Digital disruption is agnostic. Regardless of industry, vertical, and geography, technology permeates into every possible crevice of a broken system. The disruption in the Islamic finance space is no different, and digital Islamic financial services in Muslim-majority pockets across the globe are in an accelerated upward spiral. The Islamic FinTech industry in OIC countries is projected to grow at a 21% CAGR to $128 billion by 2025, compared to a CAGR of 15% for conventional FinTech.  

Catalyzed by COVID-19, digital Islamic financial services, especially within the APAC and GCC regions, have been embraced at an unprecedented pace. Although disruption comes as a natural consequence of a maturing market and industry, digital Islamic disruption has seen turbocharged growth due to the adoption of new technologies and changing customer preferences.  

Digital Islamic Banking has been around since the turn of the last decade. However, there is now a new breed of cutting-edge, digital Islamic offerings in the form of Shariah fintechs. What’s fundamentally different about this new category of financial technology companies is that they’ve leveraged a wide catalog of technologies to empower customers across all demographics with swift and simple shariah-compliant financial products and services.    

APAC The Hotspot of Digital Disruption   

Housing over 60% of the world’s Muslim population and incubating 39% of Islamic fintechs globally, the APAC region is a hotspot for digital Islamic finance. For instance, the Malaysia-Indonesia corridor is hailed as the birthplace of “Shariahtization” in the fintech space, and for good reason.  

In 2020 Indonesia’s leading fintech, LinkAja, launched a first-of-its-kind, shariah-compliant eWallet in partnership with over 1,200 mosques and waqfs across the nation, and Google-backed GoPay partnered with the Indonesian Mosque Council to enable and process over $500 million in zakat funds from over 800,000 mosques.    

On the other hand, Malaysia’s digital financial landscape saw similar trends as multiple local fintechs pivoted to offer shariah-compliant digital financial products in response to customer demands.    

In October 2019, microLEAP, Malaysia’s first Islamic P2P lending platform, received clearance to roll out their microlending proposition. In tandem, Singapore-based Ethis Venture began operating in Malaysia and inaugurated the country’s first Islamic equity crowdfunding program, followed by Malaysian-based StashAway, offering clients a shariah-aligned, Islamic wealth management platform.    

For incumbent banks, aspiring fintech leaders, and tailgating competitors, these developments raise a critical question. Can they meet the rising demands of modern customers or succumb to Islamic fintech institutions?   

The reason behind this is simple.  

As younger Muslims, especially millennials, lookout for new ways to bank, there is an increasing consensus for faith-aligned institutions, meaning those which extend the holistic advantage of a shariah-compliant digital-first banking platform. This is evident in the fact that global Islamic finance assets grew from $2.06 trillion in 2013 to more than $2.88 trillion in 2019 and is projected to surpass $3.69 trillion by the end of 2024, as per latest research by BNY Mellon.   

Understanding The Growth of Sharia Fintechs     

While the demand for sharia fintechs is evident globally, it is important to analyze the main proponents fueling their growth. Our research points out at four factors which are propelling the growth of faith-aligned modern fintechs globally and steadily attracting the attention of VCs and customers alike.  

Digital-first Approach

Islamic finance has been an integral part of the global financial system for nearly 50 years; however, it has only witnessed substantial disruption in the past decade mainly because of the rise in consumer demand for digital-first shariah-compliant financial institutions. While legacy Islamic institutions have been slow to adopt digital-first offerings, Shariah fintechs have swooped in and empowered customers with a whole suite of digital-first products and offerings right from digital onboarding and remote opening of bank accounts to borderless banking, thus earmarking them as millennial’s favorite choice.   

Ease Of Use

Along with restrictive access, another issue with legacy Islamic institutions was the fact that most consumers felt the system to be complicated, deterring their motivation to learn and familiarize themselves with the platform. On the other hand, leading Shariah fintechs in today’s market, share a usability first design approach, thus translating to the fact that these platforms are increasingly simple for the average customer to use, even complete beginners.   

Increased Accessibility

While legacy institutions have been consistently making strides to expand their reach, there is a real constraint on how many customers can physically reach you as most of these institutions prefer branch-based banking. In contrast, Shariah fintechs are expertly leveraging their technological prowess to not only seamlessly onboard customers but do so from localities which were once deemed unbankable due to geographical constraints.   

Best Of Both Worlds

Last but not the least, while Islamic financial institutions are faith aligned, they often fail to meet the dynamic needs of modern consumers; as showcased earlier, Shariah fintechs offer the best of both worlds by not only being faith aligned but also sharing a willingness to listen and implement changing customer demands.   

In Conclusion   

As an increasing number of Muslim millennials and allied customer segments look towards banking with faith-aligned institutions, the rise of Islamic finance is positioned to skyrocket.  

As per latest metrics from the Global Islamic Fintech Report, the Islamic fintech market just within OIC countries is expected to become a $128 billion industry by the end of 2025, witnessing a 21% CAGR. In contrast, the global fintech industry is only set to witness a 15% CAGR growth in the same timeframe. This clearly indicates how the future of Islamic finance will be – digital-first and customer-centric.