Technological Transformation, Participation Finance, and Development

Two significant events on Islamic economics were held in September.

Technological Transformation, Participation Finance, and Development

The first was the 9th Economics Workshop organized by IKAM (Research Center for Islamic Economics) with the title "The Problem of Development and Underdevelopment", and the other was the International Joint Conference on Islamic Economics and Finance organized by RECISEF (Research Center for Islamic Economics and Finance fınance) within Sakarya University, with the title of "Rethinking the Developmental Role of Islamic Economy and Finance: New Horizons".

The main theme of both events was development. Many topics such as solution proposals, of Islamic Economy and Finance to the development problem, theories, practices based on participation finance, and the functioning of institutions were discussed. One of the notable topics among these was the criticism towards the current state of Muslim countries. Muslim countries being among the least developed or developing countries when categorized in terms of development level was subjected to criticism in both events. The issue that the Muslim countries in the Sub-Saharan African region are behind in the ranking has been brought to the agenda as a problem. In this sense, the fact that the countries in question are in need of foreign aid for development is considered their incapability of gaining their economic competence. As a matter of fact, while the ratio of foreign aid received by Muslim countries in Sub-Saharan Africa to their national income is around 20% to 30% in some countries, the average figure for these countries is around 7%.

There are many reasons why these countries are underdeveloped. However, the Islamic Economy/Islamic Finance that we are talking about today and which represents the economic perception of Islam, emerged on the idea that Muslim countries should develop themselves by getting rid of colonialism and establish a fair and sustainable model. For this reason, the state of institutions is as important as people in the system or model to be established. In this sense, technological transformation is an opportunity for an ecosystem where both the individual and society and institutions are considered important. Because technological transformation both supports and transforms financial institutions. The current ongoing digital transformation is not only the carrier of a change in big data, artificial intelligence, or informatics but also a new business model. For example, decision-making processes in which more precise results based on data are predicted and human intervention is minimized have begun to be used in financial institutions. In addition, business models based on the "pay-as-you-go" principle rather than buying in the service sector are gaining popularity through online platforms. Even an unused or idle sofa can not only be exchanged but also be easily rented or yield can be obtained this way, the details of which we see in the sharing economy. In this sense, the current transformation is the harbinger of an innovative/constructive destruction that replaces the old with the new.

If the participation finance institutions play a leading role in this transformation and can guide the process, it will open the way to grasp the change required for a fair and sustainable system mentioned above.  It is possible to experience this digital transformation, which will change the paradigm in the medium term. For this reason, studies that will accelerate the sector are of utmost importance. Moreover, taking an inclusive role in line with the principles of participation finance, rather than prohibiting and hindering, will contribute more to the sector. In this sense, it is crucial and necessary to develop blockchain and related technologies, to support fintech applications and to prepare their legal infrastructure to realize integration and regulations with local and international institutions, to ensure transparency, to evaluate application within the scope of participation principles, and to carry out studies for training qualified manpower. Because it is observed that the existing efforts are recognized by the users. For this reason, this transformation process, which is an opportunity for increasing the share of the sector, getting more response from users and ultimately an alternative development paradigm, should not be missed. 

Ahmet Biçer

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