan to reveal the real-time
implementation.

3 Methodology
This study employed the data of Islamic banks from Pakistan for the
period 2006–2020. The content analysis approach is used to extract the
desired information on digital advancements and adoption of financial
technologies in the Islamic banks. For this purpose, content analysis was
performed on the annual report of Islamic banks with particular keywords
and themes used in the annual reports to denote their developments in
Fintech innovations. There are mainly five Islamic banks in Pakistan under
the supervision of State Bank of Pakistan (SBP) and data covered a period
of 10 years. In this way, a total of 50 observations were estimated for
examining the technology adoption in these banks. The keywords used
to extract the information were technology/technologies, financial tech-
nology, Fintech, digital progress, digital advancements, Islamic Fintech,
Islamic banking industry, awareness of Fintech solutions, investment in
Fintech, Industrial Revolution (4.0), and performance impact of Fintech.
Moreover, the thematic analysis based on content analysis was conducted
on five main technologies widely used in the Pakistani Islamic banks.
Table 1 presents both keywords selection method and thematic approach
with specific coding to investigate the application of Fintech innovations
in the Islamic banking sector.
Each of the keywords and themes was coded in the Microsoft Excel
Sheet and the responses were added as ‘1’ if the relevant information was
found and at least one sentence was attributed to a particular keyword
and theme. Moreover, the responses were coded as ‘0’ if no or very little
information was available based on the keywords searched and themes
applied. The arranged data sheet was analyzed using the STATA software
and dynamic estimator named system Generalized Method of Moments
(S-GMM) to obtain which Fintech innovations have been widely adopted
by the Islamic banks. Table 1 presents the list of keywords and themes
164 S. KARIM ET AL.

Table 1 Keywords and theme selection

Sr. No Keywords Proxy Coding

Panel A: Content analysis using keywords method

1 Technology/Technologies TECH Coded as ‘1’ if information
available and ‘0’ otherwise
2 Financial Technology FTECH Coded as ‘1’ if information
available and ‘0’ otherwise
3 Digital Progress DP Coded as ‘1’ if information
available and ‘0’ otherwise
4 Digital Advancements DA Coded as ‘1’ if information
available and ‘0’ otherwise
5 Islamic Fintech IFT Coded as ‘1’ if information
available and ‘0’ otherwise
6 Islamic Banking Industry IBI Coded as ‘1’ if information
available and ‘0’ otherwise
7 Awareness of Fintech Solutions AWR Coded as ‘1’ if information
available and ‘0’ otherwise
8 Investment in Fintech INV Coded as ‘1’ if information
available and ‘0’ otherwise
9 Industrial Revolution (4.0) IR4 Coded as ‘1’ if information
available and ‘0’ otherwise
10 Performance Impact of Fintech PER Coded as ‘1’ if information
available and ‘0’ otherwise
Panel B: Content analysis using thematic approach
1 Digital Wallets DWAL Coded as ‘1’ if information
available and ‘0’ otherwise
2 Biometrics BIO Coded as ‘1’ if information
available and ‘0’ otherwise
3 Smart Contracts SC Coded as ‘1’ if information
available and ‘0’ otherwise
4 Distributed Ledger DL Coded as ‘1’ if information
available and ‘0’ otherwise
5 Machine Learning ML Coded as ‘1’ if information
available and ‘0’ otherwise

along with specific technologies to reach a significant set of technologies

widely applied by the Islamic banks in Pakistan.

4 Results and Discussion

The arranged data on selected keywords and themes were estimated and
analyzed using the STATA software. Table 2 gives the descriptive statistics
of keywords and themes used in the study.
 FINTECH INNOVATION AND ITS APPLICATION … 165

Table 2 Descriptive statistics of variables over the period (2006–2020)

Variable Unit Obs Mean Std. Dev Minimum Maximum

Panel A: Descriptive statistics of keywords method

TECH (%) 75 0.6327 0.5181 0 1
FTECH (%) 75 0.3081 0.2856 0 1
DP (%) 75 0.5029 0.4256 0 1
DA (%) 75 0.4152 0.3287 0 1
IFT (%) 75 0.2037 0.1849 0 1
IBI (%) 75 0.5362 0.4852 0 1
AWR (%) 75 0.4058 0.3261 0 1
INV (%) 75 0.6239 0.5327 0 1
IR4 (%) 75 0.2384 0.1934 0 1
PER (%) 75 0.8862 0.8457 0 1
Panel B: Content analysis using thematic approach
DWAL (%) 75 0.8251 0.6217 0 1
BIO (%) 75 08,859 0.7489 0 1
SC (%) 75 0.7842 0.6578 0 1
DL (%) 75 0.3218 0.2015 0 1
ML (%) 75 0.2898 0.1953 0 1

The descriptive statistics in Panel A give the information on the

keywords selected for the study. The mean value of word technology and
technologies show that Islamic banks in Pakistan have reported informa-
tion related to the technology of about 63%. Similarly, for the keyword
financial technology the average value is 30% indicating the focus of banks
toward financial technologies. The term technology includes all the tech-
nologies incorporated in the banks to facilitate its customers whereas
Fintech is particularly used for the technologies specified for Fintech oper-
ations of the banks. Digital progress shows the average value of 50%
and digital awareness is about 41% in the Islamic banks of Pakistan.
These average values suggest that Pakistani Islamic banks report on digital
progress quite frequently than digital awareness of banks. A very low
average value of Islamic Fintech of about 20% is reported by the banks
revealing a minor focus of banks toward Islamic Fintech. Moreover, on
average Fintech awareness is about 40% corresponding to the digital
awareness where the average value is 41%. Further, the investment in
the Fintech operations reveals remarkable developments with an average
value of 60%. Industrial revolution 4.0 showed the average value of about
20% indicating relatively lower concerns toward IR4.0. Interestingly, the
166 S. KARIM ET AL.

performance effects of Fintech on operations of banks reveal a signifi-

cant mean value of 88% indicating that Islamic banks, through having
lower applications of Fintech in their organizations, tend to have a signif-
icant impact of Fintech on performance. Overall, the keyword selection
criterion suggests that Islamic banks in Pakistan are still evolving in the
latest technologies and its awareness with substantial investments in the
technology-backed operations.
Panel B of Table 2 reveals the descriptive statistics of themes selected
for the study to examine the application of Fintech in the Islamic banks
of Pakistan. There are a total of five themes selected which are different
financial technologies widely applicable in the Islamic banks. Digital
wallets reveal the average value of 82% denoting the wide application of
this technology in the Islamic banks of Pakistan. Biometrics, on the other
hand, showed a significant average value of 88% and marked itself as the
most applicable technology in the Islamic banks. Smart contracts show the
mean value of 78% reiterating this technology as widely applicable tech-
nology in the Islamic banks of Pakistan during the given period. However,
distributed ledger, considered as one of the significant technologies of
blockchain, showed the average value of 32% recalling the arguments that
the latest technologies are yet to be applied in the Islamic banks. Mean-
while, machine learning, again one of the blockchain technologies, is also
revealing the mean value of 28% suggesting that blockchain technolo-
gies are evolving over the time with recent modifications in the financial
technologies.
In sum, the mean values of the keywords and themes selected for
the study showed that Islamic banks have shown progress in digital
literacy and adopted some of the financial technologies to facilitate their
customers. However, there are few technologies that need to be incorpo-
rated in the banking operations to speed up the processes and enhance
firm value. In this way, Islamic banks can compete with their conven-
tional bank’s competitors. Moreover, following the guidelines of Shari’a
and Quran and Hadith, Islamic banks can develop themselves on the basis
of financial technologies to reap its fruits in the long run.

Additional Analysis
The study conducted some additional analysis where all of the selected
keywords and themes of Fintech were regressed against the return on
assets of Islamic banks to examine whether these technologies impact
 FINTECH INNOVATION AND ITS APPLICATION … 167

profitability of banks or not. Table 3 presents the impact of significant

keywords on profitability.
The results of additional analysis in Table 3 indicate that most of the
keywords are significant with the profitability of the banks. Contrarily,
some of the keywords, for instance, Islamic banking industry, invest-
ment, industrial revolution 4.0, and performance impact are relatively less
significant with return on assets for Islamic banks in Pakistan. In addi-
tion, control variables are also significantly related to bank profitability
(Sheikh & Karim, 2015). The Sargan test is used to test whether the
regression results are not catering to the problems of misspecification
(Karim et al., 2020a, 2020b) and Arellano-Bond test is used to iden-
tify the autocorrelation problem (Karim, 2021a, 2021b). The p-values of
both post-estimation specification tests indicate that there is no problem
of misspecification and autocorrelation.
The findings have significant implications for Islamic banks and Islamic
financial institutions to include the technological advancements in their
business processes to enhance the profitability and performance of banks.
Since Islamic finance is based on the principles of Shari’a and pre-settled
rules and regulations of Islam, thus, adopting different kinds of technolo-
gies to accelerate the banking process and increase performance is not

Table 3 The impact of

Keywords Coefficient z-score Significance
selected keywords on
profitability (ROA) L1 0.1254 0.18 0.000
TECH 0.5418 0.21 0.007
FTECH 0.3635 0.87 0.021
DP 0.2458 0.98 0.005
DA 1.2884 1.29 0.012
IFT 1.2998 1.32 0.003
IBI 1.9857 0.32 0.028
AWR 1.6988 1.28 0.009
INV 1.2879 1.30 0.052
IR4 1.9562 0.27 0.089
PER 1.2879 1.23 0.095
BAGE 0.9856 2.84 0.002
BSIZE 1.9823 1.23 0.008
Sargan-test of misspecification (p-value) 0.1287
Arellano-Bond first order test (AR(2) 0.2192
p-value)
168 S. KARIM ET AL.

prohibited in Islam (Rabbani et al., 2021c, 2021d). Moreover, the signif-

icant values of coefficients highlight the need to welcome different types
of technologies in their Islamic finance operations and maximize their
value.
Table 4 presents the impact of different Islamic Fintech themes on
profitability. The results of the regression analysis indicate that biomet-
rics technology is the most significantly related to return on assets as
compared to other technologies. Digital wallets and smart contracts are
significant at 95% whereas distributed ledger and machine learning are
insignificant with profitability. The probable explanation for significant
relationships is that the Islamic banks adopt few of the technologies to
facilitate their customers and the trend of adopting several innovations is
quite low. For this reason, the widely adopted technologies have a signif-
icant impact on the bank profitability whereas the technologies that are
still evolving and being adopted at a slower pace are insignificant to the
profitability of Islamic banks. Additionally, control variables, bank age,
and bank size are significantly related to the profitability of Islamic banks
in Pakistan. The post-estimation tests reveal that p-values are greater than
the threshold value of 0.05, thus, there is no problem of misspecification
and autocorrelation.
Overall, the findings of the study inculcate that Islamic bank of
Pakistan reveals significant modifications in terms of application of Fintech
in their organizations. There is an increasing trend in the adoption of
Fintech innovations to accelerate the organizational performance and
provide customers with the best services. The additional analysis using

Table 4 The impact of

Keywords Coefficient z-score Significance
selected themes on
profitability (ROA) L1 1.0582 1.28 0.000
DWAL 1.9856 0.29 0.008
BIO 2.0684 1.84 0.000
SC 1.3882 0.41 0.005
DL 0.8799 1.36 0.245
ML 0.9759 1.67 0.184
BAGE 2.0570 2.32 0.000
BSIZE 1.9890 1.28 0.000
Sargan-test of misspecification (p-value) 0.1523
Arellano-Bond first order test (AR(2) 0.2685
p-value)
 FINTECH INNOVATION AND ITS APPLICATION … 169

the S-GMM indicates that technological innovations of Islamic banking

industry are having a remarkable impact on the profitability of the
banks. Meanwhile, the findings of the study are significant for poli-
cymakers, regulators, and Islamic banks to adopt the Islamic Fintech
solutions in their business operations to augment the process of services
to their customers. More awareness, increased investments, introducing
new technologies in their banks, creating training for the employees and
customers, and initiating technological developments to speed up the
banking operations will ultimately increase the performance of banks.
Based on Islamic finance, the findings generate several outcomes in terms
of successful processes to be initiated and promote industrial revolution
4.0 to sustain the competitive global environment on the fundamentals
of Islamic principles and rules.

5 Conclusion
This study aimed to investigate the application of Fintech innovations on
the Islamic banking industry in Pakistan. The data of five Islamic banks
were used to obtain the required information on the adoption of Fintech
solutions during 2006–2020. The primary analysis was carried out using
the content analysis of annual reports where 10 keywords and 5 themes
based on Fintech were selected. The average values show that some
keywords are not very well established in the annual reports of Pakistani
Islamic banks whereas few keywords such as technology, financial tech-
nology, digital progress, investments, etc., are well occupied and equally
applied in the Islamic banking sector. Out of 5 themes of Fintech, only 3
are widely adopted and 2 are still emerging and need more concentration
on the matter.
Additional analysis using system GMM suggests that almost all the
keywords are significantly related to the profitability of the Islamic
banking industry. Corresponding to the descriptive statistics, out of five
Fintech themes only three were significant with return on assets. Mean-
while, control variables were significant and positive with profitability.
The results of the study have substantial implications for academics and
practitioners of Islamic finance. Academically, the upcoming researchers
can set this study as a benchmark to further evaluate its validity in
the context of other Islamic banks and Islamic countries. The novel
results can provide fresh insights to the academia for carrying out their
future research endeavors. On practical grounds, the study is significant
170 S. KARIM ET AL.

for regulators, policymakers, Islamic banking industry, Islamic financial

institutions, and Shari’a-compliant banks and firms. The technological
advancements in the current competitive environment have fetched the
attention of regulators to issue the adoption of Fintech innovations
and implement them in their business operations to achieve fast and
resilient mechanisms for facilitating customers. Islamic finance, having
fundamentals of Islamic principles and ethics, provide a guiding light
for its followers to adopt the Fintech innovations provided that they
do not violate the Islamic Shari’a (Karim et al., 2021a, 2021b; Rabbani
et al., 2021a, 2021b). Given this situation, this study provides empir-
ical evidence on the adoption of Fintech innovations in the Islamic banks
of Pakistan. The study is unique in its contribution where Pakistani
Islamic banks have revealed an evolving trend in the adoption and appli-
cation of Islamic Fintech innovations by maintaining the boundaries of
Islamic Shari’a. The study is a guideline to motivate other Islamic financial
institutions to comply with the recent developments of Islamic Fintech.

Digital banking 4.0 (2017 to present)

Fintech banking, Artificial intelligence, branchless banking

Digital Banking 3.0 (2009 to 2016)

Big data, cloud banking, mobile banking, 360 customer

Digital banking 2.2 (2003 to 2008)

Web based, online payment, know your customer, digital channel, data
warehouse.

Digital banking 1.0 (1998 to 2002)

Email, Internet banking, customer relationship amagement, database

Fig. 1 Evolution of digital banking system (Source Adapted from Rahim et al.,
2018)
 FINTECH INNOVATION AND ITS APPLICATION … 171

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 Fintech in the Islamic Banking Sector
and Its Impact on the Stakeholders
in the Wake of COVID-19

M. Kabir Hassan , Rabab Hasan Ebrahim,

Mustafa Raza Rabbani , and Hasanul Banna

1 Introduction
Throughout history, the industrial revolution has gone through different
stages. The first stage was based on steam power and water to enhance
production; the second one depended on electricity to generate mass
production; and the third one employed new electronics and informa-
tion technologies to automate production (Mackenzie, 2015; Omarova,
2020). Currently, we are in the fourth stage of industrial revolution,

M. K. Hassan
University of New, Orleans, New Orleans, LA 70148, USA
e-mail: [email protected]
R. H. Ebrahim (B)
Department of Economics and Finance, College of Business Administration,
University of Bahrain, Sakhir, Bahrain
e-mail: [email protected]
M. R. Rabbani
Department Economics and Finance, College of Business Administration,
University of Bahrain, Bahrain, Kingdom of Bahrain

© The Author(s), under exclusive license to Springer Nature 175

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_9
176 M. K. HASSAN ET AL.

which is grounded on the digital transformation that began in the middle

of last century and is still ongoing (Zezulka et al., 2019). It is character-
ized by a convergence of technologies that have grown inextricably and
have created havoc on every aspect of business. The financial services busi-
ness is no exception as along with the fourth industrial revolution, a new
industry known as “Fintech” has emerged (Jreisat et al., 2021; Rabbani,
2022a, 2022b).
Fintech is growing in popularity in banking and finance business
through offering more creative financial services as those offered in tradi-
tional financial institutions (Bashar & Rabbani, 2021; Khan & Rabbani,
2020). Fintech is defined as the merging of technological revolution and
finance industry with the aim of boosting business models in the finance
industry services business (Hassan et al., 2020, 2022). Zavolokina et al.
(2016) describe Fintech as the wedding of technology with the finance
industry that has the potential to take finance industry to new heights
with innovative financial services (Zavolokina et al., 2016). Fintech can
increase operational efficiency, customer-centric services, and transparency
in the financial services industry (Gomber et al., 2018). Van Loo (2018),
argues that Fintech can help financial services industry to bring efficiency,
transparency and minimize the risk of financial meltdowns.
Fintech is expanding at a rapid pace, resulting in the development of
innovative business models. In 2020, the Islamic Fintech market size in
the OIC was $49 billion which represents 0.72% of the current global
Fintech market size, based on transaction volumes. This market size is
projected to grow at 21% CAGR to $128 billion by 2025 (DinarStandard,
2021). Islamic financial institutions and banks have already embraced the
Fintech disruption and have started to treat it as an opportunity to extend
its services to unreachable (Ali et al., 2019; Oseni et al., 2019). Islamic
banks are taking this opportunity to position themselves as a new genera-
tion banking of millennial consumers (Miskam et al., 2019; Rabbani et al.,
2020). As Fintech has already entered its third phase of revolution, Islamic

e-mail: [email protected]
H. Banna
Department of Accounting, Finance and Banking, Business School,
Manchester Metropolitan University, Manchester, UK
e-mail: [email protected]
 FINTECH IN THE ISLAMIC BANKING … 177

banks have started to maximize the use of Fintech-based innovations such

as Blockchain and artificial intelligence for operational efficiency and cost
savings (Firmansyah & Anwar, 2019; Lajis, 2019; Shaikh, 2020).
The use of Fintech technologies in Islamic finance, which is based on
Shariah rules, can be beneficial (Hendratmi et al., 2019). Recent research
including Biancone et al. (2019), Abubakar et al. (2018) and Todorof
(2018) have investigated the Shariah compliance aspect of Fintech prod-
ucts and found that Fintech has numerous uses in the Islamic finance
business. Khan and Rabbani (2020) and Rabbani et al. (2021a), provided
an overview of the sharia compliance of the cryptocurrency and concluded
that, although it sharia scholars are divided over the permissibility of
the cryptocurrency but it can be used as a financial investment with
certain limitations. Karim et al. (2022), provided an overview of the
use of blockchain technology in the Islamic finance and banking sector
beyond cryptocurrency and concluded the Blockchain is one of the most
significant innovations of the twenty-first century and it has multiple
application in Islamic finance and banking industry other than cryp-
tocurrency. Blockchain has multiple applications such as, smart contracts,
electronic voting, employee payment, supply chain communication and
cloud storage etc.
In November of 2019, COVID-19, was discovered in the Wuhan
province of China and since then it made huge impacts in every country
around the world (Furlow, 2020; Sachs et al., 2020). This health issue has
transformed into a financial crisis, primarily because of the high spread
of the virus, which has prompted governments throughout the world
to impose lockdowns, quarantines, and social distancing, leading to the
shutdown of commercial operations, financial markets, and other services
(Dharani et al., 2022; Habeeb et al., 2021; Panakaje et al., 2022). Recent
studies have highlighted the importance of Islamic Fintech in tackling the
various economic difficulties that the pandemic has created. According
to Al-Nawayseh (2020), Islamic Fintech has helped several countries to
create economic resilience in the face of pandemic unanticipated situa-
tions. Furthermore, because it improves ethical financial inclusion during
this difficult time, financial technology is consistent with the sustainability
needs to manage this unforeseeable crisis (Fakhrunnas et al., 2021).
In the new environment created by the COVID-19 outbreak, collabo-
ration between Islamic financial institutions and Fintech could be vital to
finding solutions (Hassan et al., 2020). The recovery after this pandemic
will be massive, and Islamic Financial Institutions will play a vital role, just
178 M. K. HASSAN ET AL.

as they did after the 2008 financial crisis (Rabbani et al., 2021b). There-
fore, the present study aims to explore and discuss the different aspects of
Islamic Fintech and its role in Islamic banking sector and contributes by
highlighting its potential impact on the different stakeholders in the wake
of COVID-19. Currently, several expectations and assumptions have been
made regarding the impact of Fintech on Islamic finance and banking.
Existing literature, however, does not provide an obvious picture of this.
As a result, this study adds to the current literature and expands our
knowledge by shedding the light on the most common uses of Fintech
in Islamic institutions and banks as well as its impact on the different
stakeholders during and after the COVID-19 pandemic.
The present study is divided into four parts. The first part presents
an overview of Islamic Fintech, the second part provides an overview of
the use of Islamic Fintech in the Islamic banking industry whereas, the
third part highlights the impact of Islamic Fintech on the different stake-
holders during the COVID-19 pandemic and beyond. In the last part, we
conclude and provide some recommendations.

2 Islamic Fintech and Its Application

in Islamic Banking Industry
Financial Technology, or “Fintech,” has emerged as the fastest developing
sector in the information technology industry. This industry is born out
of the marriage of technology and traditional financial services (Hassan
et al., 2021a, 2021b; Rabbani et al., 2021b). Innovations in cybersecu-
rity, data analytics, and software platforms, combined with new consumer
demands, have urged financial services to become more modern and effi-
cient. Although Fintech is innovative, frictionless, faster, and user-friendly,
it can also deliver financial services at a low cost. Fintech is a relatively new
concept. However, it has shown to be an advantage innovation for the
financial services business. Fintech has proved to be an advantageous to
everyone including banks and its customers. It has empowered customers
to take charge of its financial operation from the comfort of their drawing
room, leading to much greater financial literacy as well as financial inclu-
sion. On the other hand, banks and financial institutions have multiple
product options to offer and attract customers with new, innovative,
responsive, efficient and transparent offerings (Henderson, 2017; Pwc,
2017; WorldBank, 2020).
 FINTECH IN THE ISLAMIC BANKING … 179

Fintech has been described in a variety of ways by many authors. For

example, Hassan et al. (2020) said that “Fintech is the collaboration
between finance and technology industry for the mutual benefit and to
provide the tech-based innovative financial services with more efficiency
and less cost.” Financial technology (Fintech) can be described as the
application of modern innovative technology to provide financial services,
such as artificial intelligence, Blockchain, smart contracts, peer-to-peer
lending, RegTech, crowdfunding, digital currency, and so on (Rabbani
et al., 2021b).
Traditionally, Fintech-based financial innovations are primarily interest
bearing innovations, and Islamic finance clearly forbids transactions
containing elements of Riba (interest-based transactions), Maisir (trans-
actions involving a great amount of speculation or gambling), or Gharar
(extreme ambiguity, fraud, and ribbing) (Samsudeen et al., 2020). This
encouraged Islamic financial institutions and banks to search for different
ways and offer financial services that comply with Islam principles. Islamic
fintech is a subset of financial technology that adheres to shariah principles
(Jreisat et al., 2021; Rabbani et al., 2022a, 2022b).
Islamic Fintech differs from traditional Fintech in that it is more inclu-
sive, ethical, transparent, and adheres to shariah standards. Islamic Fintech
is a quite new idea, with only limited studies having been undertaken in
this area (Rabbani et al., 2022a, 2022b). It is important to emphasize that
in Islam, every invention or innovation is allowed unless there is strong
evidence to the contrary (Banna et al., 2021; Yussof & Al-Harthy, 2018).
The rise of Islamic Fintech has cleared the opportunity for the creation
of novel Shariah-compliant products for Islamic consumers, potentially
giving the Islamic financial sector a competitive advantage. Islamic Fintech
achieved remarkable growth in the Islamic finance business between 2016
and 2017, even though it was not widely used in the industry until
2015. It aids in the transition of financial systems and services to more
creative financial technology in conformity with Islamic Shariah values
and principles (Saba et al., 2019). Saba et al. (2019) emphasize that
using Fintech, including Islamic fintech, results in cost-effective financial
solutions, enhances the quality of financial or banking services and prod-
ucts, improves customer retention, and enhances the overall customer
experience.
According to the global Islamic Fintech report (2019), 87% of Islamic
economy institutions prefer to engage with Islamic FinTech’s and that
180 M. K. HASSAN ET AL.

Conventional
Fintechs,
Both equally, 13%
42%

Islamic
Fintechs,
46%

Fig. 1 Islamic versus conventional Fintech (Source Adapted from DinarStan-

dard (2020)

46% expect to entirely engage with Islamic FinTech’s compared to

conventional FinTech’s (see Fig. 1).
Islamic Fintech has continued to grow, with around 240 Islamic
FinTech’s globally now, covering a wide range of customers and financial
needs through several emerging technologies. Peer-to-peer and Crowd-
funding, deposits and lending, payments, wealth management and alter-
native finance are the most popular types among these Islamic FinTech’s,
accounting for 77% (see Fig. 2).
Recently, various academic researchers and Islamic Fintech reports have
concluded that the variety of financial services used by the Islamic financial
services has increased and most of it includes the Fintech-based services
(Dinar Standard, 2020; Rabbani et al., 2021b). Fintech was a much-
needed boost for the Islamic finance industry as it would give them
aid in achieving its objective of social justice and equal distribution of
income. Saad et al. (2019), investigate the potential customers’ tendency
to adopt Fintech services and that awareness theory is appropriate for
explaining behavior toward Fintech-based services provided by Islamic
financial institutions.
It is to be noted that the Islamic and conventional Fintech share
completely different characteristics in terms of sharia compliance. Islamic
Fintech must adhere to the requirements of the sharia in every situa-
tion (Abdullah & Rabbani, 2021). Fintech solutions have given Islamic
financial institutions more opportunity to improve their infrastructure
 FINTECH IN THE ISLAMIC BANKING … 181

18% P2P & Crowdfunding

23%
Deposits & Lending
Payments
Wealth Management
17%
13% Altranative Finance
Others

13% 16%

Fig. 2 Islamic Fintech by sector (Source Adapted from The Global Islamic
Fintech Report, DinarStandard, 2021)

and services (Khan & Ismail, 2011; Khan et al., 2022). As a result, the
number of academic and other research are growing on Islamic fintech
field (Buerhan Saiti et al., 2018a, 2018b; Mustafa Raza Rabbani, 2022a,
2022b; Oseni et al., 2019; Saiti et al., 2018a, 2018b).
Some researchers including Mohamed and Ali (2018), had docu-
mented the Fintech’s potentials of increased effectiveness across the
operations of Islamic financial institutions. At present, not only Islamic
financial institutions adjust for the demand for digitalization, but also
other institutions and digital platforms are offering Shariah-compliant
financial products and services. Islamic Fintech broadens access to
Shariah-compliant financial services and creates investment opportunities
(Glavina et al., 2021).
Although Islamic banks are relatively new and small, they are able to
compete with well-established traditional banks. The dawn of the Fintech
industry has granted these institutions the opportunity to compete on
an equal footing with traditional banks. Using blockchain-based tech-
nologies, Islamic banks manage profit-sharing agreements and minimize
the rising cost of transactions. Abojeib and Habib (2021) examine how
blockchain may be utilized for charitable uses, mainly in the collection of
zakat. Similarly, Fintech may be used to make the usage of waqf better.
182 M. K. HASSAN ET AL.

Furthermore, the significance of blockchain as a solution for the halal

sector challenge was discussed by Karim et al. (2022).
The COVID-19 pandemic has caused several disruptions to the
economy as well as to all aspects of our daily lives, including finan-
cial markets (Baber, 2020). A new approach is required in response
to recurring crises and pandemic-induced global economic downturns.
Institutionalized risk-sharing can help the global economy withstand
shocks and stimulate declining demand. Islamic finance can deal with any
economic interruption, like financial crises and COVID-19 at both indi-
vidual and company levels (Hassan et al., 2021a, 2021b; Rabbani, 2022a,
2022b; Rabbani et al., 2021b).
COVID-19’s outcomes could pave the road for Islamic banking, espe-
cially considering the increasing significance of sustainability and corpo-
rate social responsibility. Prior to the pandemic, global data predicted
that Islamic financial deposits would have climbed by 5% in 2020.
Islamic banking rules can aid the economy to avoid endogenous crises
like the global financial crisis and provide a robust safety net against
exogenous crises like the COVID-19 disaster (Mohd. Yusof & Bahlous,
2013). Putting these ideas into effect requires a diversified range of
well-functioning institutions. However, several important elements of this
spectrum are now absent from the Islamic finance industry and hence the
crisis should be used to fill in the blanks and diversify the sector. Islamic
financial instruments such as Zakat, Qardh-Al-Hasan, Waqf and Sukuk
are good choices for Islamic banks to use during COVID-19 and beyond
to assist affected individuals and corporations through offering direct cash
transfers and providing access to education and health care services (Khan
et al., 2021).
However, the COVID-19 pandemic had put both traditional and
Islamic financial institutions in jeopardy. In the second quarter of 2020,
many Islamic banks recorded losses or declined profits when compared
to the same period of the previous year (Hasan et al., 2021a, 2021b),
due mainly to an increase in loan defaults and a decline in asset quality.
According to (Glavina et al., 2021), the activities of Islamic financial
institutions are driven by demand from small and medium-sized firms
and thus, the Islamic finance industry is expected to lose much more
during Covid. In this light, the pandemic is being viewed as a water-
shed moment in the industry’s digitalization. The adoption of Fintech
was increased across the board as it assisted in facilitating the consump-
tion during the pandemic and decreased the risks of contact with others
 FINTECH IN THE ISLAMIC BANKING … 183

(Vasenska & Koyundzhiyska-Davidkova, 2021), The Islamic financial

industry, like other industries, has quickly responded to demand from
remote customers by offering a huge range of high-quality digital financial
services.
The global Fintech business is expanding. By 2024, more than 1.7
billion individuals are projected to be using mobile wallets (Almuham-
madi, 2020). The Islamic Fintech industry has not lagged, having
grabbed the opportunity, and adopted Fintech-based novel financial
services. Fintech innovations are estimated to attract 150 million new
clients to Islamic banking (Baber, 2020).

