The Role of Digital Technologies in Islamic Finance

The Role of Digital Technologies in Islamic Finance



Tehran(IQNA)-Digital acceleration is happening all over the world, and Islamic Finance needs to connect with it and recognize it as a driver of growth.

Beginning with the establishment of the Islamic Development Bank and the Islamic Bank of Dubai in 1975, the market for Sharia-compliant financial solutions has grown rapidly, with regional banks capitalizing on demand from citizens and businesses for halal banking services.

In a recent webinar held in conjunction with Meed and Emirates Bank, Ebrahim Al-Muhairi, Executive Vice President and Head of Islamic Banking at Mashreq Bank, said: “The growth of Islamic banking in the Middle East is an average of 14%, while the growth of conventional banking is 8%”.

Mohammad Damak, Senior Director of Islamic Finance at Ratings Agency S&P, explained that the historical development of the Islamic Finance market – with a current value of global assets of $2.5 trillion – has been influenced by several factors, and that recent geopolitical and macroeconomic challenges should not limit the continued growth of this sector.

تأمین مالی در جهان اسلام

“Clearly, there are risks to the growth outlook such as the conflict between Russia and Ukraine – which has been longer than expected – the continuation of high inflation and the normalization of monetary policy faster than intended. However, we believe that the rate of issuance of new sukuk will exceed $90 billion and contribute to the overall growth of the Islamic Finance industry. This means that there are great opportunities for the growth of Islamic Finance in the Persian Gulf Cooperation Council region, with the support of government policies. Overall, despite these risks, the overall industry movement looks positive and it is predicted that over the years 2022-2023, the Shariah-compliant lending sector will grow by 10%. However, despite these signs of future growth, more needs to be done to develop Islamic Finance to a wider and more relevant audience, and to make it more responsive to market needs,” he said.

شتاب فناوری‌های دیجیتالی در تأمین مالی اسلامی

Rafiuddin Shekoh, CEO of “Dinar Standard Investment Consulting”, said that although the Islamic Finance sector has developed well in recent years, it still represents only a small part of the total financial transactions in the world, and pointed out: “The new generations have a different view of the world and look at Islamic Finance from a different point of view compared to the previous generation. They want everything to revolve around sustainability and need help to make Finance more realistic. We also need to connect the behavior of this generation to the ethical, social and global principles that the Islamic Finance industry uniquely brings. It is these pillars that make Islamic Finance globally relevant, and will serve as the framework for its future strategic growth.”

Seminar participants pointed out that the Islamic Finance industry has often failed to market its benefits to potential clients, and that a lack of innovation, especially in technology, has hampered its access to young generation.

Fintech start-up Wahed’s launch of an online ethical investment platform empowers people to grow their assets in a way that aligns with their values, while leveraging digital capabilities.

Omar Suleiman, Head of Risk Group at Wahed, said: “We are reaching out to ordinary people, especially young tech-savvy Muslims, who may not have a bank account but have a mobile phone, and tell them there is a new way to increase their wealth. The time for innovation and digitalization has come. Islamic financial principles are more important than the debate between Muslims and non-Muslims. These principles relate to the world in which we live. When thinking about which products to invest in or not to invest in, you are considering social optimization. People running a multi-billion dollar business have a responsibility to their customers and must strive to create a circle of sustainability.”

Dinar Standard’s Shokweh also takes a similar stance and pointed to the synergy between Islamic finance and the growing demand for ESG (Environmental, Social, and Corporate Governance) compliant investments. “Islamic Finance that exists in the UAE has an opportunity to support ESG initiatives but the traditional way it is done needs to be changed,” he said.

Al-Muhairi of Mashreq Bank said: “Although there are still no regulatory guidelines on how the Islamic finance system can contribute to change in the energy sector, local banks are moving forward on the the basis of greenhouse gas reduction targets (Net Zero) set at national level. This approach is relevant because banks like Mashreq are committed to ESG and can fund “Net Zero” initiatives. Whenever financial opportunities or large companies with financial needs related to net zero projects come to us, we support them, do the necessary investigations and help borrowers to support national objectives”.



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