Islamic Fintech in the UK

To celebrate the arrival of Eid, mmob are taking a look at Islamic Fintech in the UK and some of the most important companies in this lesser-known application of financial technology.

What is Islamic Fintech?

Simply put, Islamic Fintech is fintech that complies with Sharia law. Core principles of Islamic Finance have been around for centuries and focus on two main features: avoidance of interest or usury (riba in Arabic) and risky transactions (gharar). Financial products centred on these principles became mainstream globally in the 1960s and 70s following an oil price rise at the same time, as well as the progression of financial infrastructure in predominantly Muslim countries. Islamic Fintech is the evolution of existing Islamic financial services, able to be streamlined and quickly distributed through recent technological advances.

Traditional financial institutions are not necessarily Sharia-compliant due to aspects such as interest-based saving and lending, and investments into controversial industries such as weapons or pork. Islamic Fintech alternatively provides services that are sharia-compliant and ensures services and products are ‘open and transparent’ for the user.

3.3 million Muslims make up the second-largest religious group in the UK, with many forced to use non-sharia banking services due to a lack of alternatives. However, Islamic Fintech is growing and opening up a range of new services for Muslims and the wider population. According to Fintech Futures, the UK has produced more Islamic Fintech companies than any other country, aided by a strong domestic track record in existing fintech frameworks, Islamic finance and technology availability.

Challenges facing Islamic Fintech

In a recent roundtable discussion by Foot Anstey, industry entrepreneurs discussed the challenges facing Islamic Fintechs, concluding that a significant obstacle to uptake comes from regulatory miscommunication. Regulatory frameworks were not designed to accommodate Islamic Fintech and while assistance is available through bodies such as the FCA, experts and gatekeepers have often been found to lack sufficient knowledge about sharia compliance.

Another challenge raised was that investment capital for Islamic Fintech is typically scarce. Many venture capital avenues are not sharia-compliant, making it difficult for new entrepreneurs to develop their ideas. It is hoped that stakeholders in Islamic Fintech will offer more funding opportunities to further develop the industry. In short, Islamic Fintech in the UK has some different challenges to more mainstream Fintech verticals, however changes to regulatory frameworks and an increased awareness of the potential of the sector will undoubtedly lead to supercharged growth.

Opportunities for Islamic Fintech

As with the fintech industry more widely, Islamic Fintech has a great opportunity to increase competition and innovation within financial services. A paper on the global landscape of Islamic Fintech stated there was a ‘450 year gap in finance’, and the application of financial technology provides the perfect opportunity to update financial practices and methods and ensure they are sharia-compliant. Sharia regulations can prove more restrictive for bigger banks, giving Islamic Fintech companies an advantage in recognising gaps in the market and offering more agile, bespoke services for users.

Islamic Fintech allows Muslims to use financial services that align with their religion and helps engage previously unbanked individuals. New digital banks such as Niyah and Rizq are important for bringing sharia-compliant services to the UK and providing a space Muslims can trust for their core financial needs. For further examples on how Islamic financial practices differ to those of conventional finance, have a look at this article.

Islamic Fintech is not exclusively for Muslims and anyone can benefit from their services. Budgeting app Kestrl has reportedly seen increased interest particularly from younger users, who are conscious about how their money is used in the world. This is also evident for gold investment company, Minted, which aims to attract investor funds from Environmental, Social, Governance (ESG) portfolios to gold bullion. Other shariah-based Fintech applications include property crowdfunding platform, Yielders, which aims to appeal to all consumers with a simple yet competitive property investment product; a quarter of their users are non-Muslim. Similarly, peer-to-peer investment app Qardus brand their services as ‘ethical’, rather than Shariah, and a third of users are non-Muslim, demonstrating a wider commercial interest in Islamic Fintech than simply the Muslim market.

Open Finance represents a significant opportunity for the industry more generally. For Islamic Fintech, a key element improved by data sharing permissions is the reduction of financial risk, as well as full consumer control over the use of data.

The Future of Islamic Fintech

Islamic Fintech has seen rapid development in the UK over recent years and will continue to do so. Not only are companies innovating within Islamic Fintech but making change at the broader financial services level more generally. For example, in 2015 Yielders became the first Islamic Fintech and only equity-only crowdfunding platform to receive FCA approval and is one of the top peer-to-peer lending service, demonstrating how competitive the Islamic Fintechs are within the market. Islamic Fintech in the UK are tapping into an underserved market that will improve financial services for the UK’s 3 million Muslims and the wider community.

© Copyright 2021 mmob Ltd.

mmob Ltd is registered in England & Wales under reference number 12570147. Our registered offices are located at Level39, One Canada Square, Canary Wharf, London E14 5AB. mmob Ltd is registered with the ICO under reference number ZA776082. Any of the products presented on this website may require regulatory approval. Each client engagement will be considered on a case-by-case basis to ensure that parties remain compliant. mmob Ltd is commited to treating all customers fairly.