3 Islamic Fintech and Its Impact on Banking

Stakeholders Following COVID-19
Similar to conventional financial technologies, Islamic fintech enables
financial inclusion, provides access to Islamic financial services, expands
prospects for ethical investments, reduces poverty, and promotes gender
equality (Glavina et al., 2021). Therefore, Islamic Fintech has emerged as
a critical tool for mitigating the negative consequences of the COVID-
19 pandemic on the economy and society during and after this difficult
time. Rabbani et al. (2020) suggest that Islamic Fintech can help in
minimizing the COVID-19 pandemic effects in the short, medium, and
long term. They also state that combining Islamic financial services with
Islamic Fintech can accelerate the recovery process from the economic
destruction caused by the pandemic. The pandemic has uncovered the
need for digital services that decrease or eliminate direct human contact.
Throughout the financial crisis, e-commerce businesses thrived. Further-
more, digital money is becoming increasingly crucial to reduce disease
transmission via paper money. Khan et al. (2021) show that during the
pandemic, the use of Islamic Fintech-based apps increased by 70%. This
increase demonstrates that the pandemic has elevated the importance
of Islamic Fintech, and that individuals, businesses, and governments
becoming more conscious of its significance. Figure 3 shows the most
common uses of Islamic Fintech following COVID-19 pandemic. As
shown in the figure, these uses can be classified into three categories:
Following the COVID-19 pandemic, Hassan et al. (2020) expect a
considerable growth in the use of Islamic Fintech for providing financial
services. They also state that Islamic Fintech will have a massive role in the
184 M. K. HASSAN ET AL.

• Zakat
Use of Artificial Intelligence based
Fintech for Zakat collection and

Emergency support distribution.

• Qardh-Al-Hassan
Use of Blockchain technology can
in the short term achieve financial inclusion and poverty
alleviation
• Sadaqa
Fintech based Sadaqa can result in
financial inclusion
• Fintech based Crowdfunding:
Use of sharia compliant Fintech for P2P
lending and crowdfunding
Response & • UNDP's Global Islamic Finance and
Impact Investing Platform
recovery in the Launched in 2015
• Smart Contracts:
medium term Use of smart contact for Salam, Istinsa
and Mudaraba can help farmers and
SMEs to overcome COVID in medium
term
• Waqf:
Blockchain based Waqf can bring more
transparecny and recovery in long run
long-term recovery • Social SUKUK:
Moody's stated that Blockchain drive
would expand the SUKUK market
& resilience • Smart Contracts:
use of smart for Musharaka, Mudaraba
and Murabaha can help Corporates,
farmers and SMEs to covercome COVID

Fig. 3 Uses of Islamic Fintech following COVID-19 (Source Adapted from

Hassan et al., 2020, p. 108)

recovery of the economy following the pandemic through several Islamic

financial services, such as Zakat, Waqf, and crowdfunding.
The global pandemic has brought every section of the society together
on the same platform to provide help and support. It was seen for the
first time that governments, civil society, corporates startups and financial
institutions came together and provided the valuable services to the covid
affected individuals and SMEs. Every government across the globe came
up with some stimulus and help packages for the COVID affected people
highly afflicted industries to reduce the impact of the covid brought
disaster and lockdowns. Central banks are loosening their monetary poli-
cies, and asset purchase programs and tax relief procedures are being
revealed. FinTech played a key role in reaching out to the customers in
terms of providing instant cash and relief packages. Several countries have
launched sponsored lending schemes for COVID affected SMEs to mini-
mize the damages caused by the pandemic and allowing the economy to
return to the same mode as before the pandemic. Furthermore, since
the start of the COVID-19 pandemic, authorities have taken several
actions including: restructuring and/or rescheduling of loans, offering
 FINTECH IN THE ISLAMIC BANKING … 185

government guarantees, providing liquidity through different tools, and

ensuring that the public has continuous access to the financial services.
Islamic Fintech has brought Islamic economies closer to their goals of
social justice and inclusion, as evidenced by “Ehsaas Emergency cash relief
program” that has been launched by the government of Pakistan. This
program was able to reach 6.8 million families within a week through
using mobile money transfer (Asif Javed et al., 2021).
With regards to customers, their behavior, and intentions toward
adopting Islamic Fintech have been favorably impacted during COVID-
19 pandemic, due to demonstrated evidence of the technology’s value at
this difficult time, ease of use, and government endorsement of this tech-
nology (Nurfadilah & Samidi, 2021). The pandemic had an impact on
how individuals use technology for financial operations like payments and
lending. Consumer behavior is shifting away from cash transactions and
toward an advanced mobile system, which is a positive indicator for the
Islamic FinTech business. One of the effects of COVID-19 pandemic is
that it requires customers to use an online banking platform as a new way
to transact with the bank. Another effect of COVID-19 outbreak is the
firing of employees because of companies’ closure, which places a finan-
cial burden on consumers in terms of debt repayment (Jamaruddin &
Markom, 2020).
Financial institutions can help alleviate the social-financial implications
of the COVID-19 pandemic by using Islamic Fintech as a social finance
tool. According to Rabbani et al. (2020), this would be a great way
to approach affected individuals and SMEs and provide the necessary
financial assistance. Several small firms and young entrepreneurs who
are having trouble obtaining traditional bank finance are looking for
the reliable sharia compliant Fintech platform such as crowdfunding and
P2P lending digital platforms to get their financing needs. Furthermore,
Khan et al. (2021) propose that integrating Qardh Al-Hassan loans with
AI-based Islamic Fintech can aid individuals and SMEs that have been
adversely impacted by COVID-19 pandemic in their recovery. This can
be achieved by making it easier to receive Zakat and financial aids without
encountering additional hurdles or violating social distance norms. Smart
Contract is another Islamic Fintech solution that is utilized in financial
transactions to record financial transactions between parties. The use of
smart contracts that are based on Blockchain solutions will help farmers
and SMEs to overcome the damages caused by the pandemic (Rabbani
et al., 2020).
186 M. K. HASSAN ET AL.

The pandemic has also affected Fintech developers as they can use big
data analytics, cloud computing, cryptocurrencies, and other technolo-
gies to provide new and inventive solutions to existing problems (Khan
et al., 2021; Sun et al., 2020). Moreover, Fintech startups are gradually
developing to be the new financial services, and they will play an increas-
ingly crucial role in the incorporation of financial institutions with Fintech
firms, Islamic banks, and other Islamic financial institutions in the future
(Sun et al., 2020). After the COVID-19 pandemic, a new opportunity
has arisen for some Fintech organizations to embrace this opportunity by
leveraging their assets and abilities. It also opens the possibility of Islamic
financial institutions seizing this opportunity and using Fintech to deliver
a long-term and sustainable financial service. During this challenging
time, fintech startups have been able to alter their services to become
crucial agents of support. It is expected that fintech startups will be able
to expand their services to more users and provide additional support
to their current users, providing the digital financial services that will
be crucial to helping countries recover better after COVID-19. Fu and
Mishra (2022) show that during COVID-19, fintech startups witnessed
significant growth in their adoption of financial app and that modern
and more inventive fintech firms may have a competitive advantage in
generating new services as time goes on.

4 Conclusion
Fintech has brought significant changes to nearly every sector all over
the world, and the financial and banking sector is no exception. This
study explores the distinct aspects of Islamic Fintech and its role in
the Islamic Banking industry as well as its impact on the stakeholders
in the wake of COVID-19. We conclude that Islamic fintech products
had the ability to help Islamic financial institutions and banks during
COVID-19 pandemic and currently Islamic Fintech has emerged as the
much-needed boost for the Islamic financial institutions to provided aid
during crisis like situation such as ongoing pandemic. Islamic finance,
in tandem with financial technology, will be the most effective instru-
ment in combating the Covid 19’s economic implications (Hassan et al.,
2020). We also conclude that during the COVID-19 pandemic, everyone
has been impacted including governments, customers, Fintech developers,
Fintech startups, and Islamic financial institutions.
 FINTECH IN THE ISLAMIC BANKING … 187

Future researchers are recommended to perform empirical research

through conducting, for example, interviews and questionnaires which
may help other researchers and interested parties in getting a better
understanding of the role of Islamic Fintech during and following
COVID-19 pandemic.

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12.745
 Fintech and Islamic Financial Institutions:
Applications and Challenges

Islam Abdeljawad, Shatha Qamhieh Hashem,

and Mamunur Rashid

1 Introduction and Theoretical Background

The financial system is the lifeblood of an economy. Traditional finan-
cial institutions that run on limited use of technology have experienced
steeper competition from technology-based start-ups. These relatively
newer financial institutions are using a battery of services that rely on
new technology, often dubbed “financial technology “ or “Fintech”.
Fintech is a technology-based channel to plan, process, and deliver finan-
cial products and services, and a modern non-tangible way of engaging
with customers in the financial industry (Knewtson & Rosenbaum, 2020).
Global investments in the forms of mergers and acquisitions, private

I. Abdeljawad · S. Q. Hashem (B)

An-Najah National University, Nablus, Palestine
e-mail: [email protected]
I. Abdeljawad
e-mail: [email protected]
M. Rashid
Canterbury Christ Church University, Canterbury, UK
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 193

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_10
194 I. ABDELJAWAD ET AL.

equity, and venture capital in Fintech innovations exhibit a remarkable

growth to $98 billion only in the first half of 2021 compared to $121.5
billion in the entire 2020 (KPMG, 2021).
Despite the initial thoughts around mobile-based financial services,
preferably using an app, Fintech encompasses a wide range of areas
and channels, including banking, asset and wealth management, credit
(crowdfunding and P2P lending), electronic payment services, use of
virtual currencies (such as the bitcoin), and integrated advisory services
using robotics, as well as the decentralized transaction management
system using the distributed ledger technology and blockchain), biometric
recognition using retina, fingerprint, and facial recognition, and support
for service analysis and delivery (cloud computing and big data) (Lim
et al., 2019; Oseni & Ali, 2019). Consequently, we have seen massive
investment in Fintech in all aspects of the banking and financial services
industries (Thakor, 2020). As demand drives the market, Fintech has
taken the centre stage while developing new products and business
models having a significant impact on financial and non-financial markets
and institutions (Frame & White, 2014).
There are several benefits of Fintech as explored in the academic as well
as policy literature. Among several of these, innovative business solutions,
reduced cost of operation, better customer engagement, financial stability,
and growth and expansion opportunities are commonly cited (Banna
et al., 2021; Barbu et al., 2021; Daqar et al., 2020; Khan et al., 2022;
KPMG, 2018; Mention, 2019; Ryu & Ko, 2020; Sangwan et al., 2020).
When merged with finance, the technologies are modified for deliv-
ering services such as the cryptocurrencies, digital payments and digital
wallets, smart contracts, robotics, consumer data analysis and predictive
techniques, internet banking, and mobile banking. Fintech innovations
provide customized financial services with improved quality in a cost-
effective manner. Shiau et al. (2020) have found that the perceived
usefulness and satisfaction in Fintech carry a positive influence on the
growth of the Fintech firms. Investment in Fintech, thus, can help ensure
competitive advantage (Wigglesworth, 2016).
Fintech has experienced significant growth since the year 2019.
The industry has expanded across a variety of technology foundations,
including Artificial Intelligence (AI), blockchain, digital banking, cryptog-
raphy, APIs, biometric sensors, the internet of things, and mobile-based
businesses. Higher consumer demand for Fintech-based services has
forced traditional financial services providers to modify business models
 FINTECH AND ISLAMIC FINANCIAL INSTITUTIONS … 195

(Fisher, 2001; Lee et al., 2012). The biggest change so far in financial
sector has been recorded in facilitation of payment, risk management,
exchanges, and financial regulation (Haddad & Hornuf, 2019).
Despite growing awareness, there are several grey areas surrounding
the most common questions—how does Fintech interact with the tradi-
tional financial system? How big is the change expected to be? What
is the cost of that change? What impact will it have on banks as we
know them today? We address these questions from the standpoint of the
disruptive innovation theory. There are two types of Fintech in relevance
to financial institutions. First comes the sustainable Fintech, and second
comes the disruptive Fintech (Christensen, 1997, 2013; Christensen &
Raynor, 2003). Sustainable Fintech refers to structured traditional finan-
cial institutions that use technology outputs to improve and protect their
established businesses. The disruptive Fintech includes business providers
such as the IT companies and start-ups that offer financial services
and products that compete with the established business. The banking
industry is the main structured financial component within the financial
system that is being challenged by the disruptive creative technical finan-
cial services and products (Berger, 2003; Dapp, 2014; DeYoung, 2005;
Schueffel, 2016).
As the core business of the financial institutions involves trust, Fintech
must help solve the moral hazard and asymmetric information puzzles.
The current institutional setting has resulted in extremely dispropor-
tionate wealth concentration as well as the exclusion of most of the people
from the financial system. The bank credit models do not offer direct solu-
tions for the most significant economic institutions, such as the micro,
small, and medium enterprises (MSMEs). Over the years, banks have
established a “minimum” for their business, which includes a minimum
cost, minimum age limit, a minimum credit limit, and so on. With the
traditional models, banks cannot go below this minimum level. As a
result, inclusivity is in jeopardy.
Fintech is designed not only to address the inclusivity issue but also
to take care of the asymmetric information and moral hazard. Despite
being noted as one of the significant disruptors in the history of finance,
Fintech offers a wide range of technology-based services for the previ-
ously unbanked population. Fintech offers a business model where there
are opportunities for the lenders and the borrowers to reduce infor-
mation gap. With the implementation of blockchain technology, fraud
196 I. ABDELJAWAD ET AL.

detection is becoming easier. Fintech requires firms to report their state-

ments properly, which leads to an adequate collection of revenues for
the government. Credit agency data is also being used to build a more
comprehensive consumer profile. Fintech has aided in the reduction of
information asymmetry, allowing for improved credit appraisal and risk
management. As a result, banks will be able to reduce their monitoring
cost, face-to-face customer engagement cost, and marketing cost. In a
study of five successful Fintech firms in Switzerland, Zavolokina et al.
(2017) have discovered a substantial financial flow from large banking
institutions to smaller Fintech start-ups, indicating the presence of coop-
erative rather than competitive activities between them, which leads to
improved services at lower costs and fees.
Fintech is also helping banks to offer finance based on risk-sharing
method. Due to agency problem, banks accept collateral while financing a
project, which results in money going exclusively to the wealthiest echelon
of the society. Also, as collateral is hard to manage, small entrepreneurs,
with better ideas, fail to obtain credit. This problem stifles broader
investments and employment generation.
Similar to their conventional peers, Islamic banks are also impacted by
the Fintech. While there is no direct conflict with the Shariah—Islamic law
that govern the Islamic financial institutions, Fintech still poses threats
to Islamic financial institutions (Hassan et al., 2020, 2022). Fintech is
expected to impact Islamic financial industry from several grounds, such
as the wide-spread automation, disintermediation that has resulted in
open access to financial services such as the peer-to-peer (P2P) lending
and banking using mobile devices, and decentralization and security,
which includes blockchain and cloud-based technology (Hasan et al.,
2020).
Given the diversity of the developments surrounding Fintech, this
chapter summarizes the key factors as well as strategic reaction by Islamic
financial institutions, with a particular emphasis on Islamic banks. The
chapter is divided into the following sections. Section two delves into the
history and current state of Fintech and Islamic Fintech. Section three
discusses Fintech applications for Islamic bank operations. Section Four
explores the link between Islamic banking and Islamic Fintech. Section
Five concludes the chapter.
 FINTECH AND ISLAMIC FINANCIAL INSTITUTIONS … 197

2 Growth of Fintech
History
How have we arrived at the current point of Fintech revolution? Most
cite the introduction of the Diner’s club credit card during 1950 as the
technology starting point in finance, which is, at a lag, followed by the
first automated teller machine (ATM) card by Barclays Bank in 1967,
introduction of NASDAQ in 1971 as the first electronic stock trading
platform, and cross-border payment system using SWIFT in 1973. While
there has been gradual movement towards partial electronic trading, for
instance, the start of E-Trade as the first online brokerage firm in 1982,
the first big step towards online banking activities started in 1983 (Bagadi,
2019; Sharma, 2014). By 1998, most banks in the US started offering
online payment systems and transactions through websites. The same year
we have seen the start of PayPal as the first electronic payment system.
Another major landmark was in 2008, which witnessed the creation of
Bitcoin cryptocurrency (Fauzi et al., 2020; Murugeswari et al., 2020).
Global Fintech universe started taking a new shape since the year 2010.
Google Pay Send, which was later renamed as Google Pay, was introduced
in 2011 (Majumder et al., 2017). Stripe was the other payment vehicle
that attracted a growing customer base (Markovich, 2017). There has
been an obvious outbreak of many Fintech channels, tools, and institu-
tions that appear in consumer pastimes. E-commerce giant Alibaba group
introduced a cloud-based facial recognition—“smile to pay”—to replace
passwords. Perhaps the biggest jump in the Fintech universe happens
during the COVID-19 period, which started in 2019–2020 (Kauflin,
2020; Talwar, 2020). A sheer portion of these recent developments is not
only contributed by the technological innovations but also the restrictions
placed on face-to-face interactions at the trading points, which necessi-
tates an online or non-physical transaction mode. Salz (2020) pointed
out that financial applications were accessed by consumers more than 1
trillion times during 2019, which was an increase of more than 71% in
registration rates in comparison to the previous year.
Le (2021) reported that COVID-19 spread and the governmental
lockdowns caused an increase in the daily download rate of Fintech service
applications by a range of 24–32%. As a result, the users that choose to
use Fintech applications during lockout times to purchase products and
services were able to realize the useful value of Fintech in their daily
198 I. ABDELJAWAD ET AL.

lives (Fu & Mishra, 2020), this realization of Fintech usefulness may
increase the opportunities to continue using Fintech by customers after
COVID-19 (Revathy & Balaji, 2020).

Users’ Perception: EY Fintech Global Adoption Index (2019)

In a report by Statista (2020) on digital banking users in the US, 75% of
the young generation use digital banking, and this percentage is expected
to reach 77.6% in 2022. Based on the EY Global Fintech Adoption Index
(2019) presented in Fig. 1, the Fintech application development rate
witnessed a large growth over the past years as the global consumer adop-
tion rate of Fintech reached 64%. In addition, the consumer survey of
the EY report shows that 94% of the global consumers included in the
survey reported their awareness of at least one Fintech money transfer
and payment services, the survey also shows the rate per Fintech category
as it shows that 75% of consumers used at least once a payment service,
34% took savings and investment plans, 29% use budgeting and finan-
cial planning, 27% use Fintech borrowing services, and 48% use insurance
Fintech services. Furthermore, the SME Fintech adoption survey section
in the EY Global Fintech Adoption Index (2019) shows a 25% growth
rate in the SMEs market adoption of Fintech services, out of which 56%
use banking and payment Fintech services and 46% of them use a Fintech
financing services.
Figure 2 shows the changes in reasons behind using the services of
a Fintech challenger.1 Rates and fees become important determinants of
Fintech adoption (grew from 13% in 2017 to about 27% in 2019). Almost
10% increase in consumer preference for easiness of opening an account
that has seen a growth from 20% in 2017 to 30% in 2019.
The EY global Fintech Adoption Index (2019) also shows reasons for
small and medium enterprises (SME) to adopt Fintech solutions (Fig. 3).
The top reason based on SMEs preferences is Fintech functionality and
features (66%), next rank is service availability for 24 h a day for all week-
days which gained 55%, next is the ease of setting up, configuring, and

1 A Fintech challenger is focused on consumer preference, offer more innovative prod-

ucts, and provide a better overall experience than traditional financial institutions (Girling,
2020).
 FINTECH AND ISLAMIC FINANCIAL INSTITUTIONS … 199

using the service at 53%, followed by favourable rates and fees at 39%,
while compatibility with daily operations and infrastructure gained 38%,
and last 31% is for trust in the provider’s team and their reputation.

27%
Borrowing 10%
6%

48%
Insurance 24%
8%

29%
Budgeting and financial planning 10%
8%

34%
Savings and investments 20%
17%

75%
Money transfer and payments 50%
18%

0% 20% 40% 60% 80%

2019 2017 2015

Fig. 1 Global consumer Fintech adoption rates for the years 2015, 2017, and
2019 (Source EY Global Fintech Adoption Index [2019])

35%
30%
30% 27%
24%
25%
20%
20% 18%
16%
15% 13% 12%
10%
5%
0%
More attractive rates or fees Easier to set up an account Access to different and more Better experience, better
innovative products and product features and quality
services of service

2017 2019

Fig. 2 Changes in reasons for using a Fintech challenger for the years 2017
and 2019 (Source EY global Fintech Adoption Index [2019])
200 I. ABDELJAWAD ET AL.

66% 55% 53%

Range of Time flexibility and Convenience of easy
functionality availability of services setup

38% 31%
39%
Compatibility with Trust in skills of the
Rates and fees
other daily activities service providers

Fig. 3 Top reasons for SMEs to use Fintech globally for the year 2019 (Source
EY global Fintech Adoption Index [2019])

Fintech Unicorns
Bruene (2021) provides a list of the twenty-first-century Fintech
Unicorns2 that are launched since 1999. The list shows that as of 9
September 2021, there are 288 Fintech unicorns. Total investment value
of all Fintech Unicorns in the list is US $2249.4 billion. The largest
component within the total is Fintech which has US $1838.9 billion,
followed by Cryptos at US $185.3 billion, E-commerce at US $183
billion, Insurtech at US $22.8 billion, and Healthtech at US $19.4
billion.
Analysing only the top 100 of the Fintech categories reported in Fig. 4,
we find that 41% of the firms are categorized as payment firms with a total
investment value of US $1129.2 billion, 11% are categorized as lending
firms at a value of US $181.8 billion, 13% are categorized as banking at a
value of US $133.3 billion, 12% are categorized as investing at a value of
US $99.1 billion, and 6% are categorized as insurance with an investment

2 The “Unicorn” is a term used in the venture capital industry to describe a privately
held startup company with a value of over $1 billion. The term was first popularized in
2013 by venture capitalist Aileen Lee. (https://www.investopedia.com/terms/u/unicor
n.asp).
 FINTECH AND ISLAMIC FINANCIAL INSTITUTIONS … 201

Payments 41%
Banking 13%
Investing 12%
Lending 11%
Insurance 6%
Payroll 3%
Cards 3%
Credit 2%
Security 2%
Accounting 2%
Lender 2%
Other 3%

Fig. 4 Subcategories of the Top 100 Fintech Unicorns as of September 2021

(Source Researchers calculation based on fintechlabs.com)

value of US $39.3 billion. The global investment in Fintech is expected

to reach a compounded growth rate (CAGR) of around 27% by the end
of 2026.3

Islamic Fintech Worldwide

The Global Islamic Fintech Report (2021) points out the presence of
US $49 billion Islamic Fintech transactions of 241 Islamic Fintech firms,
in the Organization of Islamic Cooperation countries (OIC). The main
categories that represent 77% of the Islamic Fintech firms are payments,
lending, wealth management, deposits, raising funds, and alternative
finance. Even though Islamic Fintech represents nearly 0.72% of the
global Fintech transaction, it is expected to grow at 21% CAGR to
become US $128 billion industry by 2025 in the OIC countries, which
is higher than the 15% CAGR expected for the conventional Fintech over
the same period. The top five markets among the OIC countries based
on the transaction volume of Islamic Fintech services are Kingdom of
Saudi Arabia, United Arab Emirates, Islamic Republic of Iran, Malaysia,

3 Data is based on the Globe Newswire “Global Fintech Market, By Technology, By

Service, By Application, By Region, Competition Forecast and Opportunities, 2026”,
published by “Researchandmarkets.com” October 13, 2021.
202 I. ABDELJAWAD ET AL.

Top five Islamic Fintech market sizes within the OIC countries in 2020
20
18
18
16
14
12
12
10 9
8
6
3.7 4
4 2.5 3 3
1.9
2 0.8 0.6 0.6
0
Saudi Arabia Iran United Arab Malaysia Indonesia Rest of OIC
Emirates countries
Estimated Islamic fintech market size ($B) Percentage of OIC fintech market size multiplied by 10

Fig. 5 The top five Islamic Fintech market sizes within the OIC countries
(Source Global Islamic Fintech Report [2021])

and Indonesia. These countries accumulate three-fourths of the Islamic

Fintech market in OIC region. Figure 5 provides details on the market
size.4
The Global Islamic Fintech Index (GIFT Index) is a composite index
including 32 indicators that are categorized into 5 main areas which
are Islamic Fintech markets & ecosystems, talent, regulation, infrastruc-
ture and capital.5 The initial list includes 64 Islamic Fintech jurisdictions.
Figure 6 shows the GIFT index.
The GIFT Index includes sixty-four countries including the likes of
Malaysia, Kingdom of Saudi Arabia, UAE, Indonesia, and the UK in the
top-5 strongest ecosystems. The GIFT index also shows that there are
fast maturing ecosystems which include Bahrain, Kuwait, Pakistan, Qatar,
and Jordan. The survey conveyed the main hurdles in front of the Islamic

4 The complete list of the OIC countries and other related information is available on
https://www.oic-oci.org/states/?lan=en.
5 To obtain more information on the index scores of the GIFT, the methodology and
rankings are provided in appendix 1 of the global Islamic Fintech Report (2021).
 FINTECH AND ISLAMIC FINANCIAL INSTITUTIONS … 203

100

87
90

75.5
70.1
80

65.8
70

55.6
53.7
60

45.8

43.9
48

41.3
40.6
44

38.2
50

37.7
35.4
35.3
35.2
34.8
40

34.3
33.8
32.6
32.5
31.7
31.6
30.5
40
30
20
10
0
United Arab…

Pakistan

Hong Kong
Oman
Australia

Luxembourg
Turkey

Germany
United Kingdom

Iran

Qatar

Sri Lanka

Egypt
Bahrain

Jordan
Singapore
United States
Malaysia

Kuwait

Canada

Nigeria
Indonesia

Bangladesh

France
Switzerland
Saudi Arabia

Fig. 6 The Global Islamic Fintech (GIFT) Index (Source Global Islamic Fintech
Report [2021]; Note OIC countries are distinguished using the darker colour)

Fintech growth which are the education level of consumers, the capital
shortage, and the availability of talent. On the other hand, the top rank
Islamic Fintech growth segments for 2021 are found to be payments,
deposits, lending, and fundraising.

3 Applications of Fintech in Islamic Finance

Payments and Remittances
Fintech firms employed technology to incorporate a variety of payment
methods into consumer-friendly applications and financial gateways
having mobile and internet technologies in the backdrop. Customers can
use electronic cards, bitcoins, and digital wallets to make purchases. These
transaction facilities are integrated into major mobile, transportation,
and retail chains for day-to-day transactions. Traditional banks charge a
high price to execute transactions using any of these alternative payment
methods, making them unviable for merchants. Instead of credit cards,
people can utilize mobile wallets. Individuals can send money without
using traditional banks and process payments more efficiently with digital
banking.
Fintech-enabled remittance, on the other hand, makes money transfer
far more affordable. Remittance is possible even if remitters do not
have a bank account. According to Tarique and Ahmed (2021), Fintech
204 I. ABDELJAWAD ET AL.

facilitates money transfers and banking transactions for Islamic finance

consumers, resulting in greater investment in Fintech services by top
Islamic finance organizations.

Deposits and Lending

Challenger Banking
A “challenger bank” is a bank or a Fintech (financial technology) non-
banking start-up that uses digital technologies to compete with big,
traditional banks (Polasik et al., 2021). Challenger banks are focusing on
providing a better user experience and appealing costs for certain financial
services to their consumers because of their branchless and often mobile
operations. Challenger banks are referred to as “mobile-only banks” or
“neobanks” (Gomber et al., 2018; Hopkinson et al., 2019) to emphasize
their radical rejection of traditional distribution channels like branches,
phone banking, and even web-transaction applications. Customers can
use their smartphones to not only open an account, but also to perform
a variety of additional financial transactions (Capgemini & Efma, 2020).
Challenger banks often operate on a monthly subscription model that
provides a set of services.

Open Banking
Open banking is a blockchain-based concept that proposes that external
parties are given access to the consumer data collected by the banks
and other financial institutions to build applications that connect finan-
cial institutions and third-party providers. Explicitly, this provides third
party access to Know-Your-Customer information system held by the
bank and other relevant risk management and credit review system to
be available on an “open innovation” platform. There are rules and regu-
lations that govern how and what data can be shared, focusing on the
end-benefit users without jeopardizing data integrity, sensitive data leaks,
or data volatility. Open banking services will not be activated unless the
customers express approval, and there is complete security and integrity.
According to Juniper Research (2020), open banking users are predicted
to double from 2019 to 2021, from 18 million in 2019 to 40 million in
2021, because of increased consumer demand for information on financial
health during COVID-19, which enhances open banking usage.
To provide a uniform perspective, open banking models employ appli-
cation programming interfaces (APIs) to aggregate consumers’ financial
 FINTECH AND ISLAMIC FINANCIAL INSTITUTIONS … 205

information across many financial institutions. Open banking’s develop-

ment and expanding adoption will help banks to have a better under-
standing of client behaviour and requirements, allowing them to provide
highly tailored services and products. Open banking’s guarantee of real-
time data access can be augmented by intuitive business and data analytics
tools.

Unbanked/Under-Banked Facilities
Unbanked population is a threat to financial stability due to two reasons:
first, there is no record of their financial transaction, and second, they
primarily use cash and fund from friends and family, bypassing the finan-
cial systems. Under-banked population does not get the full package of
financial services, primarily because of the limited infrastructure and skill
set. Due to the minimum requirement set by the traditional financial insti-
tutions, it is not easy for both unbanked and under-banked to apply for
financial services. Fintech companies can be a good solution in this regard,
as they are not limited by regulatory requirements similar to traditional
banks. Non-bank financial institutions also cater to customers with lower
credit scores than banks, and Fintech lenders have a larger market share
in places where credit scores are lower and mortgage rejection rates are
higher.

