Revolutionizing the struggling economy of Pakistan through Islamic fintech

Mufti Asad Gul

Islam is the universal system and order of commitment to Allah. It is a manifestation of submission to Almighty Allah in all facets of life. This is the very blueprint which every Prophet has encouraged mankind to adopt and conform to. It contains the living, societal, economic, spiritual, and psychological norms which bring out the most optimal results for all of humanity in the immediate and long-term.

After the knowledge of Sharia – which is the best of all knowledge and the most praiseworthy – Ibn Abi Hatim al-Razi reports how Imam al- Shafi’i (Rahimahullah) praised medical knowledge as the second best knowledge to learn after Sharia. In another report, Imam al-Shafi’i discouraged residing in a city where there is an absence of a Mufti and a doctor. Have stated how studying and practicing medicine is praiseworthy as it benefits people. Any study which is of benefit is praiseworthy.

Fintech is a term that combines the words “financial” and “technology” and refers to the use of innovative technologies to provide or improve financial services. Fintech is a broad and dynamic field that encompasses various products, applications, processes, and business models that aim to make financial services more accessible, efficient, and customer-oriented. Some examples of fintech products and services include mobile banking, peer-to-peer lending, crowd funding, robo-advisors, crypto currency, block chain, artificial intelligence, biometrics, cloud computing, big data analytics, and more. Fintech has transformed various aspects of the financial sector such as payments, lending, investing, insurance, wealth management, capital markets, regulatory compliance, and cyber security. Fintech also enables financial inclusion and empowerment for millions of people around the world who lack access to traditional banking services.

Fintech comprises two words: Finance and Technology. Finance is a broad term that encompasses various aspects of money and how it is used in different contexts. Finance can refer to the study of how individuals, businesses, and governments manage and allocate their financial resources. Finance can also refer to the activities and services related to money, such as banking, investing, lending, borrowing, saving, budgeting, accounting, auditing, and taxation.

Broadly, finance refers to the management of money and includes all activities involved with money, such as investments, lending, savings, borrowing, structuring, recording, forecasting, and more. Technology is a word that we use very often in our daily lives, but what does it actually mean? The word technology comes from the Greek words “techne” and “logos”, which mean “art” and “word” respectively. In ancient times, technology referred to any skill or craft that humans used to create something useful or beautiful. For example, pottery, weaving, carpentry, and metalworking were all considered technologies. However, over time, the meaning of technology changed and expanded. As humans developed new ways of solving problems and improving their lives, they also created new kinds of technologies. For example, the invention of the printing press in the 15th century enabled mass production of books and spread of knowledge.

The invention of the steam engine in the 18th century enabled industrialization and transportation. The invention of the telephone in the 19th century enabled communication across long distances. The invention of the computer in the 20th century enabled computation and information processing. Therefore, technology is not limited by time or place. It is a universal concept that applies to any human endeavour that involves making something better or easier. Whether it is a clay pot or a smartphone, a wheel or a rocket, a painting or a video game, technology is what humans do to shape their world. Considering all of the above, fintech refers to activities of money management through enabling and empowering digital applications and processes.

The goal of Fintech is to enhance the delivery, accessibility, and efficiency of financial services while reducing costs and improving the customer experience. Fintech can help companies, business owners, and consumers better manage their financial operations, processes, and lives. Fintech has caused a change in the dynamics and ways people interact. In the context of businesses, it has added another dimension of business interaction and engagement. Fintech allows businesses to operate solely online; it allows the leveraging of cloud-based services as opposed to physically storing all data in each delivery point.

This has created a new level of efficiency and accessibility of financial services. Many existing financial institutions are implementing Fintech solutions and technologies in order to improve and develop their services, as well as gaining a competitive advantage. Taking these additional angles regarding Fintech into consideration, some have described Fintech as “new applications, processes, products, or business models in the financial services industry, composed of one or more complementary financial services and provided as an end-to-end process via the Internet”.

Financial technology-fintech for short- describes the evolving intersection of financial services and technology. Thus, “Fintech” is simply a combination of the words “financial” and “technology”. Fintech is focused on using technology to deliver financial services and products to consumers. These services and products can be from across the spectrum of finance, including banking, equity financing, debt financing, retail and institutional investments, insurance, investing, wealth management, savings, personal finance, and even charity. Anything that relates to finance has a potential place in the Fintech ecosystem. Although the term ‘fintech’ has only come to the fore in the last decade, it is not a new phenomenon.

Technology has continuously improved finance throughout the centuries, which we will touch upon in the next chapter. However, what has made this decade of fintech exciting is the nexus of the internet, smartphones, and smart wear, which has rapidly changed the landscape of technology-driven finance. It has led to an acceleration in innovation, unlike previous times, and allowed developers to test unique ideas.

Islamic Fintech is a further development of the Islamic Finance sector. Just like Islamic Finance refers to financing methods aligned with principles of Islam and a paradigm reflecting the values embedded in Islam, Islamic Fintech refers to the use of financial technologies with a modus operandi and worldview stemming from Islam., Islamic Fintech is the amalgamation of technology and Islamic Finance, which means that any product or service that spawns from fintech must abide by the Sharia principles in terms of ethos, vision, mission, form, structure, contracts, processes, marketing, delivery, and communications.

Further, the adjective ‘Islamic’ defines the essence of the product or service; it belongs to a distinct worldview and philosophy. Hence, the practices and operations are structured and developed in a manner to realise those ideals and values engendered by this worldview and belief. True to its fintech label, Islamic Fintech facilitates the digital distribution of Sharia- compliant financial products and services. Islamic Fintech platforms tend to adopt revolutionary technologies like Artificial Intelligence (AI), blockchain, big data, extensive cloud computing, and the Internet of Things (IoT) devices in providing Islamic financial services in a more sophisticated and transparent way.

Its activities will involve deploying new tech-based business models to promote economic, environmental, financial, and social goals, including the betterment of all Islamic financial services, product performance, and broader benefits like financial inclusion, poverty alleviation, and social justice. Islamic Fintech is the delivery of Islamic Finance through emerging and enabling technology, is an extension of Islamic Finance. Islamic Fintech has the ability to enable greater access to Islamic financial services with cost efficiency, thereby providing more opportunities for financing, payments, and investments aligned with Sharia objectives and principles. We are all Fintech consumers and beneficiaries. Fintech is changing the world of finance for consumers in a myriad of ways. For example, you can now open a bank account over the Internet without physically visiting a bank. You can link the account to your smartphone and use it to monitor your transactions. You can even turn your smartphone into a “digital wallet” and use it to pay for things using money in your account.

Fintech is increasingly changing the insurance and investment industries. Car insurance providers now sell “telematics-based” insurance where your driving is monitored using data collected via your smartphone or a “black box” fitted in your car. This data can then be used to determine how much you pay for your insurance policy. In the future, it may be possible to buy insurance on a short-term or “pay as you go” basis. Fintech means that customers and investors can now invest over the Internet on an “execution only” basis; without any face-to-face interaction and without having to call a broker every five minutes. Robo-advisory services have removed almost all human interaction when it comes to investing, allowing Fintech firms to scale massively without the need of human resources and empowering customers with more choice and products on a user- friendly digital platform. In summary, Fintech is replacing everything we were accustomed to and giving us access to the same services and products through the click of a button or a much more convenient intermediary. The need for every educated Pakistan especially youth to learn all these skills and provide services online in the area of their own expertise to help the grappling Economy of Pakistan and playing their role in stability of the country.

(The writer is a PHD Scholar Islamic Finance)