Service and Data Management in Distributed Systems (SEDAN)
Islamic finance came as a breath of fresh air for thousands of Muslims who did not want to participate in conventional financial platforms to save themselves from riba or interest.
According to Thomson Reuters projections, Islamic finance assets will rise to $3.2 trillion by 2020, indicating the strong foothold of this relatively new financial industry. Yet, all is not going to be smooth in the coming years, as the industry is facing inevitable disruption by a storm of nascent technologies. Amongst these, blockchain emerges as the most potent to cause such disruption that if the industry does not innovate to incorporate it into their existing information systems, there is a likelihood of loss of the existing client base and possible unattractiveness for prospective clients.
There has been much talk about blockchain and fintech, and industry leaders are well aware of the nuances involved. However, what I see as a major impediment to the progress of Islamic finance in the fintech domain is the lack of involvement of Shariah scholars and financial practitioners with technology consultants. Blockchain in itself has proved to be difficult to be understood by average finance professionals. This has resulted in a disoriented product that is verified half-heartedly by scholars and is endorsed by unaware financial leaders. It is designed by technology experts who may lack knowledge in both Islamic finance and Islamic education.
Some years ago, the only grueling issue was that the industry had finance professionals who were not aware of the intricacies of the Shariah. Many Shariah scholars had little to no knowledge of designing financial products. The relatively new addition of a third dimension to the already existing challenging situation came in the form of fintech.
Shariah scholars are the cream of the Islamic finance industry. They help deliver products and services that the user can comfortably exploit knowing that all the tenets of faith have been satisfied in the service/product designing process. If the scholar has to totally rely on the reports of technology experts in forming a judgment on Shariah validity, there is a likelihood of bias creeping into the judgment. Further, the role of finance professionals is reduced to a mere onlooker, who might just offer their views on the financial side without fully comprehending the implementation of the financial product in the new technology. This triad stands as three separate units, with one taking a lead role — those who are aware of the technology.
The need of the hour, therefore, is a harmonious blending of the three forces to become unified to design products and services, failure of which will result in Shariah non-compliance. The differentiating factor between groups of people who excel and those who lag is knowledge. There is no substitute to knowledge and learning. The first step to learning is to understand your own religion. It is shocking that many finance professionals are not even aware of the basic tenets of faith and yet, are practicing Islamic finance. People’s attitude towards accepting this ignorance about religion demonstrates complacency.
How can one expect innovation in a certain industry when its foundation is not strong? Businesses can innovate and excel only when the industry’s roots are firmly placed. Islamic finance hinges on the tenets of Islam. There is a need for products and services that embody the true spirit of Islam in order to bring equality and provide the basic necessities to everyone, preventing the hoarding of wealth in select few hands. There is an urgent need for a revival of knowledge that enabled inventions by great scientific figures such as Ibn Sina, Albert Einstein, Graham Bell, and the like. If this revival is not accomplished, what we have in hand is a bird without wings devoid of the ability to fly.
In order to witness the same progress and development now, some necessary changes in the Islamic finance industry are vital to make headway and provide Shariah-compliant products and services to users, implemented and delivered using the latest available technologies. The following steps need to be taken to tackle the issues on a short-term basis:
The following additional steps need to be taken to emerge as an industry that is well-prepared to deal with emerging technology head-on in the long term:
Change can be good or bad, depending on the level of preparedness of an organization and the initiative-taking capability of its employees. A well-structured approach can assist in maintaining the status quo and enabling future progress in establishing a strong foundation. Some organizations will sink in this disruption, while others will not just manage to swim but win the race. The result will depend on the tools an organization equips its employees with. The time to take the decision to sink or swim is now.
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