Alternative Finance
Micro, Small, and Medium Enterprises (MSMEs) are the true engines
of global growth and employment that frequently experience capital
shortages. Because a large percentage of these businesses lack sufficient
collateral to receive a loan, as the risk of unsecured lending is consid-
erable to the financial institutions. Due to a lack of Shariah-compliant
borrowing options, most MSMEs must rely on their own funds, which
can impede their growth and expansion plans. Fintech, on the other
hand, has the potential to reverse this trend. MSMEs can raise financing
via technology-enabled innovative models such as crowdfunding and P2P
platforms.
Alternative financing, which refers to funding sources other than banks,
such as the internal capital (retained earnings) and working capital (trade
credit) may be able to alleviate financial constraints for these businesses
(Ferrando et al., 2019). Alternative financing is the most common source
206 I. ABDELJAWAD ET AL.

of external funding, according to Allen et al. (2012), and enterprises

having access to bank or market credit do not have greater growth rates
than firms that rely on alternative finance. Bank funding difficulties for
SMEs may have come from high capital requirements for banks (Bams
et al., 2019). Alternative finance could help SMEs overcome the financial
limits caused by rising bank capital requirements.
Bilan et al. (2019) defines alternative finance in the Fintech era as
the ability to raise funds and conduct borrowings using online plat-
forms. There are several common methods and channels of P2P and
crowdfunding models. These can take the structure of an equity- and/or
reward-based crowdfunding, P2P, or Peer-to-Business (P2B) finance
(Coakley & Lazos, 2021; Rossi et al., 2021). Alternative financing
arranges financial services for individuals and businesses, preferably the
SMEs, using P2P lending platforms or crowdfunding channels. P2P and
crowdfunding platforms help save time and cost as these bypass the
regular banking system and do not have the prerequisites of legal docu-
mentations and supervision. Because of recent breakthroughs in Fintech,
alternative financing has grown dramatically in recent years (Fuster et al.,
2019).

(a) Peer-to-Peer Financing

P2P lending connects borrowers and lenders in a very profitable way.

There is practically no intermediation in this case. Hence, a direct contact
between the borrower and the lender has been possible. Borrowers that
use peer-to-peer lending can get finance from a variety of people. When
compared to traditional banks, the process of obtaining a loan is much
easier. Lenders on peer-to-peer consumer lending platforms are typi-
cally investors wishing to park their money with institutions that help
them maximize their wealth. The platform handles the vetting and pre-
approval of applicants, making it simple for lenders to identify the suitable
borrower for them. The same principle applies to P2B or P2P commer-
cial lending. The platform is responsible for creating a pool of lenders
and connecting them to a pool of borrowers using technology. There are
endless opportunities provided by P2P financing methods, especially to
the new charters and start-ups, often with very risky ideas, that are not
financed by the banks.
 FINTECH AND ISLAMIC FINANCIAL INSTITUTIONS … 207

(b) Crowdfunding

As the name suggests, crowdfunding is an alternative but less struc-

tured and open stock market system for limited time funding. Ideas
in need of short-term funding come to crowdfunding marketplace
presenting their ideas for funding, generally to non-professional investors.
Aside from financial causes, crowdfunding is often used for social
causes, like raising funds for charitable donations. Crowdfunding plat-
forms are often used to finance green and sustainable projects that
help preserve environment (Pimonenko et al., 2017). Crowdfunding, in
theory, connects a borrower and a creditor without requiring them to
live in the same nation or even know one other. Fintech innovations have
resulted in crowdfunding platforms such as Kickstarter, GoFundMe, and
Patreon. Entrepreneurs and early-stage enterprises can use the platforms
to raise cash from all over the world, bypassing geographical barriers and
reaching international markets and investors.
Crowdsourcing can have several models. Yang and Zhang (2016)
forward that there are at least six types of crowdfunding models suitable
for Shariah applications. These are (1) equity-based, (2) reward-based, (3)
real estate, (4) profit-sharing, (5) donation-based, and (6) invoice trading
crowdfunding. Additionally, some Shariah-compliant products appear to
be eligible for crowdfunding. Examples include Murabaha (profit margin)
for purchasing an asset and the profit-and-loss sharing models, such as the
Musharakah- or Mudharabah-based strategies. Fintech (along with other
digital breakthroughs like social media) looks logical for such transactions
because it lowers transaction costs.
A lion’s share of the global Islamic banking instruments is based on
non-PLS-based contracts, such as the Murabahah and Ijarah. Muslims
traditionally exclude themselves from the conventional financial system
due to interest-based (Riba) and uncertain risk-taking financial trans-
actions (Gharar and Mysir). Islamic banks also partly failed to attract
many Muslims due to their bank-like financial and regulatory structure.
Fintech can help to attract more people into the financial services area
through novel payment options, Distributed Ledger Technology (DLT),
and smart contracts. Use of crowdfunding and P2P lending will promote
financial inclusion among Muslim investors and entrepreneurs in the
coming future (Al-Amine, 2019).
208 I. ABDELJAWAD ET AL.

(c) SME Finance

Traditional credit scoring system demotes individuals and SMEs with

limited financial liquidity. Fintech-based credit scoring replaces the stan-
dard credit scoring system by employing algorithms that improve the
credit management system over time. The amount of information the
Fintech scoring system uses provides a much deeper analysis of credit
acceptability, percentile credit scoring, and social signalling. While the
alternative scoring system is flexible, it improves the credit judgement
system using machine learning. These credit scoring algorithms have also
reduced the cost of underwriting loans, allowing Fintech to pass the
savings on to borrowers and therefore expand their client base.
Because of the poor profits and high underwriting expenses on small
loans, traditional banks often do not accept loan proposals from MSMEs.
Fintech offers two major benefits to these borrowers. First, their loans are
underwritten at no cost. Second, they are provided with facilities like Buy
Now Pay Later (BNPL), which is helping not only in higher sales but also
in higher loans.

(d) Trade Finance

Trade finance is a strong working capital finance tool, mostly for the bene-
fits of the large firms. Traditionally, small firms do not have the arbitrage
of engaging into receivable or inventory securitization, primarily due to
risk. Even though they get a factor or a bank in the securitization process,
the cost has been extremely high. SMEs suffer high price due to lack of
technology orientation in trade financing (Cornelli et al., 2019). Fintech
helps with inventory and receivable financing systems using distribute
ledger technology that uses no middlemen in the process, reducing the
cost of transaction.
Fintech help reduce “overpricing” cost of the supplier as the bank
premium drops in the baseline trade finance model (Wang & Xu, 2021).
When invoice trading is used as a post-shipment finance plan, digital-
ization benefits the supply chain. The supply chain always benefits from
smart contracts (both the supplier and the retailer). According to the find-
ings of Lee et al. (2022), reducing financial friction through contract
innovation and Fintech leads to larger order quantities, higher supply
chain profit, and higher consumer surplus.
 FINTECH AND ISLAMIC FINANCIAL INSTITUTIONS … 209

Digital Wallets: Most Common Fintech Product

Under the traditional system, payments for utilities were cleared after a
physical visit to the bank branch. Customers have to carry documents
of past payments and records of utility bills. Using Fintech and mobile
wallets, paying for household services and utility bills becomes easier.
Financial institutions are working with application-developing Fintech
firms to come up with an intuitive, user-friendly, and secured payment
system that can be used to settle day-to-day transactions. These apps do
not only offer convenience, but they also reduce costs.

Asset Management and Robo-Advisory

With high-frequency robotics trading in the corner, personal wealth and
consultative asset management functions have seen significant growth in
recent years. Sophisticated algorithms and machine learning techniques
are used to replace human labour on the trading floor, which has seen
a significant reduction in trading costs (Lee & Shin, 2018). As the deci-
sion turnout time is much faster for a Fintech-enabled trading platform,
which also comes with lesser mistakes than the human-controlled system,
there is growing popularity of the Fintech-based asset management system
among the young as well as rich investors (Imerman & Fabozzi, 2020).
Investors now can build their portfolios at a much lesser cost to pay to the
brokers and asset managers. High-frequency traders manipulate investor
information collected from the asset managers and provide cloud-based
bot-enabled investment advice.
This is demonstrated by the wide range of Fintech-creating finan-
cial planning skills. These allow wealth managers to efficiently capture,
monitor, and assess their clients’ needs, assisting in the improvement and
automation of advice-giving. Fintech-driven innovation is also improving
client engagement from the start with prospecting and on-boarding, as
well as providing operational efficiencies for wealth managers through
workflow management and automation.
Robo-advisors provide automated self-controlled cloud-based personal
wealth management services to clients at a low cost than the tradi-
tional wealth managers. Because of the use of sophisticated machine
learning techniques, Robo-advisors can allocate assets much faster and
achieve better risk-return balance, even though the investors may not
have minimum investment skills (Gomber et al., 2018). They enable
210 I. ABDELJAWAD ET AL.

consumers of all ages to participate in low-cost investment activities with

minimal manual effort. Fintech Robo-advisors can estimate and predict
how a customer’s portfolio balance will look if they invest according to
their strategies. Robo-advisors do this by analysing investing strategies and
potential risks to see how they may affect personal finances in the future.
Robo-advisor poses a significant threat to traditional financial service
providers (Seiler & Fanenbruck, 2021). Using an automated trading
system, individual investors take the benefits of the rights choice made
at the fastest possible time, which is otherwise poorly done in a tradi-
tional trading platform (Giudici, 2018). There are, however, bigger risks
that require regulators to step in. In the words of Elon Musk, “AI is
our biggest existential threat”.6 Market risk and compliance risks are the
other major risks that must be closely monitored. Adverse movements in
the Fintech market (such as the one from Bitcoin market as an example),
may see regulatory footprints reducing the benefits of Fintech soon. Tech
veteran Bill Gates once commented on investing in Bitcoin, “if you have
less money than Elon (Elon Musk), watch out”.7 The recent abrupt
movement in the Crypto market provides ample evidence to support
the aggravated risk in the Fintech market, which might result in lower
consumer confidence and a rise in the cost of trading.

Smart Sukuk
Unlike cryptocurrencies, Smart Sukuk manages finance based on a
blockchain technology, which is also not speculative in nature (Chong,
2021; Mohamed & Ali, 2019). The system uses profit-and-loss sharing
method in the backdrop. Smart Sukuk offers a smart connection between
a domestic microfinance company and a foreign bank, while the foreign
bank arranges the blockchain to exchange funds across borders. This
collaboration saves cost and time. Blockchain technology also allows for
the screening of the compliance to Shariah and religious underpinning
of the fund transfer. Islamic financial institutions are also taking part in
developing similar Smart Sukuk issuance based on blockchain technology
to meet global demand of funds (Foglie et al., 2021).

6 https://www.theguardian.com/technology/2014/oct/27/elon-musk-artificial-intell
igence-ai-biggest-existential-threat.
7 https://www.cnbc.com/2022/03/09/bill-gates-on-bitcoin-if-you-have-less-money-
than-elon-watch-out.html.
 FINTECH AND ISLAMIC FINANCIAL INSTITUTIONS … 211

InsureTech and TakaTech

InsurTech is developed to add better client experience using technology
in the insurance industry (Hargrave, 2020; Milanovic et al., 2021). Effi-
ciency of the insurance industry is a by-product of the system. Computer
and mobile applications are used by customers to apply for new products
and services, and to apply for claims. Fintech is expected to have a massive
impact on the Takaful market soon (Hasan et al., 2020). Fintech compa-
nies that offer insurance products, if they have access to customer data,
can pair the data with algorithms and analytics, to deliver highly person-
alized insurance rates to their applicants, as well as alternative payment
methods, based on their individual needs and qualifications.

4 Fintech and Islamic Finance:

Complementary or Competitive
Fintech innovations can be regarded as either complementary or compet-
itive to the Islamic banking market. Fintech firms that provide services
or products that are complementary to those given by banks are candi-
dates to become business partners with banks, whereas Fintech firms that
provide services and goods that are identical to those supplied by banks
are classed as competitors. According to Muda et al. (2021), Islamic
banks must embrace Fintech to avoid financial disintermediation and
provide value to their stakeholders. Banks have the option of collabo-
rating with Fintechs, acquiring Fintechs, or developing their own Fintech
firm. According to Rabbani et al. (2021a, 2021b), Islamic banks must
partner with Fintech companies. Furthermore, according to Alam and
Ali (2021), a complementary relationship between IFIs and Shariah-
compliant Fintechs allows IFIs to reach international markets while also
lowering operating costs.
While there are strong possibilities that the Fintech platforms and the
Islamic financial institutions work together (Irfan & Ahmed, 2019), there
exists a threat that these Fintech firms will take over an important, and
rather lucrative, section of the traditional financial institutions. More-
over, in a general sense, the Islamic Fintech institutions might need to
be directly under the preview of the Shariah supervisory board in order
to ascertain the Shariah compliance risks products and services offered
by them. This monitoring by the supervisory board might go against the
entire foundation of Fintech.
212 I. ABDELJAWAD ET AL.

There is a growing list of literature on complementarity between the

Fintech companies with the Islamic financial institutions, as these institu-
tions are found to assist each other in shared goals (Abojeib & Habib,
2021; Jamil & Seman, 2019). When Shariah screening is the central
activity that determines the compliance to Shariah, Islamic Fintech firms
are found to be equally Shariah-compliant to the Islamic banks while
offering investment in compliant products and services that reduce risk
and do not use “Riba” (Biancone et al., 2019). However, the constant
monitoring to maintain compliance might jeopardize the level of privacy
promised by the Fintech operation. Therefore, while compliance to
Shariah is a key challenge in a Fintech-based business model (Biancone &
Radwan, 2019), the same can be a major disruption as well.
Islamic banks have specific characteristics that limit the large adoption
of Fintechs. Islamic finance operates on profit-sharing models that help
diversify risks. Some of these models include the Musharakah and the
Mudarabah models. There are extremely limited profit-sharing instru-
ments when it comes to short-term investment. Fintech companies
might find it challenging. Also, since the Shariah-compliant invest-
ment and financing avoid engaging with interest payment and receipts,
Fintech companies may find it difficult to engage in cross-border trading,
financing, and investment. Islamic financial institutions also prefer equity
over debt, as debt is strictly controlled in Islamic system. Therefore,
having an Islamic financial system might be important to establish Islamic
Fintech organization.
Fintech has become a challenge for financial institutions, but it may be
converted into an opportunity by collaborating with Fintech companies to
provide innovative services rather than considering them as competitors.
If an Islamic bank considers partnering with a Fintech provider, it may
have access to benefits such as a low-cost technical financial solution that
is focused on the consumer. According to Ahmad et al. (2021), Islamic
banks and Islamic banking windows in Pakistan use a variety of financial
technology to provide customer-oriented products and services, which has
an impact on their business strategy, product transparency, and efficiency.
In this light, Islamic banking is under pressure to strategize its growth
potential around Fintech solutions to avoid a loss of market share and
a squeeze on margins. However, while using Fintech solutions, Islamic
banking faces the potential of increasing operational and fraud risk.
Another factor to consider is whether the Fintech solution adheres to
Islamic Shariah rules and regulations. Abd Rani et al. (2021) illustrate
 FINTECH AND ISLAMIC FINANCIAL INSTITUTIONS … 213

that it is vital to have a strong partnership in producing iFintech prod-

ucts and services between Shariah scholars and technology professionals to
deal with the problem of shariah compliance. Furthermore, Khudhori and
Hendri (2021) demonstrate that collaboration between Islamic Banking
and Syariah Fintech is the most valuable for expanding financing services
because it allows Islamic Banking to reach out to its customers through
the Syariah Fintech network; however, this perceived value obstructs the
availability of detailed regulations and protection policies.
Islamic Fintech may target the financial exclusion problem in many
Muslim countries; the exclusion which might be due to lack of protec-
tion and limited knowledge of Islamic finance principles. Gulrez (2021)
points out those advocating worldwide consumer protection policies,
laws, understanding of Islamic Fintech’s viability and trustworthiness
are the essential elements for GCC’s Islamic Fintech to reach out to
global clients. Islamic Fintech can help financing Islamic SMEs using
crowdfunding. The ideas that are often risky for conventional banks to
finance, these are few clicks away for an Islamic Fintech firm that uses
crowdfunding.
When it comes to integrating Fintech advances, Islamic banks can
profit from several qualities. For starters, they may save money by deliv-
ering Fintech services and products that are based on data standards.
Second, Fintech developments are primarily internet-based, allowing
service providers to circumvent regional boundaries. Third, Islamic
banks can benefit from reaching out to a larger diversified number of
customers, which increases the potential market size without incurring
additional costs, thanks to lower costs and the ability to reach out to
non-geographically limited areas via the internet. This is also aided by
increased customer awareness of technological solutions in meeting their
needs. Fourth, Fintech companies that provide loan platforms may allow
decreasing maturity and defaulting risk since they mainly link borrowers
and lenders, Islamic banks might leverage such benefit. Fifth, Islamic
banks cooperation with Fintechs may provide profits from the lower regu-
latory expenses and barriers that Fintech firms and start-ups have as they
are regarded non-bank firms (Dapp, 2014). Sixth, Fintechs data analysis
techniques may assist Islamic banks to have greater risk assessment skills
and get higher understanding of their business.
Fintech is broadly responsible for cheap deposits and easy loans, while
banks capitalize on robust financial technology superstructure (Banna
et al., 2021). However, there is a bigger challenge for Islamic banks
214 I. ABDELJAWAD ET AL.

in this regard, as they charge their customers slightly higher than their
conventional peers. Due to high competition or adverse monetary policy
shocks, Islamic banks may lose, otherwise, good customers to the conven-
tional banks (Saeed et al., 2021). This gap in quality customers might
be replaced with bad clients as Fintech might find more customers for
banks. In addition to this, Islamic banks are relatively smaller in terms of
their investment in Fintech, when compared to their conventional coun-
terparts. Hence, to gain higher benefits, Fintech innovations might be
more attracted by conventional banks.
Despite these challenges, Islamic Fintech remains an important niche
for new investment. Thanks to the technology, Islamic financial insti-
tutions can design new products that are not only cheaper, but also
help ensure stability, financial inclusion, and customer satisfaction (Banna
et al., 2021). If some core challenges related to the Shariah supervision
are managed effectively, Fintech can become a complementary force that
drives Islamic finance forward.

5 Conclusion
Islamic finance is around seventy years old. Its primary markets are
growing in Asian and African countries, with Muslim majority popula-
tion. Some of these countries, such as Malaysia, Indonesia, Bangladesh,
Pakistan, most countries from the Middle East and North African region,
and some central Asian countries, are home to massive domestic market
changes. In recent years, these jurisdictions are investing a lot in devel-
oping technology infrastructure, with a view to boost private sector
participation in economic activity. These countries are home to Islamic
finance as well. Therefore, from the perspectives of both survival and
growth, Islamic financial institutions must embrace Fintech activities that
bring several mutual benefits.
Aside from typical growth factors and pockets of development, we
review specific applications of Fintech in Islamic finance. While other
studies cover Islamic banks and Fintech, we widen the coverage of our
discussion to Islamic financial institutions. While we have seen, overall,
Fintech and Islamic finance will be complementary to each other, there
exist several core challenges.
Shariah compliance, screening, and supervision are major challenges.
Fintech companies work freely, most without any control from Central
Banks or other regulatory institutions. Islamic banks cannot work in
 FINTECH AND ISLAMIC FINANCIAL INSTITUTIONS … 215

isolation. One of the reasons why customers like Islamic banking is

because this banking system is supervised and audited on multiple levels
(Iqbal et al., 2018). Hence, there has to be a mechanism of supervision
before Islamic Fintech can flourish. Another problem is with the avail-
ability of instruments that fit the need of both Islamic finance and the
Fintech companies. More research is needed to investigate the marriage
between the Fintech firms and Islamic banks on their use of profit-sharing
contracts.
There are still several questions that remain unresolved. Essentially,
the most important question is whether Fintech can solve some of the
growing problems with Islamic finance. Say for instance, researchers can
explore whether Fintech can help Islamic banks to bring back the profit-
and-loss sharing contracts. At this moment, a minor proportion of Islamic
banks’ activities are based on profit-and-loss sharing (PLS) method. It
would be ground-breaking if Fintech models could be employed to
ensure PLS-based transaction. Also, technology is evolving fast, and every
new dimension of technology has been expensive, for banks as well as
for the customers. Question remains, to what extent, Fintech is really
cost efficient in the long term. There is growing evidence of short-term
cost efficiency. However, we need to wait longer to analyse its long-term
viability.

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 An Assessment of Level of Adoption
of Fintech in Islamic Banks in the MENA
Region

M. Kabir Hassan , Somar Al-Mohamed,

Mustafa Raza Rabbani , and Ammar Jreisat

1 Introduction
The revolution in financial technology, which is often termed as Fintech,
is considered as a conspicuous feature of the contemporaneous techno-
logical advancement in this century (Buchak et al., 2018; Hasan et al.,
2021; Mackenzie, 2015; Qi & Xiao, 2018). The rise of Fintech has
also disrupted the Islamic finance sector as Islamic banks and finan-
cial institutions started utilizing a segment of financial technology that
adheres to the Shariah principles. It has similar ethics and values of
Islamic finance. Islamic finance technology has grown tremendously with
a primary focus on peer-to-peer lending and digital financial inclusion.

M. K. Hassan
Department of Economics and Finance, University of New
Orleans, New Orleans, LA, USA
e-mail: [email protected]
S. Al-Mohamed
Department of Finance, College of Business Administration, American
University of the Middle East, Eqaila, Kuwait
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 223

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_11
224 M. K. HASSAN ET AL.

The Fintech market has grown rapidly in MENA region with an annual
growth rate of almost 30%. As half of the region’s population (almost
200 million) are under the age of 25, the number of Fintech hubs in
the region is expected to expand significantly in near future. The level of
awareness in financial sector to the unprecedented boost in financial inclu-
sion and digital access has derived banks in MENA region to embrace
Fintech-based products and services. Although the scale of Fintech appli-
cation and adoption still lagged behind in MENA region as compared
to developed countries, however there has been an evidence for further
increase in Fintech adoption in the region in the wake of the corona
pandemic, the adoption of Fintech-based applications enables Islamic
banks to reduce their costs in different aspects, for instance, the Islamic
banks can reduce the cost of products offering by enhancing Fintech
technologies adoption (Alam et al., 2019; Nguyen et al., 2021).
A handful number of academic research on Fintech in Islamic financial
institutions has come to the fore in the last few years. Researchers in this
field have investigated the implication of Fintech to advance the Islamic
finance. The potential benefits of Fintech to the Islamic banking sector
in MENA region include funds raising, and wealth management, equity
investment, and accounts payments. Additionally, other types of Islamic
financial institutions such as investment funds, takaful institutions, and
project finance companies also have prospects to benefit from the growing
diversity of Fintech. This chapter aims at assessing the potential benefits
of adoption on Fintech to Islamic banks’ performance in MENA region
(Hassan et al., 2020). The use of Fintech in Islamic financial institutions is
believed to be imperative to Islamic banks in the region. The adoption of
Fintech-based applications enables Islamic banks to reduce their costs and
increase their market shares by enhancing the awareness of customers of
Islamic finance products and promoting financial inclusion in the region
(Hassan et al., 2021; Rabbani et al., 2021d).

M. R. Rabbani · A. Jreisat (B)

Department of Economics and Finance, College of Business Administration,
University of Bahrain, Zallaq, Kingdom of Bahrain
e-mail: [email protected]
M. R. Rabbani
e-mail: [email protected]
 AN ASSESSMENT OF LEVEL OF ADOPTION … 225

The chapter aims to contribute to the academic literature on Fintech

in Islamic financial institutions in the following ways. First, this chapter
provides evidence on the imperativeness of Fintech to Islamic financial
sector, in general, and the Islamic banking sector, in particular, in the
MENA region. Second, the chapter sheds light on the level of readi-
ness of the financial infrastructure in the MENA region for further
incorporation of the Fintech with the Islamic banking activities. Third,
the chapter assesses the potential opportunities for Islamic banks in the
MENA region to enhance financial inclusion of the unbanked popula-
tion in the MENA region, and to facilitate and promote social finance to
alleviate the repercussions of potential financial and non-financial crises.
Remaining chapter proceeds as follows: Section 2 provides an overview
of Fintech and its core technologies. Section 3 introduces the concept of
Fintech in Islamic financial institutions and displays the interconnected-
ness among Fintech technologies and Islamic finance. Section 4 discusses
Fintech in Islamic finance sector in the MENA region. Section 5 evalu-
ates the level of Fintech adoption by Islamic financial institutions and its
benefits to Islamic banks in the MENA region. Section 6 concludes the
chapter.

2 The Rise of Financial Technology (Fintech)

The revolution in financial technology is considered as a main conspic-
uous feature of the contemporaneous technological advancement in this
century (Khan et al., 2022). The ascending trajectory of financial tech-
nology (Fintech) is mainly propelled by the enhancement in high-speed
internet connections and the noticeable increase in mobile applications
among youth who became magnificent gurus of technological innova-
tions (Arslan et al., 2021; Mackenzie, 2015; Zavolokina et al., 2016).
The use of technology in financial services industry has gone through
gradual stratums of improvements, starting with computers networks and
ATMs, until a comprehensive digital transformation of financial prod-
ucts and services that helps financial institutions and banks deliver their
products to their customers in faster and more efficient means than the
past (Bashar & Rabbani, 2021; Rabbani et al., 2021e). Fintech is the
lucid marriage of finance and technology that provides more personalized
and cheaper services and offerings to individuals and businesses (Ernst &
Newswire, 2016; Young, 2019). Among other ramifications, the digital
financial inclusion (DFI) has come to the fore as a main aspect of the
226 M. K. HASSAN ET AL.

Fintech. The DOI democratizes the accessibility of financial services by

enabling unbanked population, mainly adults due to lack of sufficient
documentations, lack of purchasing power, and inaccessibility of finan-
cial institutions in their geographic areas (Mahalle et al., 2021; Omodero,
2021).
The evolution of contemporaneous Fintech has also brought a variety
of benefits to business enterprises. There is unanimity among busi-
ness participants and research scholars alike on the impact of Fintech
on enhancing the capital availability for emerging enterprises and
entrepreneurs, also, it helps reducing the cost of intermediation among
sources and uses of money and this leads to faster movement of capital
from savers to users of funds. The Fintech has recently gained an increased
traction of different types of businesses, who initially considered it as
a threat, since it provides opportunities to financial services providers
to look up for potential partnership opportunities to enhance customer
relationships through the thriving business to customer (B2C) financial
services ecosystem (Meero et al., 2021). The Fintech also promotes an
automation of different business activities, and this leads to lower the
customer service costs due to less physical presence is required (Ernst
and Moccia et al., 2018; Young, 2019). Moreover, the Fintech paves the
road for smooth and correct direction of venture capitals to fuel new
start-up businesses, especially in countries with inefficient and shallow
financial systems, as it can support rural areas and low-income house-
holds (Demirguc-Kunt et al., 2018). The current framework of the global
Fintech encompasses nine core technologies divided up into three main
categories of disintermediation leading to open access to services, automa-
tion from insights to activity, and the decentralization and security (World
Bank, 2020). According to The World Bank Group, the core technologies
of global Fintech can be summarized as per Table 1:
In fact, Fintech can be thought of as an umbrella under which a diverse
range of platforms exists. The most prevalent services offered for both
individuals and businesses can be summarized as:

• Crowdfunding, lending, and peer-to-peer platforms that enable

money transfer (borrow/lend) among savers and users of funds
through a wide variety of internet applications (Kontogiannidis et al.,
2017; The World Bank, 2013).
• Subscription billing software (such as Uber and Netflix), and
payment processing system (such as Stipes, Pay Tabs, and PayPal).
 AN ASSESSMENT OF LEVEL OF ADOPTION … 227

Table 1 Overview of the nine core Fintech technologies

Core Fintech technology Description Category

Big Data Analytics The process of reading, Category 1:

checking, and analyzing data Disintermediation leading to
stored on the internet open access to services
(server). It includes every
click for online transactions
(Sun et al., 2020)
Artificial Intelligence A machine education
technology in which the
human teaches robots to
handle different activities
starting with daily personal
an arriving to anti money
laundering duties (Khan &
Rabbani, 2020)
Quantum Computing Utilizes the principles of
quantum theory to create
more advanced computer
software’s power. It enables
solving more complex
problems than the ones
solved by convectional PCs
(Rabbani et al., 2021a)
Mobile Payment Payment using mobile Category 2: Automation
applications and technologies from insights to activity
to access bank personal and
business bank accounts, and
execute convectional
transactions anytime and
anywhere if they have
internet connections (Kim
et al., 2016; Liu et al., 2020)
P2P Finance Peer-to-peer finance enables
through specific websites
where lenders have direct
connection with borrowers.
This technology is considered
as an alternative to traditional
banking activities (Rabbani
et al., 2022a, 2022b, 2021c)

(continued)
228 M. K. HASSAN ET AL.

Table 1 (continued)

Core Fintech technology Description Category

Open Banking A technological innovation

that enables banks’ customers
to monitor their cash flows
through third-party
application (Open Banking
Implementation Entity, 2019)
Blockchain Blockchain is a digital ledger Category 3:
of transactions and recording Decentralization and
information. The data security
sequence is disseminated to
global servers for
decentralization and
cross-verification check
(Karim et al., 2022)
Cybersecurity Specific data protection
technology that aims at
protecting the privacy of all
users (Bendovschi, 2015;
Rehman et al., 2020)
Cloud Adoption A storage system used to
upload and retrieve data (Hu
et al., 2019)

• Regulatory Compliance Software (RegTech): to monitor the busi-

nesses compliance with regulatory requirements and standards (such
as anti-money laundering, detection, and fraud screening) (Rabbani
et al., 2021b).
• Investment management and stock trading applications: which
enables less experienced investors to execute, relatively inexpensive,
transactions and increase their participation in financial markets (e.g.
Alvexo, and etoro) (Marcelin et al., 2019; Mishra, 2007).
• InsurTech: enables insurance companies to offer digital insurance
policies tailored to fit specific market segments such as low-income
households.
 AN ASSESSMENT OF LEVEL OF ADOPTION … 229

3 Imperatives of Fintech
Technologies to Islamic Finance
The Fintech in Islamic financial institutions is a segment of financial tech-
nology that obey to the Sharia law. It has the same ethics and values of
Islamic finance. The Fintech adoption and utilization by Islamic institu-
tions has experienced a high level of growth in recent years, the main
advantages of Islamic Fintech are enhancing financial inclusion trans-
parency, and accessibility and usage, and cost effectives. The Fintech in
Islamic financial institutions can be categorized as a division of Fintech
that enables and facilitates all activities and transactions that adhere to
Sharia principles (Hassan et al., 2020, 2021). It comprises a variety of
markets and sectors such as Islamic banking, Sukuk market, Takaful, and
Islamic capital market. The value of Islamic finance assets is expected to
reach USD $3.5 trillion in 2024 as compared to USD 2.5 trillion in
2018 (World Bank, 2020). Fintech is expected to promote the application
of Islamic finance and enhance the awareness of the investment society
to Islamic finance products. Briefly, the essential contribution of Fintech
technology to Islamic financial industry can be categorized into three core
divisions: First, a group of Fintech technologies focuses on decentraliza-
tion and security including the cloud-based and blockchain. Second, the
Big Data and Artificial Intelligence technologies that promote automation
of Islamic finance products (Sun et al., 2020). Last, the Fintech technolo-
gies focus on disintermediation for open access of mobile banking and
P2P finance. Consequently, there are potentials for increase in availability
and market share of Islamic financial products and services including
wealth management, Takaful, enterprises funding, and trade finance.
A handful number of academic research on FinTech in Islamic finan-
cial institutions has come to the fore in the last few years. A main strand
in literature has also investigated the implication of Fintech technologies
to advance the Islamic finance. For instance, Abojeib and Habib (2021),
provided evidence of the importance of Fintech, blockchain particularly,
on improving the mechanism through which the charitable utility of
waqf. Elasrag (2016), recommended the utilization of smart contracts
to enhance the compliance of the Islamic financial products and services
with Sharia law. Gomber et al. (2018), affirmed on the role of Fintech
in advancement of transparency and customer-centric of Islamic finance
products. Todorof (2019), investigated whether Fintech technologies
comply with Sharia principles, and he concludes that the adoption of
230 M. K. HASSAN ET AL.

