Global Islamic Fıntech And Türkiye's Potential

Fintech brings Islamic finance into an innovative and unrestricted space to reach its true growth potential.

MAGAZINE 01.02.2022, 13:35 10.02.2022, 11:08
Global Islamic Fıntech And Türkiye's Potential

Financial technology played a role in the development and innovation of the finance industry, serving as a tool that elevated financial services through automation, cost-cutting, centralisation, global reach, and enhanced communication and transparency. Its adoption in various sectors within the Islamic finance industry allowed the space to expand beyond its limitations in the traditional system and to explore new areas for growth and the achievement of its true objectives.


The Islamic Fintech scene identified over 230+ Fintechs internationally, as digital disruptions spread across the Islamic banking ecosystems worldwide, according to the Global Islamic Fintech Report 2021. In the growth trajec- tory of Islamic finance, many restrictions, represented in its boxing within conventional set regulations, played a role in the slow progress felt by the industry. Fintech comes as a disruptor to this growth pattern, bringing Islamic finance into an innovative and unrestricted space where it may reach its true growth potential. According to the report, Islamic Fintechs are expected to expand at a CAGR of 21 percent to $128 billion by 2025 in transaction volume. This is a faster rate of growth than traditional Fintechs, which are expected to grow at a 15 percent CAGR over the same time period.

With this rate of progression, great potential lies in the development and innovation of the Fintech space, leading to the question of how this can be put into application. Currently, the landscape of services offered through Islamic Fintechs globally includes 220+ services that are designed based on intended outcomes. Islamic financing has spread widely and is gaining momentum across the globe as fund-raising channels are designed, including Peer 2 Peer and crowdfunding services coming to life through digital platforms. These platforms are taking Islamic finance to a new era as crowdfunding platforms, and p2p facilitate Shariah compliant, transparent, and profitable investments.

These Fintechs have also facilitated financing and fundraising for early-stage businesses, startups, and SMEs and enabled venture capitals and HNWIs to support and promote the fintech space as well as own a diverse range of equities, tapping into various sectors in the Islamic finance industry.
A major sector of Islamic finance has been in capital markets that are seeing a strong shift towards the instruments of Sukuk. Sukuk are seeing growing interest, as governments are issuing first-time notes to tap the global market. Due to the nature of Fintech that is unconstrained, Sukuk management can be advantaged and better structured. The integration of Fintech in such a field assists in removing these constraints by eliminating the complexity and costliness of the existing structures. Additionally, by introducing blockchain technology, Sukuk can be managed efficiently.


Beyond the scope of services offered, Islamic Fintech is seeing increased attention extending beyond financial institutions and businesses. The ecosystem is further driven by the regulators and advisory bodies who are assisting in better fitting the space to function seamlessly while addressing potential gaps. Shariah scholars and consultants, as well as research institutions and edu- cation segments, are working towards accelerating the pace of Fintech integration into the Islamic economy.

The Islamic finance industry's development potential remains strong, but insufficient public knowledge of Islamic financial products is among the industry's primary challenges, particularly in regions where the industry has a minority presence. This necessitates measures to address financial literacy and the ability of investors to establish and maintain long-term investments. Filling the funding gap for underrepresented groups and bringing issuers and investors to the still-nascent sustainable and responsible investing space.
The least developed Islamic finance markets include those in which Islamic goods are unavailable due to a lack of supportive legislative settings, as well as those with the lowest levels of awareness, confidence, and demand. The development of regulations that support Islamic financial services, such as ongoing training and awareness campaigns for various stakeholders, including customers, regulators, financial institutions, and employees, supported by the increased use of fintech solutions are all initiatives that can help address these challenges.


The potential in Islamic Fintechs lies in its ability to drive the values that Islamic finance is centred on, combining social and sustainable development with profitability and economic growth. As such, the economy is witnessing a shift towards multiple tools that are in development driving sustainable finance, such as Sadaqah, Waqf, Takaful, and Zakat. The following have been strongly powered through the help of e-wallets, crowdfunding, and even Blockchain technology, cryptocurrency, and tokenization.

In financing, ample growth is also being channelled towards sustainability, such as the recent issuances of ESG, green, and blue Sukuk. From the individual perspective, wealth management and personal finance are other fields that are seeing development driving asset management, halal loans, mortgages, and student finance powered by crowdfunding services emerging robo-advisory, wealth tech, and challenger banks.


