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How ready is Islamic Banking in the fintech world? Are customers ready for it or are we ahead of time?

27 May, 2019

Khairul Nisa Binti Ismail,

CEO, Sedania As-Salam Capital Sdn. Bhd

 

Does technology respond to the needs of the people, or do the needs of the people correspond to the availability of technology?

The ability to perform banking transactions on a phone is something that was not even imagined just 15 years ago, yet now, it has become so integral in the daily lives that many parts of the world have witnessed the progression into truly cashless societies.

Millennials demand fast service when it comes to their banking needs. Transferring money between accounts from different banks needs to happen in an instant. Bill payments need to be accessible from anywhere. Gone are the days when people lined up at the post office just to sort out their electricity or phone bills.

This is also true when it comes to financing. People want it fast, and they want it now. With information available at their fingertips, there is no longer a need to shop around for the best interest/profit rates at multiple banks. Everything is available online.

Similar to conventional banking, Islamic Financial services are also addressing the needs for both Muslim and Non Muslim consumers, introducing many Islamic fintech products to address the needs of this segment.

However, not many people understand the definition of truly halal banking and whether there are any platforms that offer such services. Most people only know that in order to make a financing transaction halal, it needs to be free from all forms of usury, or as most people understand it, interest.

This is where the process of Tawarruq becomes a very important financial instrument in Islamic financing. Tawarruq means “to buy on credit and sell at spot value.”1 It is a process where a financing applicant purchase a commodity from a financial institution (FI) on a credit basis. The commodity is then sold to a third party, receiving payment on the spot by the applicant. The applicant will then pay the FI for the cost of the initial sales transaction plus the mark up if any. This way, the applicant is protected against usury.


1 https://islamicmarkets.com/education/tawarruq

 

As it is practiced in Malaysia, the applicant usually appoints an FI to become the sales agent to sell the commodity to a third party. According to Shariah law, the traded commodity must be physically traded. Therefore, if there is a lapse in control to determine the specific commodity that was traded, the same item may be traded again and this does not comply with shariah requirements.

This poses a threat to the halal status of the financing with a lot of tawarruq based transactions. Most importantly, there cannot be any grey area to the halal status of any transaction.

This is where the As-Sidq platform comes in. Because the traded commodity is airtime credit, it is identified with unique serial numbers which makes it easier to identify. This way,consumers are rest assured that the financing they receive keeps to the specifications of truly halal financing.

From the customers perspective, we are ready to meet customers query when it comes to halal financing. With the evolution of awareness of Truly Halal banking, the timing is right.

Thus, we believe that our platform is ready to meet the demands of the consumers, not only for fast and hassle-free service but also to ensure peace of mind knowing that the financing they receive is Truly Halal. Whether they know it or not, the consumers have always been ready for Islamic Fintech, and we are here to fulfil those needs.

The views expressed in this article are those of the author alone and not the organisers of MyFintech Week 2019

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