Fintech by Islamic banks could enhance the efficiency of their products

and services and increase their market shares. In a different work, Suzuki
et al. (2018), critically examined the dynamic changes in SWOT analysis
dimension in Islamic banks in Indonesia following the Fintech adop-
tion. They find that Fintech technologies will, surely, enhance the quality
of Islamic banks’ activities including customer relationship manage-
ment. A growing stratum of literature assessed the potential advantages
of blockchain utilization for Islamic finance. Fernandez-Vazquez et al.
(2019), evaluated the role of blockchain in leveraging the usage Islamic
finance products in crises periods. They conclude that blockchain enables
for swift and more efficient collection of Zakat and Sadaqah money
to provide social aids during pandemics and crises. Richard-Marc et al.
(2017), affirmed on the potential role of blockchain in enhancing the
transparency in the Islamic financial system, especially for Islamic banks
contracts and operations. Isik and Uygur (2021), investigated the possi-
bility of blockchain technology utilization to initiate a digital Islamic
currency that complies with Sharia law. Habib and Ahmad (2019) studied
the potential impact of blockchain on enhancing the Waqf institutions’
performance, their study proposed that blockchain could enhance the
image and efficiency of the Islamic Waqf institutions. Elasrag (2012),
highlighted the main challenges for blockchain usages in the context of
Islamic finance. The study concluded that the technical and legal obsta-
cles represent main obstacles for the blockchain application in Islamic
financial products and services. Wulan et al. (2018), shed the light on
the potential application of Fintech technologies to improve the Zakat
collection process. They claim that the digital collection of Zakat through
Fintech technologies can enhance the collection process, in addition to
ensuring the efficiency of Zakat distribution. Analogously, Yahaya and
Ahmad (2019), proposed that Fintech enables for digital collection, allo-
cation, and distribution of zakat money. The use of mobile banking is also
believed to be an efficient and transparent means for zakat collection and
distribution (Yahaya et al., 2019).
An emerging strand in literature investigates the applicability and
importance of different aspects of Fintech technology to Islamic finance
topics, for instance, Abdullah and Oseni (2017), investigate the advan-
tage of combining the crowdfunding and Halal industry in Malaysia.
They found that further improvements are needed toward making the
equity-based crowdfunding more compliant with Sharia principles. Fattur-
royhan (2018), on the other hand found that Fintech platform can
 AN ASSESSMENT OF LEVEL OF ADOPTION … 231

be utilized to advance “Mudarabah” that represents the Islamic impli-

cation of crowdfunding to provide solutions for lack of funds among
SMEs in Islamic financial system. In a different work, Miskam and Eksan
(2018), investigated the potential utilization of the Bog Data technology
by Islamic financial institutions to enhance the decision-making process.
They found that Big Data can improve the decision-making by better
understanding of consumer habits and market trends. Lajis (2019), also
provided evidence on the impact of Fintech-based platform on enhancing
the risk sharing aspects in the Islamic financial model. Similar results were
reported by Manaf and binti Amiruddin (2019), who found that Fintech
technology can improve the financial performance of Takaful companies
in Malaysia.

4 Overview of Fintech in Islamic

Financial Institutions in Middle East
and North Africa (MENA) Region
Over the last few years, the Fintech market has grown significantly in
MENA region. The financial systems in the region are marked by the
dominance of banking sector in general. The financial markets in the
MENA region are at their early stage in many countries, with exception
of countries with well-established stock and bond markets such as Egypt,
Kuwait, Morocco, and Saudi Arabia (Allen, 2021). These factors make
the MENA region a fertile destination for Fintech applications, accompa-
nied by the rising number of start-ups and high number of youths as a
percentage of total population (Chinnasamy et al., 2021; Kammoun et al.,
2019; Loukil et al., 2021; Wang et al., 2021). The financial inclusion in
the region is historically limited to large or state-owned companies, and
this was to the detriment of small and medium enterprises and deterred
them from good access to formal types of finance such as bank loans
and lines of credit (Demir et al., 2020; Kandpal & Mehrotra, 2019).
The adoption of Fintech in MENA region is heavily dependent of the
countries’ readiness for Fintech technologies’ infrastructure as well as
the magnitude of Islamic financial capital and current legal frameworks
(Chinnasamy et al., 2021). To compare, there is a prevalent clue on
advancement of GCC countries in the region to adopt Islamic Fintech as
compared to non-GCC ones. For instance, UAE, Bahrain, Saudi Arabia,
and Qatar are more equipped than other MENA countries with proper
232 M. K. HASSAN ET AL.

regulatory environment, capital availability, and long-established financial

sector with upgraded ranking in Global Competitive indicators (Meero
et al., 2021). The Fintech in Islamic financial institutions is believed to
be imperative to the MEAN region as it is expected to carry promising
improvements in the following areas:

Financial Inclusion
The increased digitalization of Islamic products and services will give
access for individuals and small enterprises for cheaper and more Sharia
compliant sources of finance including the financing platforms such as
private equity, venture capital, peer-to-peer financing, and crowdfunding.
According to the Arab Monetary Fund (2021), there are almost 13
million startup companies suffer from financial shortages, in addition to
approximately 140 million adults are financially excluded in the Arab
region. As such, the Fintech-based Islamic financial products and services
have an immense opportunity to fill this gap by enhancing the finan-
cial inclusion and capital accessibility in the region (Demir et al., 2020;
Kandpal & Mehrotra, 2019; Kim et al., 2018).

Islamic Social Finance

In the wake of COVID-19 pandemic, the financial innovations and tech-
nological advancements have been notoriously important for addressing
and handling the issues pertinent to social aids, administration, and
collection (Bashar et al., 2021; Rabbani et al., 2022a, 2022b). Also,
the mobilization of social funds provided by Islamic institutions such as
sadaqah, Zakat , and awqaf has grown tremendously in MENA region
to support individuals and families who were standing in need for these
supports. The Fintech in Islamic financial institutions is expected to play
a key role in alleviating the repercussions of future financial, health, or
other crises (Hamidi & Worthington, 2017; Syed Azman & Engku Ali,
2019).

Improve Regulations and Promote Transparency

The MENA region has been historically marked by its tenuous legal
financial infrastructure. There was a lack of unanimity on the degree of
financial transparency and crony over the last decades. The regulatory
 AN ASSESSMENT OF LEVEL OF ADOPTION … 233

authorities in the MENA region should assiduously attempt to enhance

the legal infrastructure that falls within the ambit of digital finance. The
adoption of advanced and standardized Islamic financial products and
services would be of great help to regulatory authorities in the MENA
region to enhance the integrity and stability of financial transactions
through promoting Fintech-related regulations pertinent to electronic
banking, pre-paid cards, crowdfunding, cyber-security monitoring, cloud
computing sandboxes, and outsourcing (Buchak et al., 2018; Jagtiani &
John, 2018; Rabbani et al., 2021a).

5 Fintech in Islamic Financial Institutions

and Banking Industry in MENA Region
The Islamic banking sector in MENA region is dominated by private
sector. They operate along with conventional commercial banks and finan-
cial institutions. The most developed Islamic banking sectors among
MENA countries are mainly located in UAE, Bahrain, Kuwait, Saudi
Arabia, and Qatar. The banking activities in this sector are compliant
with Sharia principles and include investments financing, and trading. The
adoption of Fintech-based applications enables Islamic banks to reduce
their costs in different aspects, for instance, the Islamic banks can reduce
the cost of products offered by enhancing Fintech technologies adoption
(Rabbani et al., 2021a, 2021b, 2021c, 2021d, 2021e; Rabbani, 2022).
The Big Data solution could enable this sector for better funds alloca-
tion in one hand, the Big Data can also enhance the banks awareness of
customers’ preferences of various types of Fintech services on the other
hand. However, the incorporation of Fintech technology with the Islamic
banking activities in MENA region would require more improvement of
legal structure and increase the financial inclusion on the non-banked
population (Allen, 2021; Chinnasamy et al., 2021; Kukreja et al., 2021).
The potential opportunities for Islamic banking sector in MENA region
include, but not limited to, the following areas:

• Saving and Deposit Accounts

The nature and specifications of accounts and contracts in Islamic finance

are different from their counterparts of traditional commercial banking
sectors. In traditional Fintech banking, the current accounts for instance
234 M. K. HASSAN ET AL.

are used through smart phones application to pay for daily expenses. On
the other hand, funds deposited in Islamic banking accounts need to be
invested in profit sharing model. As such, an investment account contract
is required with collaboration of both investors and financial institutions
through which the funds can be transferred to small and medium enter-
prises. The IAP (Investment Account Platform) in Malaysia represents a
good example for Islamic bank’s adoption of Fintech Technology. Islamic
banks also have opportunities to attract funds through credit associations
and savings rotations, in which a group of entities contributes periodic
payments to a special Islamic saving scheme offered by Islamic banks
(Hasan et al., 2020; Saba et al., 2019). The contributions are then pooled
and directed to SMEs of start-ups periodically. “el Gameya” in Egypt, is
a clear example of this financing mechanism.

• Equity Investment and Wealth Management

The Islamic banking sector in MENA countries has a potential oppor-

tunity to provide their customers with investment advice pertinent to
Sharia compliant equities for long-term investment purposes. Through
their bank-specific mobile applications, Islamic banks can enhance the
customer’s awareness and accessibility to appropriate Islamic financial
instruments. The Robo advisor application offered by Wahed Invest
enables customers from over 100 countries to access investment instru-
ments that are supervised by the Shariah Review Board. In MENA,
“Sarwa” in UAE is one of the few Islamic Fintech investment advisor
platforms that offer Sharia compliant investment alternatives (Thiele,
2017).

• Accounts and Payments

The Sharia law prohibits interest charges on accounts. Islamic banks have
an opportunity to offer an interest-free account to their clients with elec-
tronic debit bank cards from international providers such as Master cards
and Visa. These cards can be used and controlled via smart phone appli-
cations for seamless access and transfer of money. In UK, the Niyah and
RIZQ are digital Islamic banks that offer e-debit cards to customers
issued by Master cards and Visa. There are very few digital banks in
MENA region now, with few exceptions such as the digital Islamic bank
 AN ASSESSMENT OF LEVEL OF ADOPTION … 235

initiated by Zurich Capital Funds Group (Ismon, 2012; Mokni et al.,

2016; Naz & Gulzar, 2020). Hence, Islamic bans in MENA are required
to initiate the evolution of digitalization of their banking institutions with
complete online platforms to enhance the digital financial inclusion of
unbacked population in MENA region.

6 Conclusion
The Islamic financial industry is one of the most rapidly expanding
divisions of the global financial sector. When it comes to global social
financing needs, it is becoming increasingly important. Technology and
automation have long been important aspects of global financial services.
Fintech (financial technology) has been undergoing a technological revo-
lution in the financial sector over the last few years. The artificial
intelligence, blockchain technology, robotics, and other developing tech-
nologies have all gradually made their way into the world in recent years.
There is little doubt that these developments will have an impact on
the Islamic banking sector. The MENA region is a fertile destination for
Fintech applications, accompanied by the rising number of start-ups and
high number of youths as a percentage of total population. The adoption
of Fintech in Islamic financial institutions in the MENA region is heavily
dependent of the countries’ readiness for Fintech technologies’ infras-
tructure as well as the magnitude of Islamic financial capital and current
legal frameworks. The Fintech in Islamic financial institutions enables
the Islamic banking sector in MENA countries to gain the opportunity
to provide their customers with investment advice pertinent to Sharia
compliant equities for long-term investment purposes.

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Fintech, Pandemic, and the Islamic Financial
System: Innovative Financial Services and Its
Shariah Compliance

M. Kabir Hassan , Mustafa Raza Rabbani ,

Ammar Jreisat, and Muhammad Mostofa Hossain

1 Introduction
Financial technology also termed as Fintech has emerged as the most
disruptive technology since the global financial meltdown of 2008 (Le
et al., 2021; Zhang-Zhang et al., 2020). It is the most disruptive tech-
nology as it has changed the way financial forms are used to operate
(Abu Daqar et al., 2020; Aliyu et al., 2017). Fintech firms started to

M. K. Hassan
Department of Economics and Finance, University of New Orleans, New
Orleans, LA, USA
e-mail: [email protected]
M. R. Rabbani (B) · A. Jreisat
Department of Economics and Finance, College of Business Administration,
University of Bahrain, Zallaq, Bahrain
e-mail: [email protected]
A. Jreisat
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 243

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_12
244 M. K. HASSAN ET AL.

emerge post-financial crisis and forced the traditional financial institu-

tions to forge partnership with them and co-develop value-based financial
services for customers (Coetzee, 2019). Fintech blends finance with tech-
nology to provide the seamless financial services in the most innovative
way at the least possible cost (Rabbani et al., 2020). Hassan et al. (2020)
define Fintech as the improved way of offering financial services to the
modern-day customers using information technology at the backdrop
(Khan et al., 2022). Several factors contributed toward the rise of Fintech,
including the rising demand for modern technology-driven services and
an increase in the degree of technology awareness among millennials
(Anagnostopoulos, 2018). The COVID-19 pandemic has disrupted the
normal way of life having strong social, economic, and financial conse-
quences (Conlon et al., 2020). Financial worlds are trying to find ways to
combat the aftershocks created by the pandemic and Fintech is expected
to critical role in reaching out to the people with its innovative financial
services (Corbet et al., 2020; Wójcik, 2021).
Islamic finance also known as the shariah-compliant finance has been
born out of the ethical, social, and moral doctrines of Islam, aimed at
removing the injustice, inequality, and economic exploitation (Hassan,
2014; Hassan et al., 2018). It is the way to manage the finance within an
organization or an individual within the moral principles of Islam, which
covers all facets of human life like saving, borrowing, investment, buying,
and selling. Islamic finance is based on the principles that prohibit interest
payment or receipt (prohibition of Riba/usury), and removal of exploita-
tive practice that favors lenders at the expense of the borrower (Hassan &
Hippler, 2014; Hassan & Soumaré, 2015). It follows the Shariah law
which is considered as the religious law forming part of the Islamic tradi-
tion. The sharia law is derived from the holy Qur’an and Sunnah of the
Prophet Muhammad (pbuh). Besides many other principles forming part
of the Islamic finance, the following principles forms the core of Islamic
financial system.

M. M. Hossain
Department of Fiqh and Usul, Wilayah Persekutuan Kuala Lumpur, Jalan
Profesor Diraja Ungku Aziz, Kuala Lumpur, Malaysia
e-mail: [email protected]
 FINTECH, PANDEMIC, AND THE ISLAMIC FINANCIAL SYSTEM … 245

1. Riba (interest) is prohibited under Islamic finance, which means the

use of money for the purpose of making money is prohibited.
2. Financial contracts with excessive risk (gharar), gambling (maysir)
are also prohibited in Islamic finance.
3. All the Islamic financial contracts must aim to benefit the larger
sections of the society besides generating profit for the owners.
Islamic finance aims to remove the evils of the society like unequal
distribution of wealth through the Islamic social finance instruments
such as, Zakat , Sadaqa, Qardh-Al-Hasan, etc., and bringing social
justice in terms of providing social security and protection of the
weak, poor, and vulnerable against the rich and strong.
4. The aims are to bridge the gulf between the rich and the poor which
the conventional system has failed to do so.
5. The investment must be asset-backed. It means that all the invest-
ments in Islamic finance must have the backing of a real asset.
Derivative instruments like option and forward contracts are prohib-
ited in Islamic finance.
6. Islamic finance makes strong provisions against the earning of wealth
by the unethical and unlawful (haram) means. For example, earning
wealth by selling of alcohol, etc., is prohibited.

Fintech is a welcome addition to the Islamic financial landscape as it is

considered as a tool to help in achieving the Islamic finance objective of
financial inclusion and serve the unmet financial needs of the poor and
vulnerable sections of the society which are ignored by the conventional
finance players and traditional financial services do not have that reach.
Thus, Fintech is a tool to achieve the objective of financial inclusion.
Islamic Fintech is defined as the sharia-compliant version of the
financial technology which prohibits the earnings from the debt, interest-
based instruments, and prohibited investments such as alcohol, tobacco,
gambling, etc. Islamic Fintech has been on the rise recently as it is
projected that it will reach up to $128 Billion by 2025 at 21% compound
annual growth rate (CAGR) and compared to the 15% CAGR for the
conventional Fintech in the same period. Islamic Fintech has the poten-
tial to make Islamic finance more competitive by offering Islamic social
finance services in combination with the technology to help in the fight
against the adversities of the COVID-19.
There are few studies highlighting the importance of Islamic Fintech
enabled financial services against the negative impact created by the
246 M. K. HASSAN ET AL.

pandemic (Atif et al., 2021; Hassan et al., 2020; Mohammad et al., 2020;
Rabbani et al., 2021a, 2021b; Rabbani, 2022). In their study on the role
of Fintech in combating the aftershocks of the pandemic Rabbani et al.
(2021a, 2021b), explore the possibilities of Islamic Fintech in combating
the economic reverberations created by the pandemic. The authors
concluded that the basic ethical tenets of Islamic finance in combina-
tion with the technology can work wonders and help in creating a more
resilient and sustainable financial system post-pandemic. Hassan et al.
(2020), explored the challenges of the Islamic Finance post-pandemic and
the role that Islamic Fintech must play in overcoming those challenges.
The authors concluded that the Fintech-based Islamic social finance is the
way to go post-pandemic. Mohammad et al. (2020), proposed an inte-
grated Zakat and Qardh-Al-Hasan-based Islamic Fintech model to fight
against the adversities of the pandemic. In another study Rabbani (2022),
analyzed the impact of pandemic on the supply chain financing and
proposed that Islamic countries must trust Islamic Fintech and Islamic
social finance tools can play a critical role in supplying the critical supply
chain financing to the pandemic affected small industries and corporates
and sole proprietors. These studies fail to provide a practical workable
solution that can help in the fight against the adversities of the pandemic.
The study is expected to the existing strand of literature in the
following ways. First, it is the first study providing the practical and
workable integrated Islamic Fintech model to help in fight against the
adversities of the pandemic. Second, it will open an avenue for the
future researchers and practitioners to explore more possibilities of Islamic
Fintech in helping poor, vulnerable, and affected. Third, it will help
the regulators and policymakers in identifying the potentials of Islamic
Fintech and devise favorable economic policies accordingly. Finally, it will
add the existing strand of literature on Fintech, pandemic, and Islamic
financial system (Atif et al., 2021; Hassan et al., 2020, 2021; Khan et al.,
2021a, 2021b; Mohammad et al., 2020; Rabbani et al., 2021a, 2021b;
Rabbani, 2022).
The remaining paper proceeds as follows. In the next section, we
provide a discussion on the economic impact of pandemic and the role
of Islamic finance. Section three explores the role of Islamic Fintech in
Financial inclusion. Section four provides the proposed integrated Islamic
Fintech model. Finally in section five we conclude and provide the further
scope of the study.
 FINTECH, PANDEMIC, AND THE ISLAMIC FINANCIAL SYSTEM … 247

2 The Role of FinTech in Islamic Finance

Kotilaine Jarmo The Chief Economic Development Officer of the
Economic Development Board of Bahrain (EDB) sums up: what applies
to conventional banking in technology is also used in Islamic banking.
He stated the following: Use financial technology to enhance the quality
of banking experience with clients. Experience speed and accuracy are
impacted. Technology makes things more customer friendly. We are going
towards a situation where business and economic development must
depend more on productivity than ever before, thus better administration,
more innovation as well as new distribution channels, and new capital are
needed (Mulyani et al., 2020; Sabandar, 2019). However, how can we
find out which FinTech app needs Shariah sensitivity? This is answered by
Prof. Akram Laldin, Managing Director of ISRA.
The Shariah concept governing commercial transactions (Muamalat)
points out this view: Unless there is a clear prohibition in the text,
any transaction is legal. Innovative business strategies and new financial
methods are allowed by the acceptable principle. According to Muamalat,
all inventions are legal and encouraged. FinTech innovations should only
be prohibited under these circumstances if robust evidence exists that they
contradict (are contrary to) Shariah principles. The FinTech industry is
undergoing the same type of development as Islamic finance (Sarea et al.,
2021).
Although FinTech was not widely recognized in the industry of Islamic
Finance till 2015, The accomplishments of 2016 and 2017 are note-
worthy. An attempt by FinTech start-ups at the beginning of 2016 proved
to be more intentional (Hamdani et al., 2019). Among those deserving
of mention are the globe’s associated characteristics (Saba et al., 2019).

I. DIB Branchless Banking: The MoU to develop a branch-less

DIBP banking platform was established between the Islamic Bank
of Pakistan and Zing Digital Commerce on February 8, 2018.
This endeavor has the possibility to pave the way for the digitiza-
tion and unbanked population of Islamic financial services. DIBP
is working with Zing Digital Trade which previously worked in
a similar program with Shanghai F-Road. This is a crucial step
to achieve the objective of DIBP, which is to provide substan-
tial economic services at every customer’s door from scratch with
248 M. K. HASSAN ET AL.

simplicity and dependability (Al-Dmour et al., 2020; Jagtiani &

John, 2018).
II. Meezan UPaisa: It was founded in 2016 as the first Islamic digital
banking service because of a strategic partnership between Ufone
and Meezan Bank. It allowed users from all over Pakistan to send
and receive money, pay service fees, and upgrade their mobile
phones without visiting physical locations (Bhagat & Roderick,
2020; Romanova & Kudinska, 2016).
III. Electronic Commodity Murabaha: First electronic Murabaha
transaction took place between Pakistan Mercantile Exchange Ltd
(PMEX) and Meezan Bank Ltd. Their purpose was to increase
the markets for Islamic funding. In establishing this Shariah-
compliant trading platform, PMEX got Shariah technical support
from Meezan Bank (Alam et al., 2019).
IV. Investment Account Platform (IAP): On February 17, 2016,
with a capital initial of RM 150 million, Malaysia is the first to
set up the Islamic banking system’s multi-bank. Its objective was
to create a unified market for funding companies. Also, it was
the first Internet-based bank aims to mix Islamic banks’ ability
to route money to viable businesses with technological efficiency
(Glas, 2019; Procházka, 2018).
V. Islamic Fintech Alliance (IFT Alliance): On April 1, 2016,
eight Islamic Crowdfunding Platforms in Kuala Lumpur (Malaysia)
operators from all over the world were established by Islamic
Fintech Alliance. The aim of this partnership is to increase
FinTech’s growth among IFIs with the expectation that it will
have a major beneficial worldwide impact (Ashta & Biot-Paquerot,
2018; Blakstad & Allen, 2018).
VI. The First Global Islamic FinTech Hub: This FinTech Centre’s
purpose is to enhance the business climate in GCC, in Bahrain.
There is also a virtual network connecting several firms in the
proposal, managers, and international hackathons to promote
growth for Fintech in all expanding locations (DinarStandard,
2021)

As a result of FINTECH effecting the Islamic finance, assorted services

provided by the Islamic institutions such as.
 FINTECH, PANDEMIC, AND THE ISLAMIC FINANCIAL SYSTEM … 249

3 Fintech and Bitcoin

In the recent past, the popularity of cryptocurrencies, particularly Bitcoin,
has increased customers are excited, but monetary authorities throughout
the world are stepping carefully. The crucial topic now is whether Bitcoin
is Shariah-compliant and may be utilized in Islamic financing. As Meera
(2018) pointed out, Bitcoin that does not have real assets is not Shariah-
compliant. Bitcoin is not real cash or real money. Because of its lack of
inherent value and lack of control, Bitcoin has the potential to be misused.
Furthermore, maysir and gharar may violate Maqasid al-Shariah by
contributing to social inequity (Meera, 2018).

Fintech and Blockchain (BC)

BC is being used frequently by Islamic financial institutions. According to
Nor et al. (2022), in Waqf organizations, the use of BC technology can
boost innovation and efficiency. Elasrag (2019) analyzes the issues and
limits associated with implementing BC in Islamic banking. He empha-
sized four main issues: technological scalability, network confidence (skill),
innovation (business), and current legislation (Elasrag, 2019).

4 Fintech-Based Islamic Financial Services

COVID-19 has already done the severe damage to the core sectors of the
economy. Due to the ethical nature of financial services at the disposal of
the Islamic finance industry, it has the ingredient to fight such shocks as
seen during the financial crisis (Atif et al., 2021, 2022; Dharani et al.,
2022; Hassan et al., 2021). Since the nature of damage done by the
pandemic is quite distinct from the global financial crisis of 2008 and it
needs to be seen how Islamic finance reacts to the damage caused by the
pandemic. Fintech provides that missing impetus to the Islamic finance
industry to combine its financial services with the technology and reach
out to the affected and vulnerable during and post-pandemic to mini-
mize the damage (Hassan et al., 2020; Khan et al., 2020; Rabbani et al.,
2022b). As depicted in Fig. 1, we provide an overview of the Fintech-
based Islamic innovative financial services to fight the adversities of the
pandemic.
250 M. K. HASSAN ET AL.

Paymny
Industry
Neo
P2P and banking
Crowdfundi
ng

Fintech based Islamic

Financial Services Insuretech
Islamic Asset
Management

Blockchain
Artificail
Intelligence

Fig. 1 Fintech-based Islamic Financial Services (Source Author’s own compila-

tion)

Payments Industry
Payment has always been goods of utility nature and the number of
products, mostly transactional and tactical. Indeed, payment is often
considered the final step in a transaction with little or no opportunity
to provide extra value or services (Hassan et al., 2020; Rabbani et al.,
2022a, 2022b, 2022c). At present, the payment business is constantly
changing, with numerous major economic, technological, and demo-
graphic drivers underlying this sector along the whole value chain. The
sector has been progressively fragmented by rapidly developing tech-
nologies across the value chain. New entrants in the shape of Fintech
companies and large digital companies (Facebook, PayPal Amazon),
non-bank payment systems have generated massive disruptions and obso-
leted standard mediation in important areas of banking and spending
(DinarStandard, 2020).
 FINTECH, PANDEMIC, AND THE ISLAMIC FINANCIAL SYSTEM … 251

The payment’s goal is to deliver key strategic solutions by 2020, as

well as to transfer value in support of large-scale operations in a variety of
sectors, including investment, commerce, retail, public, and marketing.
According to the PwC Market Resources Centre, the volume of non-
cash transactions will increase by 69% between 2013 and 2020, with a
transaction value of US$1,000,000 per minute. 2016 (Pricewaterhouse-
Coopers). It may and will enhance its acceptance and delivery of financial
services in cloud, open source, large-scale and analytical data, on-demand
developers, social networks and open application, distribution, etc. Such
technologies have the potential to replace antiquated payment proce-
dures and systems in a wide range of industries, including international
transfers. Furthermore, the usage of contactless trade payments via NFC,
Bluetooth, and QR codes is promoting traditional payment methods
(DinarStandard, 2020).

P2P Lending and Crowdfunding

P2P loans are defined as the practice of lending money using online busi-
nesses that link lenders with lenders. P2p credit, also known as debt and
market lending or MPL, is abbreviated as P2P. Lending Club, which was
founded in San Francisco in 2006, is the world’s largest P2P platform in
terms of permitted loan volume and income. P2P lending typically lends
to industrialists and to SMEs who were unable to acquire credit from
regulated banking institutions (Hassan et al., 2022). In 2020, market-
place lending is expected to achieve $290 billion, expanding at a rate of
51% per annum, according to Morgan Stanley. However, in a more posi-
tive scenario, this industry is expected in 2020 to surpass US$490 billion
(Hassan et al., 2021; Rabbani et al., 2021a, 2021b).
The terminology Crowdfunding means the process of raising cash for a
worthy reason and company through soliciting contributions from many
individuals or organizations. When a creative and fresh concept with the
ability to make income and create employment needs financial backing
to develop a certainty, crowdfunding is used. It takes place primarily on
crowdfunding platforms (CFPs) which are online and connect fundraisers
with funders to support a specific campaign by a sizable number of people.
These CFPs give cash and capital to a portion of the population that
would not otherwise be able to obtain it through traditional channels
(Bagheri et al., 2019; Bi et al., 2019).
252 M. K. HASSAN ET AL.

Neo-Banking
The emergence of this kind is seen as a fundamental shift in the banking
industry (Mohamad & Saravanamuttu, 2015). These neo-banks are also
known as challenger banks and app-only start-up banks. Neo-banking is
more than merely Internet distribution. It has an integrated view and tries
to engage customers on all digital channels and to provide the services
they desire via their channels of choice. Instead of digital integration into
the heart of neo-banks, they do not have a distinct digital team for digital
project. In contrast to traditional banks, neo-banks provide more clarity
and cost-effectiveness in the provision of banking goods and services.
There are now about fifty-seven new banks in several nations, most of
them in the UK, including Atom, Monzo, Tandem, and Metro. These
banks have been funded by several investors for millions of dollars.
Tandem has raised US$77 million, Starled has raised US$70 million,
Nuclear 268 million, and Monzo has raised US$46 million (Walker,
2017). They attract customers in real time by giving the technologically
advanced generation of this digital era with a cheaper and superior offer.
These challenged banks are a potential way of reaching customers through
novel business strategies and digital platforms (Mustafa Raza Rabbani,
2020).