Islamic Fintech has shown significant growth in Islamic finance over the last few years. Fintech, in general, has become familiar worldwide since after the economic crisis of 2008 gave popular rise to crowdfunding platforms for causes such as charity, arts, and beyond, while P2P media for investment started to gain attention. Among the different forms of Fintech, such as crowdfunding regtech, insurtech provides insurance services via fintech platforms in easily accessible ways. Thus far, this type of service has yet to be tapped significantly by the Islamic finance industry. The discovery of a successful formula to launch Islamic Insuretech in the Muslim world offers potential fortune for the bold, willing to try and tap into a growing young and tech-savvy Muslim Millennial population considered the youngest population in the world with a median age of 23 years. The young generation of Muslims committed to keeping their finances Halal will seek sophisticated Takaful products and services that cater to their values and unique financial needs.


Takaful/Islamic Insurance refers to an insurance system free from elements prohibited in Islam and an alternative to the conventional insurance system. In Arabic, the term "Takaful" has a broader literal meaning, including social solidarity, cooperation, and mutual support. The International Islamic Fiqh Academy (IIFA) defines Takaful as: "Cooperative insurance is the process in which a group of people, who face particular risk(s), agree that each of them contributes a specific amount, based on cooperation, to a non-profit fund used for compensating anyone of them for the harms he would encounter when the risk in question materializes, as per signed contracts and adopted regulatory legislation"(OIC Fiqh Academy, 2016).


The presence of the first Takaful player in the Turkish market appeared in 2009 with the establishment of General Takaful company Neova Insurance, followed by the establishment of the first Family Takaful company, Katilim Pension, and Life in 2013. However, the regulation for the Takaful industry only came into effect in 2017, issued by the Ministry of Treasury and Finance Committee. Despite its humble beginnings, the market share of the Takaful sector reached TRY3 billion and achieved a market share of 5% by September 2020, which was 2.8% in 2017, expected to reach double figures in 2023 with a 10% market share of the Turkish Insurance market.


The Turkish fintech scene has been growing steadily while attracting global interest. According to startup watch, in 2020, 165 startups raised a total of 139M USD from angels and VCs, setting a new record for the ecosystem. Currently, there are 12 conventional insurtech startups globally that have raised US$ 2.1 million between 2016-2018 serving as aggregators, data & risk analysis, and risk management companies operating in the sector. Despite the prospects and potential of the Takaful sector in recent years, it has not seen any Fintech activity compared to its counterparts 

in the conventional Insurtech industry scene in Turkey. However, this shows the opportunity to tap into the Takaful market, a nascent niche within Islamic Fintech. In March 2022, the 3rd edition of the Global Islamic Fintech Summit will be held in Istanbul to showcase the possibilities of financial innovation through the merging of technology and the principles of Islamic finance. This event will bring together some of the greatest minds in the Islamic finance industry and visionary experts in Fintech to delve into the pressing questions of the current time and address some of the critical issues regarding how to move the industry forward.


Islamic Insurtech may potentially find its start by riding on the wave of success that motor takaful has made in the past few years. According to the Turkish Insurance Association, motor insurance premiums rose by nearly 33% from July 1, 2016, to June 30, 2018 – a rise largely attributed to Takaful. It's worth mentioning that the Islamic banking and Takaful industry has the government's backing with introducing the 11th Development Plan (SBB, 2019) to be an integral part of the Turkish economic growth and appoint Istanbul as a financial hub.


There is a potential for Islamic insurtech/TakafulTech to arise with strong government support for the Takaful industry in Turkey. Takaful Operators and incumbents can partner with other fintech startups to provide cost- efficient solutions and address the entire Takaful cycle. We can learn a lesson from the model set by Qatar Insurance Company (QIC) in Qatar, where they have developed their web-based platform Anoud+ in-house in collaboration with Swiss Re that supports its services to insurers in emerging markets with a focus on Africa. Practitioners, entrepreneurs, incumbents, and Takaful operators, as key players in the industry, have a collective responsibility to ensure the sustainability of the overall interest-free financial system in Turkey.

CEO of Elmangos Ventures Abd Elmohaimen Mansi & Ortak Yazar Co-Author Abdikan Warsame

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