Asset Under Management

There are already substantial levels of distortions caused by banking
creation that have already begun to change the structure of payments
and procedures in lending. According to the worldwide Fintech study of
PwC, half (53%) of participants in asset management expected that this
business will also be disrupted by Fintech businesses (52%) (Salampasis &
Mention, 2018). Blockchain can be significantly improved in terms of
consumer profiling. Customer profile data stored in Blockchain permits
the sharing of data points, preference data, net worth, account data and,
when suitable, social network profiles, and secure retention of all data
blocks (reading, writing, editing) by a person as required. A region-
alized header technology also enables the dispersion, disintermediation
of authorities, of the trusted value transfer and execution: the network
becomes an intermediate. Thus, master books kept in clearers and banks,
for instance, are replaced with distributed books without middlemen
(Ahlers et al., 2016; Makina, 2019).
 FINTECH, PANDEMIC, AND THE ISLAMIC FINANCIAL SYSTEM … 253

InsurTech
It is an area of financial innovation addressing contemporary insurance
industry possibilities, prospects, and difficulties. Seventy-four percent of
respondents viewed financial innovations as a danger to their sector in a
2016 PwC poll. The result is the application of good technologies such
as big data analysis and blockchain, the development of a shared economy
and the opportunity to improve operations (Rabbani et al., 2022a, 2022b,
2022c).

5 Blockchain
Distributed ledger technology is another name for Blockchain tech-
nology. Blockchain is a publicly accessible corporate transaction ledger. A
Blockchain network serves as an intermediary for the exchange of prop-
erty and information in a decentralized system. The two major technology
components are peer-to-peer (or shared data storage) and public-key
cryptography (Crosby et al., 2016; Halamka et al., 2017). According to
Accenture research, Blockchain is one of the most talked topics in the
present financial services business. 90% of bank executives are interested
in Blockchain, and their organizations are now researching the use of
Blockchain in the payments industry (Morkunas et al., 2019).

Cloud Computing
Cloud Computing provides online computer power, database manage-
ment systems, equipment, and additional IT sources under the pay-as-
you-go price structure for cloud service offerings. Instead of owning
their own computing equipment or data centers, organizations may rent
anything from software to storage from a cloud service provider (CSP).
One advantage of adopting Cloud Computing services is that businesses
may avoid starting expenses and difficulties by just paying for what they
need to construct and maintain their IT infrastructure as needed (Khan
et al., 2020, 2021a, 2021b).
254 M. K. HASSAN ET AL.

Big Data Analysis

According to the International Data Corporation (IDC), Big Data indi-
cates that the smart economy creates a continuous stream of data that
is monitored and analyzed. The flow is aided by social interactions,
simulations, transportable equipment, equipment, R&D, and physical
infrastructure (Buck et al., 2014). According to IDC, the big services and
data business would develop at a CAGR of 23% by 2019. Furthermore,
yearly spending in 2019 is expected to reach $46.6 billion USD (Khan &
Rabbani, 2020a, 2020b, 2020c; Sun et al., 2020). Data is growing at an
exponential rate, with over 16 trillion GB of usable data anticipated to be
created by 2020. (Khan & Rabbani, 2020a).

Robo-Advisors (RA)
RA are a digital platform that offers financial planning and investing
services automated and powered by algorithms. This service can only be
monitored by minimal or no people. RA collects information about the
financial situation and future ambitions of a client. You must conduct a
survey or answer a few online questions to do so. They then use the infor-
mation you supplied to make recommendations. By providing services
directly to clients, the emergence of modern robot consultants drastically
changed the story (Khan & Rabbani, 2020a, 2020b, 2020c).

Artificial Intelligence
Dartmouth Institution in New Hampshire’s Allen Newell, Nathaniel
Rochester, John McCarthy, and Herbert Simon assumed in 1956 that
every aspect of intelligence and learning could be described in principle
in such a way that a computer could be created. The “Modern AI” dads
were asked to attend the summer school. The day is commemorated as
the start of AI, when numerous research groups across the world began
to work on artificial systems that could match, imitate, or perhaps surpass
human mental and physical capabilities (Khan & Rabbani, 2020a, 2020b,
2020c; Khan & Rabbani, 2021; Khan et al., 2021b; Rabbani et al., 2021a,
2021b). In the 1960s, the US Defense Department got interested in such
work and started teaching computers to repeat basic human thinking. In
the 1970s, for example, the DARPA carried out street mapping projects
and smart virtual assistants in 2003. The DARPA was also responsible for
 FINTECH, PANDEMIC, AND THE ISLAMIC FINANCIAL SYSTEM … 255

the implementation of programs. AI is a branch of computer science in

which intelligent machines that operate and behave like humans may be
built. AI allows computers to learn from their experiences, adapt them-
selves to new inputs, and carry out tasks like humanity. Computers can
be trained to do tasks utilizing current technologies for processing huge
data quantities and detecting data patterns. This has led to Artificial Intel-
ligence (AI) being a hot subject, many of them arguing how it helps the
highly controlled financial services company. AI can assist banks in their
anti-money laundering and counter-terrorism funding efforts by replacing
time-consuming manual operations (Rabbani et al., 2021a, 2021b).

6 Conclusion
The study investigated the economic impact of the COVID-19 pandemic,
its impact on the Islamic financial system, and its potential role of
Islamic Fintech in overcoming the economic disruptions created by the
pandemic. The study also provides the unique solution to the finance
world to embrace Islamic finance in combination with Fintech to fight the
evils of the pandemic. Islamic financial services such as Zakat in combina-
tion with Artificial Intelligence and Blockchain can prove to be a blessing
in disguise.
The study provided an overview of financial technology (Fintech) as
a financial innovation and its application in Islamic Finance industry.
Fintech has emerged as the most exciting innovation of the twenty-first
century, and it has disrupted life in the financial services industry like
never. The study also defined the concept of Fintech and in context to
the sharia provision of the Islamic Finance and provided an overview of
the Fintech industry and its potential to transform the Islamic Finance
industry. The findings of the study reveal that Islamic finance industry is
the way to go in future and Fintech has provided the missing impetus
to the Islamic finance industry to compete with its conventional counter-
part on equal grounds in providing innovative solutions. Islamic financial
services such as Zakat , Qardh-Al-Hasan, Awqaf, Islamic Microfinance,
Sadaqa, etc., in combination with the Artificial Intelligence, Blockchain,
and other innovative solutions can prove to be a wonder for the industry
and community at large. The findings of the study are expected to help
256 M. K. HASSAN ET AL.

the Islamic financial institutions, governments, regulators, and policy-

makers efficient use of Fintech in solving the problems created by the
pandemic. The study is also expected to contribute to creating a more
sustainable and resilient alternative to the conventional financial system.

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 An Islamic Finance Perspective
of Crowdfunding and Peer-To-Peer (P2P)
Lending

M. Kabir Hassan , Mustafa Raza Rabbani ,

Shahnawaz Khan, and Mahmood Asad Moh’d Ali

1 Introduction
Financial Technology (commonly known as Fintech) is the technology
which is used to provide traditional financial services through innova-
tive technology. The upcoming or novel technologies which help in
automating and improving the use and delivery of financial services can
be utilized to describe financial technology (Abdullah & Rabbani, 2021;
Bashar et al., 2021). The last decade has witnessed a number of Fintech
solutions, the major innovations have been based on Blockchain such as
Bitcoin, Ethereum cryptocurrencies, etc. (Khan & Rabbani, 2022). Other

M. K. Hassan
Department of Economics and Finance, University of New, Orleans, New
Orleans, LA, USA
e-mail: [email protected]
M. R. Rabbani (B)
Department of Economics and Finance, College of Business Administration,
University of Bahrain, Zallaq, Bahrain
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 263

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_13
264 M. K. HASSAN ET AL.

examples include crowdfunding platforms, mobile payments apps, stock-

trading apps, robo-advising and budgeting apps, etc. There have been
many Fintech innovations for business-to-business as well as business-
to-client. These innovations in Fintech have been done by startups and
existing tech giants and financial institutions. Financial Technologies have
always been working in the back offices of the financial institutions and
banks and were rarely the focus of investors and venture capitalists. In
recent past, it has taken the centerstage and the investments in Fintech
have increased to 20% (Hassan et al., 2020a). Fintech has become the
day-to-day thing and nowadays Fintech-based solutions are being used
by everyone (Khan et al., 2022; Rabbani et al., 2022).
Fintech has been playing a key role in reshaping the financial and
banking landscape (Rabbani, 2022). The emergence of Fintech has been
a cause of concern for the banks and other traditional institutions as
customers are finding it more attractive to use new and innovative finan-
cial services offered by the Fintech companies (Hasan et al., 2020).
They are also concerned about the unequal playing field because Fintech
companies are not coming under the same rigorous legal framework.
Many banks have already accepted Fintech companies as partners than
competitors. Fintech companies have taken this innovation to another
level. These Fintech companies have made it possible to provide finan-
cial services with more efficient and that too at the reduced cost (Bashar
et al., 2021; Hassan et al., 2020b).
As this innovative and unique source of fund-raising is only at the
initial shaper and started to take a shape. The present chapter explores
the sharia compliance of the crowdfunding and P2P lending. It will help
the investors decide in terms of designing the campaign in accordance
with the provision of the sharia. It is also expected to help the policymak

S. Khan
Faculty of Engineering, Design, and Information & Communications
Technology, Bahrain Polytechnic, Isa Town, Bahrain
e-mail: [email protected]
M. A. M. Ali
Department of Management and Marketing, College of Business
Administration,
University of Bahrain, Zallaq, Bahrain
e-mail: [email protected]
 AN ISLAMIC FINANCE PERSPECTIVE … 265

ers and sharia governance to make startup-friendly law to further boost

the growth of sharia-compliant crowdfunding and P2P lending. It will
help the regulators to develop a crowdfunding model relevant to their
needs and compliant with their ideals.
The remaining chapter is organized as follows. In the next section
we provide an overview of the crowdfunding and P2P lending. Section
three discusses the Challenges in Existing Islamic Crowdfunding and P2P
lending platforms. Finally, in section four we provide the conclusion and
further scope of the study.

2 Crowdfunding and Peer-To-Peer

Lending: An Overview
Crowdfunding and P2P lending are the two of those innovations
emerging from the financial innovation by Fintech. Banks are increasing
the credit limit of the borrowers who have used P2P lending especially
those customers with the lower credit worthiness earlier. Customers are
also using cheaper P2P lending to finance their expensive bank loan
(Xiang et al., 2018). There is still lack of awareness among the people
about the peer-to-peer lending and crowdfunding as alternative medium
of financing instrument, however people are aware about the develop-
ments going on in the Fintech world and they take this development
in a positive direction (Rusdin et al., 2017; Tajudin et al., 2020). After
years of high interest rates and difficulty in obtaining them, borrowers
are looking for the loans with lower interest rates, ease of obtaining and
faster processing of loans. It all started after the global financial crisis when
lost confidence in the traditional financial system and started looking for
the alternative medium of finance and Crowdfunding and Peer-to-Peer
lending has provided a lease of life for such firms (Scholz, 2015; Wu et al.,
2015).
A Fintech initiative, P2P lending and crowdfunding have provided
options to the lenders as well as borrowers. It is easy, faster, cheaper
and affordable (Rodríguez et al., 2018). Crowdfunding has become the
first-choice source of finance for the startups ad experiencing very high
growth (Zhang & Chen, 2019). On the other hand, Peer-to-Peer lending
is competing with the banks for their market share by matching borrowers
with the lenders without the cost of maintaining branches (Arshad
et al., 2020). Crowdfunding and Peer-to-Peer lending are offering crit-
ical support to the startups and MSMEs, still there is a lack of awareness
266 M. K. HASSAN ET AL.

among the borrowers about these innovative platforms. Fintech compa-

nies need to create more awareness among the people about these new
options available to them. With no support from government, individual
and institutions, equity crowdfunding along with the P2P lending will
continue to grow in the foreseeable future (Benna, 2018; Yan et al.,
2018).

Crowdfunding
Crowdsourcing and Crowdfunding are the two words which emerged
recently. Crowdsourcing was coined by Mr. Jeff Howe in 2006. Mr.
Howe defined the crowdsourcing as the practice of sourcing ideas,
services and content from the large pool of people, mainly online or
through social media (Younkin & Kashkooli, 2016). A famous example
of crowdsourcing is the Wikipedia. The content in Wikipedia is a result of
various contributors from around the world. Crowdfunding also emerged
in 2006 itself and it was coined by Michael Sullivan. According to Mr.
Michael Sullivan, “Crowdfunding is an innovative way to get financial
contributions from the people, mainly from online community for a specific
venture or project.” Both these terms consider ‘crowd’ as the online
community from whom something needed may be obtained (Bœuf et al.,
2014). Crowdfunding is a work based on the ability to pool money from
the people who have common interests and are ready to give small contri-
butions for a common goal. The term has gained momentum in this age
of internet (Honisch & Ottenbacher, 2017). It is not only the new and
innovative way to connect people and investors but to convince them
to give money for a venture of common interest. It is mainly internet
based method of finance by taking a small amount of money from ordi-
nary people (Valančienė & Jegelevičiūtė, 2014). There are four types
of crowdfunding available based on the type of financing available. The
four types of Crowdfunding includes equity crowdfunding, debt crowd-
funding, reward-based and donations-based crowdfunding. Various types
of crowdfunding are described in Table 1.
 AN ISLAMIC FINANCE PERSPECTIVE … 267

Table 1 Types of crowdfunding with description

Name Description

Equity-based crowdfunding The investors invest a significant amount of capital in

the project in return for the ownership of the
company. This is very popular method of
crowdfunding for raising money for risky and
innovative enterprises (Giudici, 2015)
Debt-based crowdfunding The investors lend money to the enterprise just like a
traditional loan without any stake in the ownership
of the company (Suryono et al., 2019)
Reward-based crowdfunding It involves individuals contributing a small amount of
money to projects in return for rewards like watch,
TV, etc. The size of reward depends on the amount
of money invested (Jiang et al., 2020)
Donation-based crowdfunding It is a form of crowdfunding where a small amount
of money is raised for a personal or social cause
(Sannajust et al., 2014)

Peer-To-Peer (P2P) Lending

Peer-to-Peer lending also abbreviated as P2P lending is the latest trend
in the online lending. P2P lending also known as ‘social lending’ or
‘crowd lending’ is relatively a new term, that came into existence in
2005 (Suryono et al., 2019). It is an alternative to the traditional loan
provided by the banks and other financial institutions where a P2P lending
platform works as a matchmaker that matches borrowers with a lender.
Online P2P lending claims to be beneficial for both borrowers as well as
lenders. It reduces transaction costs by eliminating intermediaries. P2P
lending enables lenders to directly contact the borrowers and vice versa
to obtain/give loans by eliminating the intermediaries (Lehner, 2016).
There is a lot of similarity between crowdfunding as P2P lending as both
these platforms provide funds to the borrowers via online medium by
eliminating the intermediaries. Also, both these platforms are versatile as
money can be arranged for entrepreneurial ventures, commercial projects,
creating concepts and social and political projects. But, these two methods
are not the same (Ali et al., 2020; Khan & Rabbani, 2021). There are
many differences between the two, as mentioned in Table 2:
268 M. K. HASSAN ET AL.

Table 2 Difference between crowdfunding and P2P lending

Points Crowdfunding P2P lending

Equity/Loan Crowdfunding gives investors P2P lending is more of

the ownership right in the debt-based financing. It is an
project. By investing in the alternative to the loan
project through provided by the banks and
crowdfunding, investors get financial institutions. Money
ownership rights and have provided by the lender is
the right to participate in the returned by the borrower
management affairs of the together with interest. The
project lender does not get any
ownership right in the deal
Scope The scope of the The scope of P2P lending is
crowdfunding is for a single broader in nature. The
project. The money can be money provided can be used
used for a startup or for an for the multiple projects.
expansion of a specific project Investors know the risk
profile of the borrower but
reason for borrowing is not
known
Rate of return Since Crowdfunding is equity The rate of return is fixed.
investment. The rate of The borrower must pay the
return on crowdfunding is agreed rate of interest even
unknown. The rate of return in case of loss
depends on the profit earned
by the company
Risk This is a high-risk The risk is low, as it is more
investment. The investor secured investment. The rate
might lose the capital if the of profit is fixed plus
project fails. The investor cumulative. If profit is not
does not get anything if the paid year it is accumulated
project fails to earn profit in the next year
Duration of investment It is an equity investment as It is for a limited period,
investor holds shares of the usually for 5 years. As the
company. It can be forever or amount of loan is repaid to
till the time investors sells his the lender the relationship
stake to someone else ends
Flexibility It is more rigid as the fund It is more flexible financing
raised cannot be used for the method. P2P offers more
purpose other than the accessible and flexible way of
reason mentioned financing for established
businesses

(continued)
 AN ISLAMIC FINANCE PERSPECTIVE … 269

Table 2 (continued)

Points Crowdfunding P2P lending

Sharia compliance It is closer to sharia It violates the basic ethos

principles. The investors take and principles of sharia as
risk and the rate of return is investors receive fixed rate of
not pre-fixed return and there is no risk
for the investor

3 Challenges in Existing Islamic

Crowdfunding and P2P Lending Platforms
All technological advancements and innovations are permissible in Islam
as long as it does not violate the basic ethos and principle of sharia
(Atif et al., 2021; Rabbani et al., 2021a, 2021b). The same concept
applies to the financial technologies as well, for example, one of the most
popular Fintech innovation, which is cryptocurrencies, can be accepted
if it follows the Sharia law (Khan & Rabbani, 2021). However, there
are different opinions of the scholars on cryptocurrencies as well, some
scholars consider it as halal and others classify it as haram. There have been
seen a large growth in Islamic Fintech in terms of revenues and customers.
Malaysia, followed by London and Indonesia, has the maximum number
of firms based on Islamic Fintech (Firmansyah & Anwar, 2019). As the
number of Islamic Fintech firms increase, so the need of regulating these
firms also increase. If the regulations are a little relaxed, then it might
result in neglecting the privacy and protection of the customer’s data
and if the regulations are very strict then it might hinder the proper
functioning of the firms. The rules and regulations should maintain the
balance of the interests of both parties. Therefore, one of the major
challenges is regulation of the Islamic Fintech.
Most of the governments around the world do not have suitable
regulations for Islamic Fintech based firms or in general Fintech firms
(Firmansyah & Anwar, 2019). For a Fintech firm to be sharia-compliant,
it should agree with Sharia law such as the firm should not be involved
in impermissible/haram business, firm should share the loss and profits,
should not charge interest if it is lending money or if the bills are delayed,
etc. (Muneeza, 2020). Most of the crowdfunding firm falls into this cate-
gory and are in agreement with the Sharia law and some loan-based
270 M. K. HASSAN ET AL.

crowdfunding firms need to adapt Sharia law (Aghdam et al., 2020; Berns
et al., 2020; Rusdin et al., 2017). Blockchain-based crowdfunding solu-
tion can be a game changer in this field as it can mitigate some of the
risks faced by the stakeholders in crowdfunding such as their contribu-
tion would be returned if the targets are not achieved. Using Blockchain
technology, smart contracts can be issued to provide a guarantee that
if the targets are not met contributors’ contribution would be returned
(Zhou & Ye, 2019). However, using Blockchain technology has its own
challenges such as lack of internet access (more than 50%), more than
one billion people lack digital literacy (Martínez-Climent et al., 2020),
Blockchain technology is in its early stage and Blockchain requires finan-
cial industry to adjust their infrastructure to use it (Karim et al., 2022;
Khan & Rabbani, 2020).
Online Peer-to-Peer Lending (P2P) platforms have seen a large growth
in the last decade as the innovations in financial technologies have
increased. The success of P2P platform is influenced by both internal
and external stakeholders and lenders’ performance. The interaction with
the external stakeholders is a crucial factor in success of the P2P lending
websites. However, internal factors such as the organizational design
and business model are also vital factors for the success of P2P plat-
forms (Dorfleitner & Hornuf, 2019). Information asymmetry is also a
significant challenge in P2P lending. Information asymmetry refers to
the differences in information among different stakeholders. Big data
has been suggested a possible solution for reducing information asym-
metry (Beheshti et al., 2018; Ignatyuk et al., 2020; Sun et al., 2020).
Researches also suggest that the trustworthiness of the borrowers is also
an important factor to run a successful fund-raising campaign on P2P
platforms (Huang et al., 2020). The confidence about borrower (borrow-
er’s score) is a crucial factor and identifying it, is a major challenge for
P2P lending platforms. P2P lending platforms collect data from third
parties, so the credibility of the data is also an issue. Different tech-
niques have been employed to evaluate the credit score of the borrowers
such as Profit Scoring (Serrano, 2018), LightGBM and XGboost algo-
rithms (Dushnitsky & Fitza, 2018; Hervé & Schwienbacher, 2018),
Score Matrix (Mollick, 2014), Decision Support, Decision Tree, Random
Forest, Bayesian Hyper-Parameter Optimization, Hybrid Random Walk
Approach, Classification Method, AdaBoost Algorithm, Feature Selec-
tion, Prediction performance Loan with Data Mining and other Machine
 AN ISLAMIC FINANCE PERSPECTIVE … 271

Learning Algorithms (Barrales-Molina et al., 2020; Chan et al., 2020;

Ebelebe, 2019; Leone & Schiavone, 2019; Sahaym et al., 2019; Scholz,
2015).
P2P lending platforms bring the lenders and borrowers together, any
kind of rumors (positive or negative) about the borrowers will affect the
decision of the lenders, rumors can trigger the herding behavior (Zhao
et al., 2020) (Xiang et al., 2018). A research study shows that the gender
of the investors can also be a decisive factor as female borrowers receive
more funding than the male borrowers (Zheng et al., 2017). Regulation
and policy related to Fintech are not clear in majority of the countries.
Any novel financial technological model must face this challenge. Same
applies to the P2P lending platforms as well. Complying with regula-
tions and policies has been a big challenge in proper functioning of the
P2P lending platforms (Davis et al., 2017) (Chan et al., 2020) and in
some cases it leads to scams as well (Kim et al., 2017). If the regulations
and governmental policies approve Islamic Fintech, Islamic Finance-based
P2P lending platform can be a viable modal. Instead of guaranteed or
predetermined profit, a risk-sharing model can overcome most of the
challenges of P2P lending platforms (Mohammad et al., 2020; Rabbani,
2020; Rabbani et al., 2021a, 2021b).

4 Conclusion and Future Work

This study discusses and analyzes the disruption innovation Crowd-
funding and Peer-to-Peer lending methods of finance with respect to
Islamic Finance. Sharia principle-based Fintech models for Crowdfunding
and Peer-to-Peer lending platforms can resolve most of the existing prob-
lems and challenges of these platforms. This study discusses in detail
how Crowdfunding and Peer-to-Peer lending platform function and how
Crowdfunding and Peer-to-Peer lending models are different from each
other and how they can be a game changer for the startups and small and
medium enterprises (SMEs). The study also examines and identifies the
challenge faced by crowdfunding and Peer-to-Peer lending platforms. It
further reports that Crowdfunding and Peer-to Peer-lending could be the
future of Islamic Fintech, especially for the high-risk startups and small
and medium enterprises (SMEs), however, it needs to be further inves-
tigated, researched and developed by the academia, regulating bodies,
researchers and other stakeholders. The researchers are already working
272 M. K. HASSAN ET AL.

in this direction and plenty of work has already been done (Biancone &
Secinaro, 2016; Biancone et al., 2019; Wahjono et al., 2015a, 2015b).
At the end, it is concluded that between crowdfunding and P2P lending,
former is closer to the sharia principles, as it works on the principle of risk
sharing and equity participation (Rosavina et al., 2019; Tamara & Kasri,
2020). On the other hand, Islamic Finance-based P2P lending platform
can be a viable modal of financing if instead of guaranteed or predeter-
mined profit, a risk-sharing model can overcome most of the challenges
of P2P lending platforms.

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 Islamic Finance and Cryptocurrency:
A Systematic Review

Mustafa Raza Rabbani , M. Kabir Hassan ,

Fahmi Ali Hudaefi, and Zakir Hossen Shaikh

1 Introduction
Cryptocurrency is a new phenomenon getting huge attention from the
academic and industry practitioners. It uses a new technology which
has huge potential to serve as the long-term financial assets. It can be

M. R. Rabbani (B)
Department of Economics and Finance, College of Business Administration,
University of Bahrain, Zallaq, Bahrain
e-mail: [email protected]
M. K. Hassan
Department of Economics and Finance, University of New Orleans, New
Orleans, LA, USA
e-mail: [email protected]
F. A. Hudaefi
Institute Agama Islam Darussalam (IAID) Ciamis, Indonesia and BAZNAS
Center of Strategic Studies, Jakarta, Indonesia
e-mail: [email protected]
Z. H. Shaikh
Faculty, Commercial Studies Division, Ministry of Education, Bahrain Training
Institute, Isa Town, Bahrain
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 279

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_14
280 M. R. RABBANI ET AL.

defined as “the digital currency where the transactions are verified by the
decentralized ledger system and using the technology called cryptography
without any central authority” (Akyildirim et al., 2019; Galanov et al.,
2018). In other words, it can be defined as “the digital currency designed
to serve as the medium of exchange using computer network without any
interference from the central authority” (Khan et al., 2022).
Shariah scholars are divided over the legality of cryptocurrency as per
the Islamic finance point of view but the general consensus is that it is
haram and it is not advisable for a Muslim to invest in cryptocurren-
cies such as Bitcoin, Ethereum, Litecoin, etc. (Khan & Rabbani, 2021).
From the very core of the Islamic finance, Islamic finance aims to create
a financial system free from all kinds of interest/Riba, high specula-
tion/uncertainty, Gharar, Maisir and protect the right of the investors
from all kinds of unfair trade practices and fraud (Abdullah & Rabbani,
2021; Rabbani et al., 2022). Cryptocurrency was developed to facilitate
peer-to-peer transaction that works independently without any interfer-
ence of the central banks. Cryptocurrency such as the Bitcoin is popular
among the young millennials (Alam et al., 2019). At its core, cryp-
tocurrency is a financial asset or a protocol that facilitates the transfer of
funds between two unrelated persons or organizations over the internet
ensuring that the transaction has been completed and value has been
transferred from one party to the other. The transactions are automati-
cally recorded in a public ledger and verified through a technology called
cryptography by a network of highly secured decentralized computers.
The computers securing the transactions are decentralized, which enables
these to operate without the intervention from traditional financial inter-
mediaries, leading to direct solutions for the users (Ghosh et al., 2020).
Cryptocurrency is a form of digital asset, which is gaining momentum
as a medium exchange (Haffke et al., 2020). It uses Blockchain in its
backdrop that offer higher levels of security (Rabbani, 2021).
The concept of cryptocurrency came into the limelight in the year
2008 when Satoshi Nakamoto published a white paper and subsequently
paved the way for the creation of the first cryptocurrency called Bitcoin in
2009 (Phillip et al., 2018). Since then, it has emerged as one of the most
exciting and popular financial innovations in the finance world (Harvey &
Branco-Illodo, 2020). Despite the fact that it is extremely volatile and
amounts to high risk in the transactions, it has been popular among the
investors (Mazambani & Mutambara, 2020). The popularity of Cryp-
tocurrencies can be attributed to the development and innovations and
 ISLAMIC FINANCE AND CRYPTOCURRENCY … 281

mass adoption of information technology (Saleh et al., 2020a, 2020b).

The transitions based on the Blockchain-based technologies are extremely
safe and confidential. The rise and popularity of cryptocurrencies are
also received attention from anti-social elements, such as drug dealers,
extortionist and terrorists (Kethineni & Cao, 2020). These anti-social
elements use it for doing illegal activities such as tax evasion, extor-
tion, money laundering, ransom, etc. (Rabbani et al., 2021c). It poses
a challenge to the law enforcement agencies and government bodies to
identify the intention behind these transactions as criminals hide behind
the popularity, privacy and anonymity of the cryptocurrency (Barone &
Masciandaro, 2019). The complexity and volatility of the cryptocurren-
cies are yet to be exposed as they pose a great threat to the investors. The
new evidence suggests that Cryptocurrency like Bitcoin possesses greater
susceptibility to high price volatility (Muedini, 2018).
In simple terms, once a transaction is done, a message is sent to
the network requesting that the amount has been deducted from the
buyer’s digital wallet and added to the seller’s wallet. The request remains
on the network for a while till the miners complete to process the
blocks of transactions and an update is made on the Blockchain (Asif,
2018; Nuraliati & Azwari, 2019). Once the Blockchain is updated the
transaction becomes irreversible. This process might take time between
10 seconds to 10 minutes depending on the type of cryptocurrency in
question (Hassan et al., 2020; Rabbani et al., 2020a).
The unprecedented positive return on cryptocurrency has also
attracted the Muslim investors to invest in it and include Cryptocur-
rency in their portfolio of assets (Abdul et al., 2019). There are many
Muslim investors who have already invested in different cryptocurren-
cies and became part of this dynamic market (Rabbani et al., 2020b).
The obvious factors related to the cryptocurrency such as, the volatility in
return, no regulating authority, no real form, only digital without intrinsic
not redeemable to another currency, high speculation and so on. Now the
question to be asked is, whether it is as per the sharia and does Islamic
finance recognize it?
The present chapter attempts to answer this question and examine
the compatibility of cryptocurrency such as Bitcoin with the context of
Islamic law. It presents an extensive review of the concept of money in
Islamic finance and the requirement of a currency to be called as money
as per sharia. Extensive review of the existing available sharia-compliant
cryptocurrencies. Challenges in developing and implementing the sharia
282 M. R. RABBANI ET AL.

version of cryptocurrencies. The findings of the study will help to under-

stand the current climate of the cryptocurrencies, their sharia compliance
and its use in the modern finance world.
The study applied a systematic review of the reports, opinions of sharia
scholars based on various published research papers, online search engines
and commentaries related to the Islamic finance and sharia compliance.
The remaining part of the chapter is structured as follows; First part
introduces the topic, and second part presents an overview of litera-
ture and methodology used for the study. Third section highlights the
characteristics of money as per Islamic finance principles and require-
ments of Cryptocurrency to be called as money. In the fourth section
we review the existing sharia-compliant cryptocurrencies available in the
Islamic finance market. In Sect. 5, we conclude and provide the scope for
future researchers to research in this area.

2 An Overview of the Literature

on Cryptocurrency and Sharia Compliance
There is only a handful of literature available on Cryptocurrency and its
Sharia compliance. The available literature also lacks substance as it does
not provide valid arguments and discussion on the Shariah relevance of
the instruments. An overview of some of the related studies is provided
in Table 1:
The most comprehensive study on sharia compliance of cryptocurrency
came from (Khan & Rabbani, 2021), they provided a comprehensive
review of Cryptocurrency and its sharia compliance. In the paper they
argued that Cryptocurrency is the need of the hour for Muslim Ummah
and if it is allowed it can benefit the community at large. The sharia
scholars should find some ways and allow it with certain restrictions. It
was concluded that the existing Cryptocurrencies like Bitcoin, Ethereum,
etc., are not in consistent with the sharia principles. However, researchers
strongly believe that the underlying technology Blockchain is a revolu-
tionary technology and there is scope to overcome the arguments from
the opponents and develop a Cryptocurrency which is as per sharia prin-
ciples by using the Blockchain technology. Another important study came
from (Aliyu et al., 2020), where they reviewed some of the existing sharia-
compliant cryptocurrencies available in the Islamic finance market. In the
paper they concluded that the sharia compliance of the cryptocurrencies
will motivate and encourage the prospective Muslim investors and it will
Table 1 An overview of the literature on Cryptocurrency and sharia compliance

Paper Info Purpose Methodology Results Weakness

(Meera, 2018) The paper discusses and Theoretical and • There is no evidence The paper is limited to
analyzes the discussion paper that Bitcoin violates theoretical discussion
cryptocurrency from the the norms of sharia only with no practical
perspective of sharia • If volatility of the substance
Cryptocurrencies gets
in comparison to the
major fiat currencies,
it must be allowed by
the sharia
(Siswantoro et al., 2020) The paper applied the Mixed method of • Cryptocurrency is Only 17
data of 23 empirical research, data hugely volatile and Cryptocurrencies were
Cryptocurrencies and study and descriptive does not qualify to be taken for the empirical
related information to literature called money study
draw the conclusion • It can be allowed as a
medium of exchange
of digital currency but
shall not be called
money

(continued)
ISLAMIC FINANCE AND CRYPTOCURRENCY …
283
Table 1 (continued)
284

Paper Info Purpose Methodology Results Weakness

(Aliyu et al., 2020) To review the existing Theoretical and • Accepting and There is no mechanism
sharia-compliant discussion-based paper recognizing the to test the sharia
cryptocurrencies and Cryptocurrency in the compliance of a
check whether it exactly Islamic finance will go cryptocurrency
comply with the norms a long way in
of sharia enhancing the Islamic
finance business
M. R. RABBANI ET AL.

globally
• All claimed
sharia-complied
cryptocurrencies are
not fully complied
with the sharia
(Widyatama et al., 2019) To propose a Theoretical • The cryptocurrency Discussion paper
sharia-based concept-based research can be used in
cryptocurrency for the Muamlat and
benefits of the Ummah sell-based transactions
as long as it does not
have an element of
Riba, and it is made
voluntary
Paper Info Purpose Methodology Results Weakness

(Abubakar et al., 2019) To check the implication Theoretical and • The development in The paper does not
of the development in conceptual approach the cryptocurrency provide the valid
the Blockchain and market will bring argument or does not
Cryptocurrency market many benefits to the provide the model,
for the Islamic financial Islamic financial system rather it vaguely reviews
system • It will help in the existing literature
developing a unified only
decentralized financial
system and Islamic
financial system must
be proactive about the
ongoing development
in the Crypto market
(Oziev & Yandiev, The paper discusses the Review of existing • Cryptocurrencies are No empirical evidence
2018a, 2018b) Cryptocurrency from the literature volatile as compared
sharia perspective to paper money
• Cryptocurrency must
be allowed but with
strict restrictions

(continued)
ISLAMIC FINANCE AND CRYPTOCURRENCY …
285
Table 1 (continued)
286

Paper Info Purpose Methodology Results Weakness

(Lahmiri & Bekiros, The paper examines the Multi-step resolution • The return of
2019) breakdown of the with empirical evidence sharia-compliant and
structure of green and green cryptocurrencies
sharia-compliant and presents anti-persistent
green cryptocurrencies dynamics
• The volume and
volatility present
M. R. RABBANI ET AL.

higher persistence in
comparison to
conventional
cryptocurrencies
(Aloui et al., 2020) The paper examines the Empirical study by using • Sharia-compliant
difference between a multivariate GARCH cryptocurrencies have
conventional and model a positive relationship
gold-backed Islamic with the gold prices as
cryptocurrencies compared to its
counterpart
• Sharia compliant
cryptocurrencies are
not sensitive to the
macroeconomic factors
Paper Info Purpose Methodology Results Weakness

(Mensi et al., 2020) The paper investigates Multivariate generalized • There is a significant
the dynamic conditional family models positive dynamic
correlation between the correlation between
major cryptocurrency these markets
markets • It is suggested that
investors should hold
more LiteCoin (LTC)
than Bitcoin (BTC)
(Lim & Masih, 2017) The paper empirically Empirical study by using • No correlation found The paper focuses only
examines the multivariate GARCH between returns of on the equity market.
diversification benefits of model Islamic stocks and An important element
Bitcoin along the Islamic Bitcoin. Rather they of capital, i.e., SUKUK
capital market are negatively market is ignored
correlated
(Rehman et al., 2020) The paper examines the It uses VaR, CoVaR and • Islamic equity markets The paper focuses only
spillover between the ΔCoVaR to empirically provide effective hedge on the equity market.
Islamic equity market test the variable benefits along with An important element
and Bitcoin Bitcoin of capital, i.e., SUKUK
• There is a presence of market is ignored
risk spillover between
Islamic equity market
and Bitcoin

(continued)
ISLAMIC FINANCE AND CRYPTOCURRENCY …
287
Table 1 (continued)
288

Paper Info Purpose Methodology Results Weakness

(Lahmiri & Bekiros, The paper forecast the Use of deep learning to • The time series of all The paper is mainly
2019) price of three key digital forecast the price of the sample digital focusing on European
currencies from different three key digital currencies indicate markets rather than the
markets currencies namely, factual dynamics and Islamic equity or
Bitcoin, Ripple and self-similarity SUKUK market
Digital cash • The predictability of
Long-short term
M. R. RABBANI ET AL.

memory neural
networks (LSTM) is
higher than the
general regression
architecture
(Uddin et al., 2020) The paper investigates Empirical study with • The findings indicate
whether Bitcoin multivariate generalized that Bitcoin returns
constitutes a hedging autoregressive are sustainable and can
instrument with conditional correlation be classified as a
portfolio diversification sustainable asset class
among different asset and its return does
classes including Islamic not crush down to
asset class zero in the long run
• It offers portfolio
diversification with
almost all the equity
indices
Paper Info Purpose Methodology Results Weakness

(Khan et al., 2020) The paper introduces a Theoretical and • The paper highlights Other types of SUKUK
SUKUK tokenization conceptual work the new and are ignored in the
based on Blockchain innovative trends in paper as it only focused
technology the SUKUK market on Murabaha SUKUK
• Case study was done
on the SUKUK
tokenization with
smart contracts and
Blockchain technology
ISLAMIC FINANCE AND CRYPTOCURRENCY …
289
290 M. R. RABBANI ET AL.

help in widening the Islamic finance market. There have been many cryp-
tocurrencies issues in the market recently to address the sharia compliance
criticism. However, still the sharia scholars are divided over the sharia-
compliant of these cryptocurrencies. There is a need for unanimity and
consensus among the sharia scholars in calling a Cryptocurrency as Islamic
or non-Islamic. It creates confusion and distrust among the Muslim
investors which do not augers good for the future of Islamic finance
industry. Sun et al. (2020) and Widyatama et al. (2019), in their paper
on sharia compliance of Cryptocurrency, they considered Cryptocurrency
as a disruptive innovation and concluded that it should be allowed with
certain limitations if it does contain usury (Riba). It should be allowed
on a voluntary basis for a legitimate trade transaction.
Another important study came from (Abubakar et al., 2019), where
compared and contrasted the Cryptocurrency tide and Islamic fiancé
developments. They highlighted the advantages of Cryptocurrency over
the fiat currency. They concluded that it possesses three advantages, first,
it will create a unified global financial system through proper standardiza-
tion with its decentralization. Second, it will keep a check on the central
banks’ ability to play on the supply of money through traditional money.
Third, they are of the opinion that financial risk is common across the
currencies, and it’s not limited to only cryptocurrency. The volatility of
the currency is more about the underlying nature of the transaction and
not about the currency. They suggested to contextualizing the Bitcoin-
based Islamic banking transaction in a complete Bitcoin financial system.
They suggested to setting up an international task force in coordina-
tion with the International Research Academy of Islamic Finance (ISRA),
Islamic Financial Services Board (IFSB) and Islamic Research Training
Institute (IRTI) to monitor and regulate the issue of technical notes,
standards and sharia guidelines. The task force shall also ensure the sharia
positions for Islamic banks and financial institutions that are interested in
dealing with cryptocurrencies.
In another study on Islamic approach to purifications of transaction
with cryptocurrency (Saleh et al., 2020a, 2020b), they have done a qual-
itative study by conducting an interview of the investors to examine the
negative perception of Cryptocurrency from the Islamic point of view.
They concluded that the Use of Cryptocurrency is as legitimate as any
other payment methods, they also claim that it has been supported by
the hadith. They finally concluded that Cryptocurrency is to be accepted
as the sharia-compliant mode of payment as good as fiat money and
 ISLAMIC FINANCE AND CRYPTOCURRENCY … 291

values must be measured and quantified in Cryptocurrency terms. By

studying the requirements of Cryptocurrency for money from Islamic
finance point of view, (Siswantoro et al., 2020) concluded that Cryp-
tocurrency is extremely volatile and it does not qualify to be called as
money and also it is limited and there are chances that it can be used
for speculation which is not allowed as per sharia. They went on further
to conclude that Muslims will not use Cryptocurrency as money, and
it will hinder the development of Cryptocurrency in the Muslim coun-
tries. In another study on sharia compliance of Cryptocurrency (Oziev &
Yandiev, 2018a, 2018b) conducted a qualitative and descriptive analysis
and concluded that it shall be allowed as a medium of exchange but
subject to the strict regulation and restriction. They argued that there is
no evidence that Bitcoin and other traditional Cryptocurrencies contra-
dicts sharia. The argument that it is very volatile, and prices reach up to 60
thousand USD (United States Dollar) does not mean that it is illegal from
a sharia point of view. Considering the huge demand and popularity of the
Cryptocurrency among the Muslim Youths, the authors recommended for
creation and development of an Islamic Cryptocurrency under supervision
of Islamic Development Bank (ISDB). Sharia-Compliant Cryptocurrency
must be developed by taking into consideration all the concerns related
to sharia compliance and must be acceptable to the parties concerned.
In this way, ISDB will play a significant role in the growth of the Global
Islamic finance industry. (Meera, 2018) concluded that keeping the surge
in price of Bitcoin in 2008, it looks like it is a bubble and bubble can burst
anytime and cause a great discomfort to the investors, hence investment
in Cryptocurrencies like Bitcoin is indeed a gamble and gamble (Maisir)
is strictly prohibited in Islam. They further concluded that, the massive
popularity of the Bitcoin and other Cryptocurrencies indicate that the
traditional fiat money is folding up and the international finance market
is looking for an alternate option and Bitcoin has provided that stable
option. Finally, it is concluded that the money with no reference material
will lose its value sooner than later and can result in utter collapse and can
cause losses for the investors, Bitcoin is the great example for that.
From the above Review of Literature, it can be concluded that the
sharia scholars are divided over the legality of Cryptocurrency as per the
sharia. This is a great matter of investigation and examination and to
come to a consensus where there is Ijma among the Sharia scholars on
whether to accept or reject this disruptive innovation. The present study
is an attempt in this direction to put forward the different views from
different sections of the scholars and draw conclusions from them.
292 M. R. RABBANI ET AL.

3 Discussion and Findings

It is a matter of debate and discussion whether Cryptocurrency complies
with the strict rules and regulations to be qualified as money and to be
allowed as a medium of exchange.
Cryptocurrency has been analyzed from the sharia point of view by
many scholars, the most notable works include, (Aliyu et al., 2020;
Khan & Rabbani, 2021; Muedini, 2018; Siswantoro et al., 2020). Most
of the studies focused on the requirements of a cryptocurrency to be
classified as sharia-compliant and suitability of Cryptocurrency in the
structure of Islamic banking and finance. While examining the dynamism
and mechanism of Cryptocurrency toward Islamic finance (Abdul et al.,
2019), state that there must be at least two factors present in the Cryp-
tocurrency to be classified as the sharia-compliant. The two factors include
backing from the real assets and legal authorization. This claim is also
supported by the scholars such as, (Aliyu et al., 2020; Khan & Rabbani,
2021; Oziev & Yandiev, 2018a, 2018b; Rabbani et al., 2021d; Saleh et al.,
2020a, 2020b; Siswantoro et al., 2020). We divide our discussion into
two parts. First, we take the arguments from scholars who believe that
Cryptocurrency must be declared halal and then we take the opinions of
the scholars who oppose these arguments.

Arguments Against Cryptocurrency

Islam considers money as a medium of exchange and using it for the
trading for earning profits and losses, violates the basic principle of Islamic
economics (Oziev & Yandiev, 2018a, 2018b; Siswantoro et al., 2020).
Shariah law prohibits money to be traded rather it must be used as
a medium of exchange (Khan & Rabbani, 2021). The real challenge
among the scholars and practitioners has been in understanding the
background, the concepts, because any person talking about the Cryp-
tocurrency or Blockchain must have a clear understanding of how it
operates, a judgment can only be passed if prior understanding of a
concept has embedded in a person. It is a complete innovation, and you
cannot find something like this in history (Hassan et al., 2021; Rabbani
et al., 2021a, 2021b). The cryptocurrency investments do not serve the
real economy as it does not generate any production, do not promote real
growth of the economy and do not boost services (Abdul et al., 2019;
Adam, 2017). Cryptocurrency has an element of Gharar and that makes
 ISLAMIC FINANCE AND CRYPTOCURRENCY … 293

it high-risk investment and it does not have any central authority regu-
lating it that makes it susceptible like a bubble that can burst anytime
and it is to be declared as haram (Meera, 2018; Oziev & Yandiev, 2018a,
2018b). The following arguments are given by the scholars to declare
Cryptocurrency as haram commodity.

Excessive Uncertainty
There is a high degree of risk, uncertainty and fraud lance in Cryptocur-
rency trading and that makes it vulnerable for the small investors and
traders (Alam et al., 2019; Ruslianor Maika et al., 2019; Siswantoro et al.,
2020). Take for instance, as depicted in Fig. 1, it is so volatile that it’s like
a roller coaster ride for the investors. In the last one year itself, the most
popular Cryptocurrency, Bitcoin has reached up to 24,433 from 10,260
as of 23/12/2020 from the same day last year (source: https://www.coi
ndesk.com/price/bitcoin). There is no deep or systematic control over
the issuance of these digital currencies and it is extremely sensitive to the
market rumors and market conditions and it is also not linked to any
established marketplace or economy (Ahmed et al., 2020; Gurdgiev &
O’Loughlin, 2020). The instability and volatility in return and associated
risk factor makes it against the basic principles of sharia and it is not to be
allowed for trading (Abu Bakar et al., 2017).

Not Backed by the Real Assets

One of the key factors in Islamic finance is that all the transactions are
backed by the real assets, and it is known as the asset-backed financing.
The conventional banks and financial institutions can deal in money and
papers only but in case of Islamic finance, money is not considered as
subject matter of trade rather it is treated as the medium of exchange,
i.e., it has no intrinsic utility. (Kabir Hassan & Aldayel, 1998; Maroney
et al., 2019; Özkan et al., 2016). Each unit of money in Islamic finance
is equal to 100% of the other denomination of money. Therefore, there
is no scope for generating any profit if an exchange transaction is done
for having intrinsic utility is sold or currencies are exchanged (Rabbani,
2022; Rabbani et al., 2021c). The profit earned from the transaction of
dealing in money (of the same currency) is considered as interest (Riba)
and that is declared as haram (Hassan et al., 2020; Mohammad et al.,
2020). Cryptocurrency is digital money, there is no physical coin or bill,
it’s all online, besides the fact that it is widely being used for exchange
transactions, it is used as a commodity which is against the principles of
sharia (Khan & Rabbani, 2021).
294 M. R. RABBANI ET AL.

Bitcoin Price (USD)

30000

25000

20000

15000

10000

5000

0
1
15
29
43
57
71
85
99
113
127
141
155
169
183
197
211
225
239
253
267
281
295
309
323
337
351
365
Fig. 1 Bitcoin return in last one year (Source https://www.coindesk.com/
price/bitcoin)

No Regulating Bodies
There are many Islamic scholars who argue that Cryptocurrency must be
allowed based on Maslaha. Cryptocurrency is neither a fiat money nor
a real money and it is also not backed by the real assets, and absence
of intrinsic value and zero supervision by the regulating agency makes it
vulnerable to being misused by the anti-social elements (Khan & Rabbani,
2021; Meera, 2018; Oziev & Yandiev, 2018a, 2018b).

Safety and Security of the Investors

Cryptocurrency uses cloud computing-based Blockchain technology,
which is secure and temper proof, because Blockchain uses innovative and
sophisticated math algorithm rules which are difficult for the attackers
to break and manipulate (Ali et al., 2020; Atif et al., 2021). It is basi-
cally a decentralized and distributed ledger technology which records the
movement of digital assets (Khan, 2020; Rabbani et al., 2021d; Saba
et al., 2019). It’s not that Blockchain technology cannot be hacked, or
it does not possess any risk. It possesses the same risk as in the case
of any other risk with the current business process like value transfer
risk because Blockchain enables value transfer without any intermediary
(Mohammad et al., 2020; Rabbani et al., 2020b). The year 2020 has
 ISLAMIC FINANCE AND CRYPTOCURRENCY … 295

been the year of highest cryptocurrency theft as between January and

May 2020, 1.36 Billion has been stolen in Crypto crimes (Anush et al.,
2020).

Misuse by the Anti-social Elements

Most of the Cryptocurrencies transaction done are cross-border and there
is a great chance that it is being used for terrorism funding (Carroll &
Windle, 2018; Choo, 2015). The rise and popularity of cryptocurrencies
are also attributed to its popularity among the criminals such as drug
dealers, extortionist and terrorists (Kethineni & Cao, 2020). Islam is the
religion of compassion and it has no place for the anti-social elements
like money laundering, tax theft or terrorism and any transaction linked
to these elements are strictly declared haram as per Qur’an and Sunnah
(Chamberlain et al., 2020; Rivlin, 2008).
At the end of this section, it can be concluded that Cryptocurrency is
a disruptive financial innovation and can be sharia-compliant if structured
correctly. An investor should invest in Cryptocurrencies if the currencies
have passed the sharia screening test which will determine if the core busi-
ness activity is sharia-compliant. Therefore, there is a need to have a global
Islamic task force to determine the sharia compliance of the particular
cryptocurrency (Abubakar et al., 2019).

Arguments in Favor of Cryptocurrency

There are sharia scholars who favor Cryptocurrency and strongly argue
that it must be allowed as per sharia and there is nothing wrong to be
called against the sharia (Widyatama et al., 2019). Cryptocurrency is born
because of financial innovation and any innovation is welcome in Islam
if it does not violate the basic principles of sharia. It uses Blockchain
technology and there is nothing non-Islamic about the Blockchain tech-
nology (Conlon et al., 2020; Lawal, 2019). The following arguments are
provided by the scholars to be called it as sharia-compliant.

It’s not Just Current and there is More to it

Scholars such as (Hammad, 2018; Zubaidi & Abdullah, 2017) argue that
Cryptocurrency is not just a currency it has more into it. It can serve as
a transfer of value from one party to another by saving time and cost.
296 M. R. RABBANI ET AL.

Volatility of currency shall not be the reason to declare it as haram because

fiat currency is also volatile in value and keeps on changing. Both Fiat and
cryptocurrency share the same nature as far as volatility is concerned.

Blockchain Technology
Cryptocurrency uses a technology called Blockchain and it is a very
broad technology. Cryptocurrency is just a part of it, it can be used
for multiple purposes such as, creating a permanent transparent ledger
system for recording like land deals are any other transaction (Ali et al.,
2020; Rabbani, 2020). This technology is fast and secure and speeds
up the transaction for the benefit of its users. Blockchain-based tech-
nology can be used for the payment and collection of Zakat to bring
more transparency in transaction (Mohammad et al., 2020; Rabbani et al.,
2021c).

Uncertainty and Gharar

Uncertainty and Gharar is cited as the major reason behind declaring
Cryptocurrency as haram by the sharia scholars. The scholars such as,
(Lawal, 2019) and (Zubaidi & Abdullah, 2017), argue that there is a need
to understand the difference between Gharar and risk. The risk factor is
there even in fiat currency, and it cannot be declared haram based on risk
factor.

Can Help in Fight Against Money Laundering

Spending through the Cryptocurrency can bring accountability. For
instance, the donor of Zakat can ensure that the Zakat amount given
by him has reached the right person, in this way money laundering can
be prevented (Hassan et al., 2021; Khan et al., 2021).
There are many scholars supporting the above arguments in favor of
Cryptocurrency to be declared as per the sharia-compliant (Lawal, 2019;
Saleh et al., 2020a, 2020b). Table 2 presents the comparison of views of
the scholars on compliance and non-compliance of Cryptocurrency as per
sharia.
Table 2 Analysis of sharia compliance of Cryptocurrency

Cryptocurrency is sharia-compliant Cryptocurrency is not sharia-compliant

Paper Info Argument Paper Info Argument

(Abubakar et al., 2019) The stakeholders in Islamic (Oziev & Yandiev, 2018a, Cryptocurrency is not allowed
finance must not be passive but 2018b) in its current form but
be proactive in accepting financial considering the huge demand
innovation and should develop interest of the internet users
standards and guidelines to take and investors, there is a need to
part in migration to this future develop a specialized Islamic
currency Cryptocurrency under the
guidelines of Islamic
Development Bank (IDB)
(Hammad, 2018) Cryptocurrency like Bitcoin is (Siswantoro et al., 2020) The cryptocurrency is banned
not haram on their own, its in countries like China and
permissibility as per sharia Russia due to high risk and
depends on what we are doing volatility. It is more volatile
with that currency. Bitcoin is just than the equity index such as
a tool and with that tool both a S&P. Islam is a religion which
Halal and Haram work can be does not encourage such risky
done. It is like cash and cash can investment and it shall not be
also be used for buying an illegal allowed
drug or illegal purpose

(continued)
ISLAMIC FINANCE AND CRYPTOCURRENCY …
297
Table 2 (continued)
298

Cryptocurrency is sharia-compliant Cryptocurrency is not sharia-compliant

Paper Info Argument Paper Info Argument

(Widyatama et al., 2019) It can be used by the Muslims in (Shariah Review Bureau, The sharia screening is to be
Mua’mlaat if it does not amount 2018) done for the Cryptocurrency or
to Riba coin. Without proper sharia
screening it can be allowed
(Saleh et al., 2020a, 2020b) The use of Cryptocurrency for (Aliyu et al., 2020) The Shariah compliance of
M. R. RABBANI ET AL.

payment is as legitimate as any Cryptocurrency will encourage

other currency. Cryptocurrencies the investors to invest in this
must be accepted like a fiat form of currency. It is not
currency for transactions purposes Islamic in its existing form
as its value can be measured and
quantified
(Lawal, 2019) Cryptocurrency is an economic (Abdul et al., 2019; Virgana The Cryptocurrency in its
innovation, and it does pass the et al., 2019) current form promotes, greed,
sharia test to be regarded as riba, corruption and uneven
Islamic. It is recommended to prosperity which is against the
prepare guiding principles to basic principles of Islam. There
ensure full disclosure of is a need for sharia-based
transaction related to cryptocurrency for the goodness
Cryptocurrency of Muslims and the world
Cryptocurrency is sharia-compliant Cryptocurrency is not sharia-compliant
Paper Info Argument Paper Info Argument

(Zubaidi & Abdullah, 2017) Cryptocurrencies are like the (Khan & Rabbani, 2021) Blockchain: the underlying
money stored in the bank technology to create
account and it will help in better Cryptocurrency is very much in
understanding, use and accordance with sharia. The
application of Blockchain for the existing Cryptocurrencies, like
betterment of the Muslims. It Bitcoin, Litecoin, Ethereum,
will help the Muslim countries in etc., are not sharia-compliant.
enforcing the basic principle of There is a need to develop a
Islam finance, i.e., fairness and sharia-compliant cryptocurrency
social justice
ISLAMIC FINANCE AND CRYPTOCURRENCY …
299
300 M. R. RABBANI ET AL.

4 Conclusion
The debates whether Cryptocurrency is haram, or halal will go longer,
and it is not expected to be resolved soon. The sharia scholars are divided
over this issue, and they have their arguments in favor or against it. After
the extensive review of available literature and analysis of opinions of the
scholars, we conclude that trading in Cryptocurrencies such as Bitcoin,
Ripple and Ethereum is not halal, and it must be declared haram. We
strongly believe that trading in these cryptocurrencies is not having value
and neither economic growth give it any value and its return has any
origin. It is highly volatile and chances of fluctuation in the prices are
very high (Gharar), there are great chances that it might be used for
the unfair trade practices such as terrorism, gambling, tax evasion, money
laundering, etc. (Muedini & Ph, 2018). Any legitimate Islamic govern-
ment has still not adopted it by considering it to be regarded as legitimate.
Most of the characteristics of Cryptocurrency fall in the haram category as
per sharia. However, considering the huge popularity and demand from
the Muslim youth and investors there is a need to develop and fully
sharia-compliant Cryptocurrency by removing these obstacles to provide
them with an alternative investment avenue which is safe, sustainable and
follows the ethos and principles of sharia.

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 Islamic Fintech, Blockchain
and Crowdfunding: Current Landscape
and Path Forward

M. Kabir Hassan , Mustafa Raza Rabbani ,

Mamunur Rashid, and Irwan Trinugroho

1 Introduction
Financial technology is the portmanteau of the terms: “finance” and
“technology”. It is often termed as Fintech, which symbolizes to any
business function which uses technology to simplify business activity, to
deliver efficiency and a superior customer experience (Dimbean-Creta,
2018). It has created unparalleled impact in delivery of financial services
during last decade (Abi-Lahoud et al., 2018). Fintech has become a
recent trend among the new disruptive technologies as an insertion for
the high-tech in the financial services industry (Wonglimpiyarat, 2019).

M. K. Hassan
Department of Economics and Finance, University of New Orleans, New
Orleans, LA 70148, USA
e-mail: [email protected]
M. R. Rabbani (B)
Department of Economics and Finance, College of
Business Administration, University of Bahrain, Zallaq, Kingdom of Bahrain
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 307

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_15
308 M. K. HASSAN ET AL.

The presence of Fintech has considerable impact on the working of finan-

cial institutions both conventional and Islamic (Jagtiani & John, 2018).
Fintech as a term emerged way back in 1972 by Abraham Leo Bettinger,
but it began to flourish only in the 1990s internet based and ecom-
merce business models emerged. The much needed push for the growth
and acceptance of Fintech was provided by the global financial crisis of
2008, when people lost confidence in the traditional banking and finan-
cial services as security and transparency became more important than
ever people started looking for the alternative model of financial services
(Rabbani, 2020). The shift in mindset pavend way for the innovation
in the financial services industry and advent technology such as cloud
computing made it possible to invent new tech-based financial services
which are more customized and standardized (Mackenzie, 2015). With
an interminable expectation from the regulators and customers, Fintech
companies design new products that deliver sustainable benefits (Atif
et al., 2021a).
Apart from the fact that the Fintech-based financial services are
cheaper, the reach of these innovations is very diverse (Khan et al.,
2022; Rabbani, 2021; Rabbani et al., 2022a, 2022b). It is so diverse
that it builds direct customer relationship by crowdfunding and P2P
lending (Sun et al., 2020a, 2020b), it brings social change with the Arti-
ficial intelligence and Blockchain-based digital microfinance and digital
lending platforms, online insurance policies (InsureTech), including data
handling, data protection, robo advising for the asset management and
customized portfolio management, complete digital currency in the form
of Cryptocurrencies (Lee & Shin, 2018; Puschmann, 2017). Fintech has
disrupted almost all walks of life including social cultural and financial
sphere (Romanova & Kudinska, 2016).

M. Rashid
Christ Church Business School, Canterbury Christ Church
University, Kent, UK
e-mail: [email protected]
I. Trinugroho
Faculty of Economics and Business, Center for Fintech and Banking,
Universitas Sebelas Maret, Surakarta, Indonesia
e-mail: [email protected]
 ISLAMIC FINTECH, BLOCKCHAIN … 309

The Blockchain technology has created disruption in many fields

including finance (Bogusz et al., 2020). It uses a combination of tools
called as public key identifiers, cryptography and distributed ledger tech-
nology to maintain a record of transaction that once created cannot
be inverted (Du et al., 2020). Blockchain is the uses distributed
ledger instead of centralized databased that can record any number of
records and information and these records are distributed, published and
stored in many locations (Eyal, 2017; Lee Kuo Chuen & Deng, 2017;
Rabbani, 2020). Blockchain is the underlying technology behind the
most disruptive financial innovation of twenty-first century i.e. Cryp-
tocurrency/Bitcoin (Zhang et al., 2020). It has the characteristics of
decentralization, anonymity, security, privacy, non-tampering and stability
inbuilt in it (Bogusz et al., 2020). Blockchain can be used to record, store
and process the financial information through the effective integration
of financial resources (Ozili, 2019). Blockchain is an underlying tech-
nology, the goal of which is to integrate several other technologies such
as Big data (Sun et al. 2020a, 2020b), Artificial intelligence (AI) (Atif
et al., 2021b), cloud computing and Internet of things (IoT) (Ali et al.,
2020) to finance no matter what kind of economic or finance related
information is to be integrated (Owen et al., 2019; Ozili, 2019; Reepu,
2019; Varma, 2019; Yaksick, 2019). Blockchain technology improves
the overall operational efficiency, transparency and services quality of the
financial system (Zhang et al., 2020). It can be observed from Fig. 1 that,
Blockchain technology has very wide application in Islamic finance and
banking. It can be used for smart contracts for Islamic financial services
like Musharaka, Mudaraba and Sukuk (Li et al., 2019; Zhang & Lee,
2019), Supply chain; Blockchain can enable more accurate and end to end
tracking in supply chain to facilitate Islamic finance transactions (Du et al.,
2020), digital asset trading; Blockchain can simplify the online tracing of
the Islamic finance assets like Sukuk, commodities, etc. (Gomber et al.,
2017), Sharia compliant payment systems; Blockchain can ease the sharia
compliant digital payment system with end to end sharia and halal process
(Paston & Harris, 2019), big data-based decision-making; Blockchain
enables decision-making based on facts rather than on intuition. Islamic
finance encourages evidence-based financial decision-making (Mnif et al.,
2020).
Crowdfunding is one of the disruptive financial innovations of twenty-
first century in entrepreneurial finance that allows an easy and quick
access of capital from a large pool of investors to the relatively new
 310
M. K. HASSAN ET AL.

Fig. 1 Blockchain application in Islamic finance (Source Adapted from Hassan et al. [2020a, 2020b])
 ISLAMIC FINTECH, BLOCKCHAIN … 311

project owners through the use of technology (Bi et al., 2019; Jovanović
et al., 2019; Ryu et al., 2020). It is defined as the process of raising
small amount of money from a large pool of people through the use
of internet (Colombo & Shafi, 2019; Shen et al., 2020). Crowdfunding
reinstates the power of internet and social networks in raising funds and
managing business activities (Zhao et al., 2020). It provides several bene-
fits to both project owner and investors including: it is fast and easy with
no upfront fee, it gives media attention and free marketing of the prod-
ucts and services to the project owner (Hassan et al., 2021a, 2021b),
social networking websites provide free advice and feedback to the project
owners and help in enhancing the idea and finally, it’s easy for those
who cannot access the traditional financial institutions due to excessive
documentation and other requirements (Colombo & Shafi, 2019; Lins
et al., 2018; Quero et al., 2017; Ryu et al., 2020). Like all other Fintech
innovation, Crowdfunding is also sharia compliant unless or until proved
otherwise (Hasan et al., 2020). In fact, Crowdfunding has the same
participatory method (PLS method) and risk sharing, which is the basic
cornerstone of the Islamic finance (Tajudin et al., 2020). Currently, there
are many variants of Crowdfunding platforms available in the market, of
which equity crowdfunding satisfies the principles of sharia as it is based
on the PLS method and risk sharing (Baber, 2020; Saiti et al., 2018).
Remaining paper proceeds as follows; In the next section we review
the relevant literature in three parts, related to Islamic Fintech in general,
Blockchain and Crowdfunding. Section three comprises Islamic Fintech,
Blockchain & crowdfunding—a roadmap. In section four we provide
the discussion part and finally, in section five, we provide conclusion,
recommendation and future scope of the study.
The present study is expected to not only contribute to the existing
strand of available literature in massive ways but also it is believed to work
as the guiding light to the Islamic financial institutions and Islamic banks
in Fintech adoption. One of the most prominent features of this paper
is that we provide a clear roadmap for the Islamic financial institutions
to utilize these disruptive technologies. The study will help the govern-
ments and regulators in creating a healthy and sustainable Islamic Fintech
ecosystem. It will help the future researchers to identify the right track and
provide the scientific research for the academia and industry. Besides this,
the present study will identify the risk and repercussions resulting from
the execution of Islamic Fintech by the IFIs in the digitization process.
312 M. K. HASSAN ET AL.

2 Review of Literature
The available literature on Islamic Fintech, Blockchain & Crowdfunding
was reviewed to get the current stock of the situation in the discipline
and based on that the future path will be proposed. The whole review is
divided into three parts, part one reviews available literature on Fintech
in general followed by the review on Blockchain and Crowdfunding.

Fintech
Fintech is defined differently by authors. The originator of the world
Abraham Leo Bettinger himself defines, Fintech as “Fintech is a contrac-
tion which combines banks experience and expertise with the information
technology” (Kalra, 2019). Rabbani et al. (2020) defines Fintech as
“Fintech is the fusion of Information Technology and Finance for better
financial services and at affordable cost and seamless user experience”. The
author of the paper defines Fintech as “software and other modern tech-
nologies used in delivering the more automated and improved financial
services for the hassle-free customer experience at an affordable cost ”.
Technology evolves very fast and Fintech has evolved even faster
with many technological advancements in the past (Jun & Yeo, 2016;
Zavolokina et al., 2016). The financial institutions have to be on its toes
to embrace these disruptions to gain competitive advantage and avoid
losing market share (Jan & Marimuthu, 2016; Joju et al., 2017). Though
Islamic financial institutions have already embraced this innovation and
trying to compete its conventional counterpart, the transformation has
relatively been slow (Baber, 2019). There is need to a create more robust
and sustainable Islamic Fintech ecosystem to provide immediate benefit
to the IFIs. Fintech can be used as a tool to resolve the long due prob-
lems of Islamic finance and hinders it from realizing its true potential.
Fintech could help the Islamic finance industry in how they interact with
their customers, how they present their products and services and how
they process and market their products and services (Darmansyah et al.,
2020).
Apart from the fact that the Fintech-based financial services are cheaper
and improved, the reach of these technological innovations is very diverse
(Pizzi et al., 2020). It is so diverse that it builds direct customer rela-
tionship with crowdfunding and P2P lending, it is bringing social change
with the Artificial intelligence and Blockchain-based digital microfinance
 ISLAMIC FINTECH, BLOCKCHAIN … 313

and digital lending platforms, online insurance policies (InsureTech),

including data handling, data protection, robo advising for the asset
management and customized portfolio management, complete digital
currency in the form of Cryptocurrencies (Lee & Shin, 2018; Puschmann,
2017). Fintech has disrupted almost all walks of life including social
cultural and financial (Romanova & Kudinska, 2016).

Islamic Fintech
Islam embraces all the innovations and technological advancement as
long as it does not violate the basic ethos and principles of sharia
(Hassan & Hippler, 2014; Hassan & Lewis, 2007). Fintech is one such
innovation which is not against the basic principles of Islam or Islamic
finance (Rabbani, 2020). It is in the basic nature of Islamic finance
to bring transparency and efficiency in the economic transactions and
Fintech-based financial services are in consistent with this nature of
Islamic finance (Hasan et al., 2020). Fintech in general and Islamic
Fintech is no different, the main point of departure is sharia compli-
ance (Sharia—Islamic law based on the Holy Qur’an and teachings of
Prophet Muhammad [pbuh]). Islamic Fintech is designed to comply the
principles laid down by the sharia and it focuses on delivering the innova-
tive and tech-based financial services and products that are in consistent
with the legislation, codes and rules laid down by the sharia (Alam et al.,
2019). Islamic Fintech is defined as the “digital delivery of Islamic finan-
cial services that comply with the sharia through the innovative solutions”
(Atif et al., 2021a).
Islamic Fintech solutions are going to lead the new wave of growth in
the Islamic finance industry post COVID-19 and during the third decade
of twenty-first century (Hassan et al., 2020). Islamic Fintech provides
tremendous opportunities to the Islamic Financial Institutions (IFIs) as
Islamic banking institutions are taking up the Fintech-based financial
services to reach out the customers with the improved and attractive
financial services at a relatively lower cost (Syed et al., 2020). According
to an estimate from (IFSB, 2020), over 1400 Islamic financial institutions
are operating in over 80 countries and are raring to innovate and provide
the innovative solution to its customers. The forecasts of Islamic Fintech
looks tantalizing. During the last few years the number of Islamic Fintech
has increased steadily from 116 in 2017 to 166 in 2019 and 142 till
June 2020 (IFSB, 2020). As depicted in Fig. 2, United Kingdom (UK)
has the greatest number of Islamic Fintech firms in the world totaling
314 M. K. HASSAN ET AL.

24, followed by the Malaysia with 19, United Arab Emirates (UAE) 15,
Indonesia 13, Saudi Arabia and United States of America (USA) 9 each.
It’s interesting to note that US and UK have 33 combined number of
firms with a little percentage of Islamic finance market share. Islamic
Fintech based startups are leading the race as it is the new solution to the
problem of providing new, innovative and digital Islamic finance solutions
to the customers.
Number of Fintech Startups by Core technology: Fig. 3 depicts the
number of Islamic Fintech firms by core technology based on the Dinar
standard analysis. It is observed that majority of the startups are based
on Crowdfunding and P2P lending. It is the new trend to opening
the market for the new investors, individual as well as institutional
investors. It has gained growing interest among the micro and small-
scale enterprises due to the ease in procurement of fund (Ali et al.,
2018; Berns et al., 2020). After the massive popularity of the Cryptocur-
rency, the Blockchain-based startups are finding the way into the Islamic
Fintech landscape with 14 startups identified. The list here includes
the active companies engaged in the customer interaction, providing
front office services and recognized through the external credible source
(DinarStandard, 2021).

Fig. 2 No of Fintech Firms in selected OIC countries (Source IFN Islamic

Fintech)
 ISLAMIC FINTECH, BLOCKCHAIN … 315

Fig. 3 Number of Fintech startups by core technology (Source DinarStandard

[2018])

Blockchain
There are many theories related to the integration of Blockchain tech-
nology with the finance and economics. The first theory is proposed by
Babbitt and Mahoney (2001), that talks about the convergence of all the
financial data, information and assets to the computer and information
technology using Blockchain. Ultimately, it will be all digitized world with
complete digitation of resources from goods and services to manufac-
turing, sales, supply chain and even marketing activities. Second theory
is studies by Ahram et al. (2017) and Chen et al. (2017), where they
studied the free currency and concluded that the currency shall not be the
state’s property as it must be free from the state ownership and should be
completely decentralized. The Blockchain technology provides the oppor-
tunity for all kinds of digital currencies to be freely exchanged, transferred
and also it provides trading platform for the digital currencies (Fisch et al.,
2020). The theory proposed by Marcel et al. (1976) on information
asymmetry on corporate governance examines the trust problem between
the parties using the Blockchain technology. They stated that Blockchain
can provide the digital reward through the optimum apportionment of
resources for mining to create a distributed system for universal sharing.
316 M. K. HASSAN ET AL.

The Blockchain technology has to be trusted to increase its efficiency and

trust (Di Pietro et al., 2018; Jin et al., 2018).
Figure 4 depicts the data structure in Blockchain technology. It can
be observed that it is a back linked list of blocks of transactions, which
is ordered as previous block, time stamp, random data and the target
hash. The lower part of the figure consists of the information data and
Blockchain body. Each block can be identified as hash (L and R hash). A
hash function is necessary for Blockchain management as it is a function
that converts input of functions into an encrypted output of fixed length
(Feng et al., 2019). A Blockchain data structure is made up of many sub-
structures. The keys can be mapped to the buckets by its hash value. A
hash table is required when one needs to store many related information,
for example, when an Islamic bank stores data related to a customer’s
account, purchases, contact details, purchase and sales details, etc. The
customer ID can be created by hashing the customer’s name and more
information can be added, deleted to edited by finding the buckets.

Version number Blockchain head

Previous Block Time stamp Random data The target hashes

Top Hash
hash (Hash L + Hash R)
Information data
Blockchain Body

Hash L Hash R
hash (H00 + H01) hash (H00 + H01)

H00 H01 H10 H11

hash(B1) hash(B2) hash(B3) hash(B4)

Data Block B1 Data Block B2 Data Block B3 Data Block B4

Fig. 4 Blockchain data structure

 ISLAMIC FINTECH, BLOCKCHAIN … 317

We describe the overall structure of Blockchain economy and Islamic

finance in Fig. 4. The overall structure is described in four layers. Each
layer has its own unique characteristics as it is designed as per the sharia
principles. The first layer is explained through the Cloud computing,
distributed ledger, metadata data storage, data file storage and big data.
The data layer consists of the digital signature, hash, Merkel tree and
transactions. The second layer is regarding the sharia compliance. In this
layer the rules and regulations regarding the unique features of Islamic
finance are mentioned. Islamic finance works on the rules of sharia,
which is quite distinct from conventional finance. Sharia compliance refers
to the obedience to the sharia, every single transaction going through
the Blockchain technology must abide by the sharia law. Therefore, the
Fintech-based systems are required to work in conformity with the sharia
law and must not include any prohibited elements such as Gharar, Maisir,
Riba and other haram elements. The application layer of Blockchain
consists of the Islamic financial instruments like SUKUK, TAKAFUL,
third-party payment and sharia compliant digital currency like Islamic
Cryptocurrencies. The network layer is also known as the hardware layer
of the Blockchain as in this layer it is described by the P2P network
topology, the point where clients can access and communicate to each
other (Fig. 5).

Crowdfunding
Discussion
If we look at the concentration of assets in global Islamic finance world,
it is concentrated in Middle east, Asia and MENA region. According the
IFSB report, Asia, GCC and MENA region contributes to around 96% of
the global Islamic finance assets (IFSB, 2020). This is where the oppor-
tunity arises for the Islamic Fintech to tap this untapped market. In Asia
alone, two of the largest country with Muslim population, Pakistan and
Indonesia have only 15% and 5.8% of the total Islamic banking assets,
respectively, whereas these countries have Muslim population percentage
of 96% and 87%, respectively. There is opportunity for the Islamic Fintech
to grow in these two largest Muslim countries, because Pakistan is one of
the world’s most country in terms of financial inclusion as it has only
14% population as financially included (State of Financial Inclusion of
Women in Pakistan, 2018), on the other hand Indonesia has around
76.1% population as financially included (Nuryakin et al., 2017). There-
fore, innovative financial solution led by the Fintech can help in gaining
more market share by adopting the right strategy of financial inclusion.
318 M. K. HASSAN ET AL.

Blockchain economy and Islamic finance

Database for Sharia Compliance Blockchain Network

Blockchain application

Cloud computing, The sharia compliance Responsible for The

distributed ledger, rules for Islamic user facing hardware
metadata data financial institutions. components and layer of the
storage, data file The specific rules of responsible for Blockchain;
storage Big and data trading for developing Blockchain
Musharaka, Mudaraba Blockchain protocol
etc. solutions for use
across business.

Blockchain economy and

Islamic finance

Fig. 5 The overall structure of Blockchain economy and Islamic (Source

Finance)

Muslim represent 1 in every 4 people in the world and more than 50%
of them offers a great opportunity and potential market for the Islamic
finance. The potential size is significant as most of the Muslim popula-
tion is young and tech savvy and that offers a huge opportunity for the
investors to convert this into revenue from this huge market by providing
financial services to these unbanked populations.
Mobile phone has made a significant contribution toward financial
inclusion in developing countries due to the high mobile phone penetra-
tion rate in the last decade or so (Zins & Weill, 2016). Mobile payments
have been a key factor in Fintech world and it is being regarded as the
next big thing within the Fintech space (Iman, 2018). It has become
so popular for the payment that now people do not need to carry the
traditional wallet for making even small payments. The popularity of
mobile payments and high penetration of mobile phones has paved way
for capturing the underbanked population in countries like Pakistan and
other densely Muslim populated countries (Liu et al., 2020). It can be
 ISLAMIC FINTECH, BLOCKCHAIN … 319

observed that smart phone penetration is comparatively low in Muslim

majority countries. Top 10 countries all have smart phone penetration
of more than 60% as compared to the selected the countries from the
Organization of Islamic Cooperation countries (OIC), where highest
penetration is in Indonesia with 66%. It is observed that the ratio of smart
phone penetration in comparison to financial inclusion is exceedingly high
and that provides opportunity for the Islamic Fintech to emerge as the
tool and act as a bridge to bring financial inclusion. Most of the coun-
tries with high mobile phone penetration provides opportunity to the
Islamic Fintech to provide access to the valuable financial services like
mobile payment, digital banking, crowdfunding, Islamic microfinancing,
etc. (Fig. 6, Table 1).

Fig. 6 Smart phone penetration in top 10 countries in the world vs. select OIC
countries (September 2018) (Source O’Dea [2020])
320 M. K. HASSAN ET AL.

Table 1 Current landscape of Islamic Fintech and future technologies

Technology Description Islamic Fintech provider

Artificial intelligence Artificial Intelligence (AI) is the The example includes The
set of technologies such as Islamic bank Chatbot launched
Natural Language Processing by ABU DHABI Islamic Bank
(NLP) and machine learning, (ADIB), it is with artificial
which enables a computer intelligence and can handle
program to execute task queries in Arabic as well as
automatically (Khan et al., English language. Another
2021). It is the perfect blend of example includes, AI-based
machine learning in software Chatbot launched by the
application. Sharia compliant robo Kuwait Finance House. Various
advisors by the Islamic banks can Islamic financial institutions are
advise the customers in account using AI in its interface for
opening, asset management, any automatic accounting opening,
query related to the sharia face recognition, etc
compliance of the financial
services (Khan & Rabbani, 2020,
2021a, 2021b)
Quantum computing Quantum computing is another The fourth industrial revolution
Fintech-based disruptive is expected to see the
technology which has the implementation of several
potential to be the next emerging technologies like
generation financial technology. quantum computing in Islamic
It applies principles from finance and banking. The
Quantum theory and it is super industry 4.0 could see the rise
computers which can perform of quantum computing besides,
infinite number of hypothesis Internet of Things (IoT), 3D
testing sequentially (Orús et al., printing and Nano-technology
2018) (Ali et al., 2020)
Big data analytics Big data is the use of “Big data The examples of big data
analytics” to analyze, extract and application by Islamic Financial
process the complex and large Institutions (IFIs) include
volume of data that is otherwise tracking the customer spending
difficult to process with the patterns, track customers based
traditional data processing on their search history on
methods (Liu et al., 2018; Google, Facebook, Instagram
Serrano, 2019) and other social media,
personalized and customized
products based on individual
pattern

(continued)
 ISLAMIC FINTECH, BLOCKCHAIN … 321

Table 1 (continued)
Technology Description Islamic Fintech provider

Crowdfunding/P2P lending Crowdfunding/P2P lending is Islamic crowdfunding/P2P

also called as the social lending. lending has emerged as the
It is the process of lending small biggest emerging sector in
amount of money from large Islamic Fintech. It has 64%
pool of investors mainly through customer engagement in the
the internet (Rabbani et al., year 2019 as compared to the
2021). It is the sharia compliant second of around 40% for the
way of funding a project by Blockchain/Cryptocurrency
relatively modest investment from (IFSB, 2020). Equity method
small investors and used for the of Islamic Crowdfunding are
startups and early stage funding quite popular and it complies
mainly through the internet (Saiti with the requirements of sharia
et al., 2018) (Baber, 2020)
Open banking Open banking is a financial Khaleeji Commercial Bank from
service as the part of growing Kingdom of Bahrain has
financial technology. It is a recently announced its “Khaleeji
banking practice that provides 360”, platform where they will
third party access to the provide customers with the
customer’s data, records, financial open banking services to its
information and other transaction customers. The platform is
related information through the developed with the “Tarabut
use of open Application Gateway”, which is a leading
Programming interface (APIs). It Fintech services provider in
is the secure way to give third MENA region. By opening data
party access to the customer’s and collection more information
data (Brodsky & Oakes, 2017; through open banking, the
Mansfield-Devine, 2016) banks can bring more
transparency and efficiency in
its operation (Open Banking
Implementation Entity, 2019)
Blockchain Blockchain is the decentralized, The most prominent application
distributed ledger technology of Blockchain is the
used to record the movement of Cryptocurrency and this hype
an electronic asset (Lu, 2018; has also impressed the Islamic
Saad & Mohaisen, 2018). In finance investors as many sharia
other words, it is the distributed compliant Cryptocurrencies
ledger used to record the data have already been launched.
digitally and keep records OneGram, a gold backed sharia
digitally in a business network compliant Cryptocurrency
(Tredinnick, 2019). It is the where each coin is backed by at
technology at the heart of the least one gram of gold
most disruptive innovation of X8 Cryptocurrency; It is the
twenty-first century i.e. only sharia compliant
Cryptocurrency/Bitcoin (Tewari, Cryptocurrency which operates
2019) on the ethereum platform
(Khan & Rabbani, 2020)

(continued)
322 M. K. HASSAN ET AL.

Table 1 (continued)
Technology Description Islamic Fintech provider

Regtech Regtech is another financial In 2017, Central bank of

technology that uses cloud Bahrain launched the
computing to technology to help “regulatory sandbox” in order
business comply the rules and to supervise the Regtech
regulations efficiently and by companies. “Capnovum” is an
spending very little. Islamic Islamic Regtech services
Regtech is aimed to provide provider, that helps those IFIs
supportive services in complying who struggle to keep up with
the complex requirements of the the changing sharia regulations.
sharia (Turki et al., 2020) It has the combination of AI
and automation to seamlessly
guide on sharia compliance
matters
Cyber security Cyber security or network Islamic banks such as Al-Baraka
security is the protection of bank and Bahrain Islamic bank
computer network, data, software uses machine learning and
and hardware from theft, damage AI-powered cyber analytics to
or harm. In other words, it is protect them from cyber threat.
the practice of defending one’s IFIs are keeping up with the
computer, mobile, server, pace of the market to increase
network, and data from the operational efficiency and
unwanted attack (Bendovschi, to reduce the risk
2015)
Mobile payments Mobile payment is the payment Almost every IFI has adopted
of money to the service provider mobile payment for the
through mobile devices like convenience of its users. Mobile
tablets or cellphone. Mobile Applications like Benefit pay,
payment is the top most Fintech B-wallet, Viva cash and Apple
adoption in the Islamic Fintech pay are quite popular among
segment (Atif et al., 2021a) the Islamic bank customers

3 Future Islamic
Fintech-Based Financial Services
Islamic Fintech must cater to both voluntary and involuntary unbaked
population in Muslim countries to provide them access to the financial
services. There are many reasons for the financial exclusion of Muslims
population in OIC countries, the reasons are both religious and non-
religious. The people who avoid having access to the financial services due
to religious reason can be provided with the interest free banking based
on risk sharing (Demirguc-Kunt et al., 2014; Zulkhibri, 2016). This will
encourage asset-backed financing and sustainable Islamic fintech and it
will help the individuals and SMEs to increase their wealth by partnership
mode of transaction (World Bank, 2020). Another way to bring these
 ISLAMIC FINTECH, BLOCKCHAIN … 323

underprivileged and vulnerable into the mainstream financial system is to

distribute Islamic charitable contributions like Sadaqa, Zakat and Awqaf
through the Islamic Fintech (Khan et al., 2021; Rabbani et al., 2021).
Some of the future Islamic Fintech-based financial services are depicted
in Fig. 6 and described as follows.
Islamic Microfinance: Islamic Microfinance has the potential to emerge
as the single, most prominent finance tool to alleviate poverty from the
Muslim world (Dhumale & Sapcanin, 1998; Rahman, 2010). Islamic
Microfinance refers to the short-term sharia compliant financing with a
tenure of less than a year. Islamic Microfinancing is used mainly for the
individuals and SMEs who do not have access to the formal financial insti-
tutions due to high documentation formalities. Islamic microfinance is
a lease of life for those young potential entrepreneurs with a little or
no prior business experience and no financial backup and want to start
a micro or small business (Hassan et al., 2013; Md Saad, 2012). Reli-
gion is the primary reason behind going for the Islamic Microfinancing
in the OIC countries (World Bank, 2020). Islamic Microfinancing can
be combined with the different Islamic financial services such as Zakat
(Hassan et al., 2012; Muhd Adnan et al., 2020), Qardh-Al-Hasan
(Hassan, 2014; Wulandari, 2019), Awqaf (Haneef et al., 2014; Zauro
et al., 2020), Murabaha (Fianto et al., 2018), Musharaka (Islam &
Ahmad, 2020; Saad & Razak, 2013), Ijarah (Mansori et al., 2015)
and Takaful (Khairunnisa et al., 2019). There are many Islamic finan-
cial services that can be combined with the Fintech and customized as
Fintech-based microfinancing (Macchiavello, 2017; Shaikh, 2020).
Muslim population in the Islamic countries constitutes one-fourth of
the global population and 50% of the poor population of the world lives
in these countries (Reazul Islam et al., 2020). These poor do not have
access to the formal financial system as even the Islamic commercial banks
usually provide loans and finance to high worth corporates loans or to
the high- and middle-income individuals as consumer finance (Rabbani,
2020). Even the SMEs have very little share in total financing of the
Islamic commercial banks (El-Komi & Croson, 2013). Thus the poor
population is forced to either go to the local money lenders or look for the
Microfinancing option and Islamic Microfinance serves as an alternative to
these poor and deprived Muslim population (Widiarto & Emrouznejad,
2015). Fintech-based Microfinancing model for Murabaha, Mudaraba,
Ijarah and Musharaka can provide an opportunity to improve efficiency
through digitization of financing process and it can bring small industries,
324 M. K. HASSAN ET AL.

poor individuals, startups and vulnerable into the mainstream finance.

Islamic Microfinance is still underutilized as a financing option and it has
huge potential in countries like Pakistan, Bangladesh, Nigeria, Indonesia
and Malaysia, large Muslim population resides. Fintech-based Islamic
Microfinance can help in large outreach and reduction in the adminis-
tration and maintenance cost (Salman Ahmed Shaikh, 2020). Further,
Artificial intelligence-based Islamic Fintech model can be used for client
screening, documentation and suggestion purposes to find the most suit-
able client to reach objective of financial inclusion and socio-economic
stability (Khan et al., 2021; Rabbani et al., 2021).
Zakat: Zakat is one of the five pillars of Islam, referring to the obli-
gation that every Muslim has to donate a certain portion of its wealth
for the benevolent purpose (Abdullah et al., 2012; Asmalia & Kasri,
2019; Hamid & Hamid, 2020; Kadir et al., 2019; Mattson, 2003). It
is the fundamental part of being a Muslim and acts as the purifica-
tion of one’s wealth for the sake of Allah almighty (Tanvir Mahmud
et al., 2014). Zakat is one of the most important tools in the Islamic
social finance (Alam Choudhury & Syafri Harahap, 2008; Salleh, 2015).
Integrating Zakat with Fintech can result in poverty alleviation and finan-
cial inclusion (Khan et al., 2019; Salleh, 2015). Fintech-based Zakat
collection and distribution system can bring speed, transparency, accessi-
bility, security and operational efficiency in Islamic social finance (Khan
et al., 2021; Rabbani et al., 2021). The use of Fintech-based Zakat
during the COVID-19 pandemic has provided benefits to the millions
of Muslim populations across the globe. In Pakistan alone “Ehsaas Emer-
gency cash relief program” by the government of Pakistan, the Fintech
was a huge success and resulted into massive financial inclusion as Mobile
money transfer reached 6.8 million families in less than a week (Islamic
Development Bank Group, 2020) (Fig. 7).
Blockchain wave has already made inroads in the world of Islamic
finance. Islamic financial institutions have embraced this disruptive tech-
nology in the early stage itself to offer efficiency in their operation and
bring quality in its financial services (Alidin et al., 2019; Mohamed &
Ali, 2018). Islamic financial institutions can not only apply Blockchain to
reduce transaction cost and bring operational efficiency but also create
new, innovative and trendy financial services to gain more market share
and gain revenue streams (Atif et al., 2021a, 2021b; Hassan et al., 2020a,
2020b). There are various applications of Blockchain in Islamic finance
including, Blockchain-based smart contracts (Fatema et al., 2018), Zakat
 ISLAMIC FINTECH, BLOCKCHAIN … 325

Islamic Fintech

Future Fintech based Islamic Financial Services

Automation Open access to services Security Others

1. Use of artificial 1. Sharia 1. Blockchain 1. Regtech for

intelligence and compliant based management
Natural language crowdfunding financial of sharia
processing for and P2P services, e.g. compliance
collection and lending. use of of the IFIs
distribution of 2. Open banking Blockchain 2. InsureTech
a. Zakat 3. Digital banking technology services
b. Qardh-Al-Hasan 4. Mobility for sharia 3. Use of IoT
c. Awqaf and 5. Mobile money compliant 4. Augmented
d. Sadaqa 6. E-banking-self Cryptocurren reality
2. Chabot for financial service cy, recording
advising and asset of assets etc.
management services. 2. Cyber
3. Intelligent automation security
of financial services. 3. Cloud
4. Big data analytics ado tion.

Fig. 7 Future Fintech-based Islamic financial services (Source Author’s own

compilation)

collection and distribution (Khan & Rabbani, 2021a, 2021b; Mohammad

et al., 2020; Rabbani et al., 2021), distribution of Qardh-Al-Hasan by
Islamic banks (Khan et al., 2021), Chatbot for financial planning and
advising (Khan & Rabbani, 2022, 2021a, 2021b), etc. Islamic financial
services can be linked with Blockchain to provide the financial assistance
to reach the COVID-19-affected individuals and SMEs, it can help in easy
identification of actual beneficiary and keeping a record of help provided
to the affected and vulnerable (Hassan et al., 2021a, 2021b; Rabbani,
2020). Blockchain-based financial services can help in achieving the objec-
tive of financial inclusion which is one of the key objectives of Islamic
social finance (Gabor & Brooks, 2017; Saraswati et al., 2020).
Figures 8 and 9 portray the impact of Blockchain technology on
delivery of Islamic financial services. Figure 8 shows the Islamic trade
326 M. K. HASSAN ET AL.

finance services without the use of Blockchain technology. It can be

observed that trade finance services which are practiced currently without
Fintech are mainly manual and consumes a lot of time, money and phys-
ical efforts. For example, if an importer orders goods from a foreign
country he has to apply for the letter of credit from the importer’s Islamic
bank and provide it to the exporter’s Islamic bank. After obtaining the
letter of credit from the importer’s Islamic bank, the exporter’s bank
authorizes the exporter to ship the goods to the importer and all these
processes are time consuming and stressful, whereas Fig. 8 represents the
Blockchain-based future trade finance, where everything is done through
the click of a mouse. As explained earlier, Blockchain is a distributed
ledger technology where it has the ability to create a digital ledger of
the transactions that can be distributed among the users of the transac-
tion with the help of cryptography. It allows the tracking and recording
of transactions without the central authority like the banks. All these
processes are performed with the help of automatically executable smart
contract.

Current Islamic trade finance practices

Contract between Importer and

Exporter
Exporter Importer
Islamic
1. Ijarah contract
Islamic letter
2. Musharaka contract
letter of of
3. Mudaraba contract
credit 4. Murabaha contract credit
5. Wakalalh contract
Exporter’s Importer’s
6. kafalah contract

Islamic letter of credit

Fig. 8 Current Islamic trade finance practices (Source Author’s own architect)
 ISLAMIC FINTECH, BLOCKCHAIN … 327

Receives
goods
Customers
Customers in India Customers Customers
in Bahrain in USA in UK

Initiate
shipment
Shipping Company
Exporter Importer
Smart Contract

Blo Blo
ckc ckc
hai hai
n n
Exporter’s Importer’s
Smart Contract

Shipping documents Digital Payment Companies

Islamic letter of credit
1. Bill of lading/Airway bill
2. Commercial invoice
3. Certificate of exchange
4. Insurance certificate etc.

Fig. 9 Future Blockchain-based Islamic trade finances (Source Author’s own

architect)

4 Conclusion
While the world addresses the economic consequences caused by the
ongoing COVID-19 pandemic, digital financial services have found
acceptance to another level and Fintech-based service providers are
booming with the growing demand and market penetration. The fourth
industrial revolution has already fostered growth through innovative
technologies, automation, disintermediation and decentralization in the
global finance marketplace. Over 15,000 Fintech startups have already
disrupted every section of finance. The industry 4.0-driven technolo-
gies such as Cloud computing, Blockchain, Crowdfunding, InsureTech
Regtech, etc. are exponentially enhancing the existing financial services,
328 M. K. HASSAN ET AL.

business models and customer engagements. These Fintech-based innova-

tions are more focused on the process automation to speed up the product
innovation process and to enable the new business models to bring greater
operational efficiency. The Fintech evolution is yet to reach its peak but it
is certainly growing at a rapid pace and COVID-19 has only accelerated
its pace (Rabbani, 2020).
Islamic finance was a silver lining from the global financial crisis of
2008 and established itself as the greatest challenger to the conventional
financial system (Ashraf et al., 2018; Hippler III et al., 2019). The present
study concludes that COVID-19 will further enhance the credentials of
Islamic financial system as the robust and sustainable financial system.
Islamic Fintech is gaining acceptance and it is becoming more relevant in
combination with the technologies like Crowdfunding and Blockchain.
On one hand the Islamic Fintech-based crowdfunding is expected to
solve the long due problem of fund acquisition for the startups and small
and medium enterprises, on the other hand Sharia compliant Blockchain
technology is helping it to reach new frontiers, new markets with more
transparency, better efficiency and increased security.
The study further concludes that the future of Islamic Fintech in
combination with the Crowdfunding and Blockchain technology looks
promising. Islamic Fintech has so much to offer, and it can reach to its
full potential with the alliance of Fintech startups and existing Islamic
financial institutions. The Islamic Financial institutions that are already
working in association with the Fintech startups are in better shape to
innovate, experiment and take its services offering to another level of effi-
ciency and profitability. The paper is expected to contribute positively
to understanding of Islamic Fintech and application of Fintech-based
innovations in the Islamic finance industry. We have made an honest
attempt to provide necessary direction to government institutions and
policy makers for preparation and implementations of regulatory measures
for the betterment of Islamic finance industry. The findings of the present
study are expected to shed new lights in this growing area of research.

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 COVID-19 Challenges and the Role
of Islamic Fintech

Sitara Karim, Mustafa Raza Rabbani , Mamunur Rashid,

and Zaheer Anwer

1 Introduction
With the rapid upsurge of COVID-19, global businesses have experienced
the worst economic downfall Initiated from Wuhan, China, the virus has
casted an enduring impact on the overall economic and financial system
of the world where an emergency state declared in March 2020 seized all
operations of the world. It is important to note that COVID-19 has not
only impacted a few business sectors similar to the global financial crisis
which significantly influenced the financial industry, but the aftermath of
coronavirus has spread worldwide impacting all of the business sectors in

S. Karim
Nottingham University Business School, University of Nottingham Malaysia
Campus, Semenyih, Malaysia
M. R. Rabbani (B)
Department Economics and Finance, College of Business Administration,
University of Bahrain, Zallaq, Bahrain
e-mail: [email protected]
M. Rashid
Christ Church Business School, Canterbury Christ Church University,
Canterbury, Kent, UK

© The Author(s), under exclusive license to Springer Nature 341

Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2_16
342 S. KARIM ET AL.

a devastating way. Since the financial industry plays a key role in overall
growth of any country, collapse of the overall economic system is marked
as one of the most serious plagues which have attacked the globe.
Discussing the greater impact of COVID-19 on industry by industry
it can be stated that the world is currently facing an on-going crisis
of production, consumption, and supply chain. This crisis is led by the
controlled mobility of individuals, maintaining social distancing param-
eters, and travelling within a state in a limited capacity has created a
huge consumption gap where needy people are in search of their helpers
whereas givers are in search of takers. The consumption crisis has bereaved
the families and children of Yemen, Syria, Palestine, and other parts of
the world. The ongoing havoc of the coronavirus pandemic is respon-
sible for uneven distribution of resources and created differences in the
consumption patterns of individuals. The other most affected area is
disrupted supply chain mechanisms where no physical movement of vehi-
cles and logistics cells has significantly impacted their growth. Since supply
chains are well-organized and connected with each other to provide ease
of access to the resources and to deliver them to their destined places,
COVID-19 has embarked on a major threat to the sustainability of the
supply chains. However, as a means to an end, companies and several
supply chain partners are working on the re-engineering process of supply
chains to deliver the semi-finished products to their destinations and
offering significant changes in the whole mechanism. Thus, through this
re-engineered process, companies are trying to solve the problems of
food shortages, minimum supplies, and less varieties provided during and
post-COVID period (Arunachalam & Crentsil, 2020).
Another most impacted industry is micro, small, and medium enter-
prises with low-income people striving to find sufficient wages for their
labor work. With the worldwide emergency, the COVID-19 pandemic has
significantly impacted the livelihood of small businesses and particularly
those people who earn on a daily wages system. In these circumstances,

e-mail: [email protected]
Z. Anwer
Dr. Hasan Murad School of Management, University of Management and
Technology, Lahore, Pakistan
e-mail: [email protected]
 COVID-19 CHALLENGES AND THE ROLE … 343

Islamic finance has provided efficient solutions to combat the aftermaths

of the coronavirus pandemic through its emergency assistance mechanism
where needy people are provided with voluntary Sadaqat, Zakat , and
Qardh-al-Hasan to help them in their time of need (Hassan et al., 2020;
Rabbani et al., 2021a, 2021b). Correspondingly, where most of the busi-
ness sectors got affected by the havocs of outbreak of COVID-19, the
financial sector also experienced severe challenges where regulators, poli-
cymakers, and higher authorities have put their attention toward lower
interest rates, development of solidarity groups, and establishing self-help
groups to assist the society in the time of economic intensity. In this way,
the role of Islamic finance and Islamic fintech is substantial to overcome
these challenges in a meaningful and effective way. The Islamic finance,
ideologically and methodologically different from traditional finance, has
provided innovative solutions that helped several entities in both short
and long run.
Particularly the role of Islamic fintech in overcoming these challenges
is significant where branchless banking, smart contracts, digitization of
processes, maintaining individual identities, blockchain technology, the
use of artificial intelligence in Islamic banking and Islamic fintech (Sarea
et al., 2021), Big Data, and several other technologies have helped
the Islamic banking system to speed up the overall banking experi-
ence specifically during and post-COVID-19 (Khan and Rabbani 2020a,
2020b, 2020c). This study aims to highlight these specific technologies
compatible with the Islamic banking system and comply with the Islamic
Sharia.
The rest of the study is arranged in the following manner. Section 2
presents the evolution of fintech and its significance for Islamic banking
through the use of blockchain technology and artificial intelligence.
Section 3 discusses the usefulness of Islamic fintech in overcoming the
COVID-19 shocks. Section 4 concludes the study along with future
research recommendations.
344 S. KARIM ET AL.

2 The Rise of Fintech and Its

Significance for Islamic Banking
Through the Use of Blockchain
Technology and Artificial Intelligence
Evolution of FinTech
Ever since the use of smartphones and handheld devices, the transactions
have become quite easier for the customers using the banking services
(DinarStandard, 2020). A survey on internet users reported that nine out
of ten customers use the mobile banking applications on their smart-
phones as they provide the user-friendly experience to them (Rabbani
et al., 2021c). The use of simple internet technology with mobile appli-
cations has made it easier to access their accounts on a regular basis.
In 1967, the Barclay’s Bank innovation of Automatic Teller Machines
(ATMs) marked the first step toward FinTech and financial innovation.
With this technology, the eras of fintech evolution commenced which are
parallel to the industrial revolution phases (Ali et al., 2020, Rahim et al.,
2018).
Consistent with the industrial revolution phases, the FinTech evolu-
tion is also divided into four stages where the initial phase contains
FinTech 1.0 solutions and Trans-Atlantic communication cables were
mainly used for information transmission from one point to another.
Mainframe computers also belonged to the first stage of FinTech 1.0.
The second stage is FinTech 2.0 where internet and internet of things
(IoT) were the main technologies introduced to provide effective solu-
tions to the information transmission. The third stage includes FinTech
3.0 where data transfer and data operated technologies were introduced.
This stage mainly introduced online apps, mobile-friendly tools, different
technology-backed transaction mechanisms, and use of the technologies
of 3G. The fourth and current stage of FinTech is the transition stage
where most of the business operations are turning to the use of artificial
intelligence, machine learning, deep learning, blockchain technology, Big
Data, and several other technologies to facilitate the customers with the
real-time experience of providing service in their hands.
 COVID-19 CHALLENGES AND THE ROLE … 345

Evolution of Islamic FinTech

The application of FinTech is mainly observed in conventional banks and
its application is limited in Islamic banking system due to compliance with
the Islamic law (Hassan et al., 2020). Many Sharia advisors and Islamic
scholars have forbidden the FinTech applications in bitcoin and several
other cryptocurrencies as their compliance with the Sharia is questionable
(Hassan et al., 2020). COVID-19 pandemic has brought the disrup-
tion and forced the world to shut itself behind the doors and experience
the magic of technology like video conferencing using Microsoft Teams,
ZOOM, Zoho, Skype (Hilburg et al., 2020), online learning and teaching
using Microsoft teams, Blackboard, ZOOM, Google classroom (Khan
et al., 2020b, 2022) and use of artificial intelligence and other technolo-
gies in medical field from getting real-time COVID-19 data to combating
the shocks of the pandemic (Sun et al., 2020a, 2020b). Researchers such
as Hilburg et al. (2020) argue that the pandemic has exacerbated the use
of technology, whereas the researchers such as Aguilera-Hermida (2020)
and Whitelaw et al. (2020) are of the opinion that COVID-19 has due
the pandemic acceptance and adoption of technology has gone higher
and it has elevated the need to use and to adopt the technology. Finance
industry was already experiencing the massive digital transformation in
the form of financial technology (FinTech) (Alam et al., 2021; Rabbani
et al., 2021a) and the pandemic has given the additional boost and accep-
tance to the already growing FinTech industry to provide the digital
financial services to the customers at its doorstep (Hassan et al., 2020).
Technology such as artificial intelligence will have an increased role to
play in recovery post COVID-19 as the next generation belongs to the
technology (Rabbani et al., 2021c).
Islamic finance industry has emerged as the most robust and resilient
finance industry post the global financial crisis of 2008 (Ahmed, 2009,
2010; Asmild et al., 2019). It has witnessed the stern test of the finan-
cial crisis and emerged as the winner with its social and ethical financial
services (Belanès et al., 2015; Trad et al., 2017). Financial experts,
researchers, and academicians all across the globe are looking at the
Islamic finance industry with much hope and aspiration to bail them out
of the financial distress caused by the pandemic (Hassan et al., 2020,
2021). The emergence of technology will add a positive boost to the
industry and success in tackling the adversities of the pandemic will
depend on the use of the technology (Mohammad et al., 2020). The
346 S. KARIM ET AL.

growth of Islamic finance industry post COVID-19 will greatly depend on

its ability to master technology such as FinTech, blockchain, and artificial
intelligence (Rabbani, 2021).
Discussing the role of Islamic FinTech in Islamic banking, it is argued
that Islam embraces all types of innovations if they do not violate the basic
principles and ethos of Shari’a (Hassan et al., 2020). Particularly, Islamic
financial industry adopts and adapts to the use of technological inventions
abiding by the rules and regulations of Islamic Shari’a. For this reason,
it is permissible to adopt the financial innovations in terms of technology
unless they do not harm the basic principles of Islam. Islamic Fintech
in Islamic banking promotes Islamic financial industry that delivers the
Islamic finance products using different technologies and meets the needs
of Islamic Finance customers to achieve financial inclusion, to reduce
income inequality, and to bring social justice to the community (Karim
et al., 2020a, 2020b, 2020c). Thus, Islamic FinTech in Islamic financial
system plays a significant role in delivering Islamic products at a quicker
pace. And, based on Islamic Shari’a (Hasan et al., 2020) it is not prohib-
ited to include technological innovations unless they do not break the
Shari’a limits.

Artificial Intelligence
The exposure of Islamic financial industry to the different uncertain
challenges, as indicated by the COVID-19 pandemic, necessitates the
adoption of artificial intelligence in different business processes to ensure
growth and sustainability (Karim, 2021a, 2021b). The acceptance of
Islamic financial sector toward AI and changing patterns of FinTech
warrants that adopting AI and implementing different technologies is the
need of the hour. Islamic financial industry basically consists of financial
activities rooted on the principles of Shari’a (Islamic law) that is not a
single entity but involves Islamic Financial Institutions (IFIs) where prin-
ciples of Islamic finance are sourced from the Holy Qur’an (Tabash &
Dhankar, 2018). It shows that Islamic Financial Institutions are not only
banks, but they also cover other types of financial intermediaries following
the principles of Shari’a and abide by the Islamic code of conduct for
doing business. It also ensures a complete moral system with unique char-
acteristics for carrying out the business operations following the ethical
values provided by Islam. Relating it to the adoption of AI and finan-
cial technology, Rahim et al. (2018) indicated that digital banking 4.0,
 COVID-19 CHALLENGES AND THE ROLE … 347

FinTech, and artificial intelligence have tracked significant applications

since 2017 which ensures that adequate information is needed to align
the interests of Islamic Finance with the adoption of AI.
The rising challenges of COVID-19 have embarked the Islamic finan-
cial industry to adapt to the different technologies to ensure sustained
growth and economic strength. Referring back to the global financial
crisis of 2007 and 2008, the financial industry is one of the signif-
icant industries which bear economic shocks in the form of volatile
interest rates, moral hazard problems, and lack of trust among stake-
holders (Karim et al., 2020a, 2020b, 2020c). Increasing global threats,
sudden lockdowns, uncertain circumstances, rapid closure of all running
processes, and widespread of novel coronavirus around the world created
an alarming situation for whole businesses, production units, supply
chains, and financial markets. Financial sector, having a significant role
in the financial markets, is also not spared from the challenging circum-
stances that appeared due to COVID-19 spread across the globe. Banks
are considered as the main drivers of economic growth and they are
directly related to the money supply and demand within an economic
state (Hassan et al., 2022). Global financial crisis of 2007 and 2008,
similar to the recent crisis of COVID-19, created a state of bewilderment
among the financial partners that raised the questions of their deposits
and investments in the financial sector which led to various types of
risks such as financial risk, insolvency risk, bankruptcy risk, liquidity risk,
etc. In this perplexed state of affairs, the role of regulatory authorities is
enhanced manifolds where they have to maintain a balance between the
risks and ensure the creditworthiness of the banking sector in a way that
customers’ investments and deposits are less prone to uncertain circum-
stances. Islamic financial sector, one of the pillars of the financial markets
across the globe, is also not spared from the aftermath of the pandemic.
Conspicuously, while there is conventional or Islamic finance, the role of
AI is substantiated manifold when such uncertain risk environments are
propelled. The role of regulatory authorities in combating the aftershocks
of these drastic crises is also substantiated.
In this stream, Islamic financial industry, being in its infancy, needs to
adopt artificial intelligence mechanisms to better ensure customer’s user-
friendly experience and attain technological advancements. In current
circumstances, customers are more sophisticated and concerned about
their investments and they prefer to make financial transactions where
there is less human involvement (Karim et al., 2019; Rahim et al., 2018).
348 S. KARIM ET AL.

For this reason, technological innovations have broader scope to improve

the customer experiences and to provide efficiency to the overall finan-
cial system. Artificial intelligence is considered as the most popular way
to improve the efficiency of the financial system through smart contracts
which is a computer program that prepares and records a list of all the
customers whether they are senders or receivers (suppliers and buyers).
This program has its application in other areas for instance, banking
system, takaful (insurance), and management-related programs. Like any
other technological innovation, AI has its application in the Islamic Finan-
cial Sector and its products. It is argued by Mijwel (2015) that adoption
of AI in Islamic financial system can create machine learning tools and
deep neural networks that bring a new unique experience to the whole
financial industry.
Prior literature also highlights that AI will have a huge influence on the
future growth and prospects of Islamic Financial industry with the rele-
vant adoption of different technologies to provide efficiency to the whole
banking mechanism. It is argued that Islamic Financial industry, having
significant implications for Muslims and religious ethnicity, cannot deny
the importance of adoption of AI into its processes and operations. Given
these arguments, it can be said that artificial intelligence has covered the
major proportion of businesses while minimizing the human workload
and increasing the efficiency and output of processes and Islamic finan-
cial industry, having significant contribution to the economy, must also
adopt to the changing circumstances and embracing the technological
innovations particularly post-COVID-19 period.
Overall, it is revealed that Islamic FinTech needs to be promoted
significantly during and post-COVID-19 and several technologies such
as blockchain and artificial intelligence can be implemented in the Islamic
financial industry. Given these stances, it is described that Islamic banks
can adopt multiple FinTech solutions for providing better solutions to
customers in the recovery era of COVID-19, but it must be understood
by the regulators, bankers and managers that these innovations do not
violate the principles of Islamic law.

3 Usefulness of Islamic FinTech

in Overcoming the COVID-19 Shocks
The Islamic fintech offers significant tools to combat the devastating
effects of COVID-19. The differentiation in the categories of Islamic
 COVID-19 CHALLENGES AND THE ROLE … 349

social finance is of basically voluntary and compulsory acts. Voluntary acts

include the charitable deeds, Sadaqah, and Waqf whereas compulsory
acts include Zakat. Table 1 illustrates the orientation of both volun-
tary and compulsory deeds with various perspectives. First, parameters
on which Zakat , Sadaqah, and Waqf are assessed have been mentioned.
Five parameters are wealth sharing mechanisms, occurrence of donations,
beneficiaries or recipients of donations, type of contribution and overall
social impact of both voluntary and compulsory acts as explained in Table
1.
The relevance of these voluntary and compulsory donations in the
COVID-19 outbreak is very much essential where both types of dona-
tions provide basis for monetary assistance for the needy people. In
an uncertain environment where many families, businesses and working
conditions were unsuitable for individuals, such kinds of donations are
helpful for the bereaved individuals to fulfill their needs.
The other significant technology backed tools to assist Islamic finance
are categorized into five types. Table 2 provides the list of FinTech
solutions and their probable role toward social inclusion.
It is highlighted that the first category consists of artificial intelligence
and data analytics which are used for the assessment of creditworthi-
ness in spite of limited credit capacities in emerging economies. The
second category is about mobile enabled tools such as online banking and
P2P lending for facilitating open banking systems. The third category is
related to distributed ledger which is one of the significant applications
of blockchain where each party is assured of speedy transactions with no
or minimum cost and reducing risk for both parties. Fourth category is
cloud computing to facilitate FinTech innovations in Islamic finance for
enabling an automatic response from a third-party server that will initiate
the process of transactions automatically. The final category is cybersecu-
rity where it is necessary to manage the risks related to the internet and
cybercrimes.
Given the situation of COVID-19 pandemic, where most of the offices
shifted from built-in offices to cloud based working conditions, the use
of these technologies is creating a threshold for the Islamic financial insti-
tutions and Islamic banking system to assist their customers and clients
with technology efficient products and services. Since strict requirements
of social distancing were imposed by the World Health Organization
on the onset of COVID-19, it is noteworthy that implementing various
350 S. KARIM ET AL.

Table 1 Voluntary and compulsory acts of Islamic social finance

Compulsory Voluntary

Parameters Zakat Waqf Sadaqah

Wealth sharing Zakat is compulsory Voluntarily donating Voluntarily giving

mechanism obligation on the a certain amount to a some amount of
Muslims with excess trust or a charitable money for seeking
money and holdings society for fulfilling the pleasure of
beyond certain social obligations ALLAH Almighty
thresholds/limits for and helping others
a particular period of
time
Occurrence of Defined on an Donations are not Donations for this
donations annual basis with subject to time or a category are not
specified limit based specific amount. They bound by specific
on numerical figures can be made at any time and amount
time maintaining a and there is no need
specific perpetuity to retain a principal
amount
Beneficiaries/recipients As specified in It can be donated to It can be given to
Al-Quran, Zakat some institutions, anyone to fulfill
must be given to relatives, needy, their needs unless it
eight categories such widows, and orphans. does not involve any
as: poor, needy, For example, it can abandoned acts
slave, revert, debtor, be donated to a
Mujahid, traveler, mosque, to a relative,
and collectors of or for other
Zakat charitable causes who
do not have sufficient
resources to meet
their ends
Type of contribution Usually in terms of These are basically It can be anything
cash but the amount assets which have which is beneficial
must be given long lasting to the receiver of
according to advantages the Sadaqah
pre-specified
proportion
The overall social Extreme poverty can Usually, it provides It is the blend of
impact be reduced if proper an opportunity to set both Zakat and
framework is some amount as a Waqf to help the
developed for limit to distribute to needy people
distributing Zakat the society in terms
among the societies of assets distribution

Source World Bank Group (2020)

 COVID-19 CHALLENGES AND THE ROLE … 351

Table 2 Islamic Fintech and social inclusion elements

FinTech innovations Social inclusion elements

Artificial intelligence and data analytics It is used for assessment of

creditworthiness of the customers by
analyzing different patterns such as online
activities, social media usage, call records,
and location availability. This information is
processed through artificial intelligence to
convert it into algorithms for maintaining
a record for a specific customer
Mobile payments, P2P finance, and open Mobile payments have enabled several
banking system customers to initiate transactions and send
money online to other beneficiaries. P2P
financing is also relevant to mobile
payments. In this way, an open banking
system facilitates user-friendly experience to
provide access to the financial information
of a customer and is enabled through
apps-systems of banks. Its basic purpose is
to facilitate ease of accessibility of the
financial system from remote areas too
Distributed ledgers It is an application of blockchain
technology which receives, processes, and
converts the received information into
information blocks to improve the
experience of users with high-speed
transactions and minimum transaction
costs. Distributed ledger also assures
authenticity of both parties and on time
delivery of funds
Cloud Particularly for Islamic finance, this
technology provides useful solutions for
saving the information managed by
cloud-software. For start-up companies and
small firms, such a type of technology is
useful for managing information into a
single platform
Cybersecurity With the increased use of technology, it is
necessary to manage risks related to
information transmission. The information
theft, cybercrimes, identity theft,
information leakage, hacking agencies, etc.,
all raise serious concerns for the
cybersecurity of customers as well as
financial institutions

Source World Bank Group (2020)

352 S. KARIM ET AL.

technologies in the daily business operation will assist the Islamic finan-
cial system to reap sustainable projects with long lasting impact on the
economy.
Studies also reveal that COVID-19 has brought unprecedented chal-
lenges to the overall economy of the world were maintaining social
distancing SOPs to save lives of millions was the core purpose behind
the closure of all business operations. But labor earning on daily wages
suffered the most in the developing nations where providing sufficient
sustenance to their families seemed impossible due to closure of all
business operations. With these uncertainties, Islamic fintech solutions
provide sufficient support for individuals, businesses, and needy persons
to maintain their sustenance even if the economic conditions are harsh.
In this way, the purpose of serving the community and attaining the plea-
sure of ALLAH Almighty goes equally well. Therefore, Islamic financial
system is completely providing support to less privileged individuals while
ensuring even circulation of money in the society.

4 Conclusion and Recommendations

This study presented the role of Islamic fintech and Islamic finance as
a response to COVID-19 pandemic. The qualitative nature of study
provided significant insights on the evolution of FinTech, emergence
of Islamic fintech, different fintech solutions facilitating Islamic financial
industry, voluntary and compulsory acts of donations, and the modes of
social inclusion through various Islamic fintech innovations. It is observed
that the recovery period of COVID-19 pandemic has embarked several
opportunities for micro, small, and medium enterprises. For an emer-
gency state of affairs where worldwide lockdowns were announced in
the mid of March 2020, the abrupt response of Islamic finance is in
terms of Zakat, Awqaf, and Sadaqah for the needy people. Moreover,
as the market conditions started stabilizing, the recovery process also
soothes by providing funds to several entrepreneurs who want to start
their businesses with lower investments. The long-term recovery process
needs establishment of medium enterprises with their outreach toward
significant industries. The Islamic fintech innovations for such uncertain
circumstances have provided support to several employees and customers
where employees can work from their homes using the latest technolog-
ical advancements and customers can experience mobile banking and open
banking systems through their hand-held devices. In this way, Islamic
 COVID-19 CHALLENGES AND THE ROLE … 353

fintech and Islamic finance have generated significant opportunities for

underprivileged individuals in providing a hand to them in their time of
need.
The study has generated several policy and regulatory recommen-
dations where regulators need to fully incorporate the technological
innovations in their banking systems to enjoy speedy transactions systems.
Meanwhile, it is also noted that these innovations must be within the
limits of Islamic Sharia and do not violate their stipulated regulations
as they will directly impact on the smooth system of Islamic financial
system. Needless to say, Islamic fintech has provided sufficient solutions
in the recovery phase of the coronavirus period where it strengthened
the mutual relationships of brotherhood, ensured urgent assistance in the
emergency situation and created several opportunities for entrepreneurs.
The study recommends initiating awareness programs for the employees
and customers to inform them about different facets of using technolog-
ical innovations. Moreover, starting training and development programs
will also bring substantial knowledge for the banking personnel to under-
stand and learn the timely solution of Islamic fintech. In this way,
COVID-19 has created a greater mess around the globe and as a response
to its devastation Islamic fintech has provided workable and pragmatic
solutions to implement them in the Islamic financial system.

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 Index

A 289, 292, 294–296, 299,

Analytical techniques, 76 308–312, 314–317, 321,
Artificial Intelligence (AI), 3, 4, 8, 14, 324–328, 343, 344, 346, 348,
16, 19–21, 30, 50, 55, 57, 66, 349
68, 73, 75, 78–80, 83, 91, 114,
117, 118, 120, 122, 123,
132–134, 142, 145, 146, 161, C
162, 177, 179, 194, 227, 229, Cloud computing, 77, 118, 186, 194,
235, 254, 255, 308, 309, 312, 233, 253, 294, 308, 309, 317,
320, 322, 324, 343–349 322, 327, 349
Asset management, 90, 209, 252, Crowdfunding, 4, 13, 18, 30, 34, 35,
308, 313, 320 40, 42, 67, 82, 95, 102, 113,
116–118, 120, 122, 132, 143,
162, 179, 180, 184, 185, 194,
B 205–207, 213, 226, 230–233,
Big data analysis, 118, 254 248, 251, 264–272, 308, 309,
Big data analytics, 90, 118, 133, 186, 311, 312, 314, 319, 321, 327,
227, 320 328
Blockchain, 4, 11–14, 16, 17, 19, 38, Cyber security, 17, 40, 118, 123,
57, 66–69, 75, 76, 83, 91, 95, 178, 228, 322, 349
102, 117, 118, 122, 132–134,
142, 145, 146, 162, 166, 177,
179, 181, 182, 185, 194–196, D
210, 228–230, 235, 252, 253, Debt based crowdfunding, 267
255, 263, 270, 280–282, 285, Donation based crowdfunding, 267

© The Editor(s) (if applicable) and The Author(s), under exclusive 357
license to Springer Nature Switzerland AG 2022
M. K. Hassan et al. (eds.), FinTech in Islamic Financial Institutions,
https://doi.org/10.1007/978-3-031-14941-2
358 INDEX

E InsureTech, 4, 13, 14, 132, 308, 313,

Emerging technologies, 68, 72, 73, 327
83, 180, 320 Internet of Things (IoT), 74, 75, 79,
Equity based crowdfunding, 267 117, 118, 132, 194, 309, 320,
Evolution of FinTech, 343, 352 344
Evolution of Islamic FinTech, 345 Islamic Fintech, 4–6, 14–19, 21, 50,
55, 57, 66–68, 83, 114–116,
118–124, 135, 163–165,
F 168–170, 176–181, 183,
Financial Accessibility, 94 185–187, 196, 201–203,
Financial inclusion, 5, 18, 19, 55, 57, 211–215, 229, 231, 234, 245,
115, 122, 132, 133, 177, 178, 246, 255, 269, 271, 311–314,
183, 207, 214, 223–225, 229, 317, 319, 321–324, 328, 343,
231–233, 235, 245, 246, 346, 348, 351–353
317–319, 324, 325, 346
Financial Knowhow, 94
L
Financial technology, 2, 29, 30, 39,
Legal Sandbox, 82
66, 69, 74, 83, 89, 100, 117,
118, 120, 134, 157, 161,
163–165, 169, 177–179, 186, M
193, 204, 212, 213, 223, 225, Maqasid al-Shariah, 50, 54, 249
229, 235, 243, 245, 247, 255, Mobile payment, 11, 12, 30, 33, 34,
263, 307, 320–322, 345, 346 38, 40, 42, 113, 117, 121, 227,
264, 318, 319, 322

G
Gharar, 9, 179, 207, 245, 249, 280, N
292, 296, 300, 317 Neo-banking, 252

O
I
Open banking, 70, 74, 78, 204, 205,
Industry, 2–4, 8, 11, 14, 16, 30–32,
228, 321, 349, 352
40, 53, 66–68, 70, 72, 74, 75,
79, 81, 83, 91, 99, 100,
115–118, 120–123, 131–133, P
135, 158, 159, 161–163, 167, P2P Finance, 227, 229
169, 170, 176–183, 186, Peer to peer lending, 265, 270, 271
193–196, 201, 211, 225, 229,
230, 235, 247, 249, 251–253,
255, 270, 279, 290, 291, 307, Q
308, 311–313, 320, 327, 328, Quantum computing, 8, 91, 132,
341, 342, 345–348, 352 227, 320
 INDEX 359

R T
Regulation technology (Regtech), 4, Traditional banks, 6–8, 34, 41, 102,
20, 30, 42, 95, 132, 162, 179, 115, 122, 124, 181, 185,
228, 322, 327 203–206, 208, 227, 252, 308
Regulatory sandbox, 42, 73, 82
Robo-advisors (RA), 132, 209, 210, U
254 Unicorns, 200

Z
Zakat , 16, 18, 50, 55–58, 122, 161,
181, 182, 184, 185, 230, 232,
S 245, 246, 255, 296, 323, 324,
Smart Sukuk, 14, 210 343, 349, 352