Can Islamic Finance Serve 2 billion Muslims?

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This short post is meant to initiate discussion and ideas. I am an enthusiast of Islamic Finance but have little experience in Islamic Banking. My ideas below predicates on observation and assumptions, and some data. My own focus is on Islamic Crowdfunding – an emerging model that I believe can fit perfectly with the principles of Islamic Finance. More on that later…

So back to the question. Can the industry rise to meet the huge and growing needs of Muslims?

Massive Opportunity

There are 2billion Muslims today – 25% of the global population. Should trends continue, pretty soon one out of 3 people will be Muslim.

A portion of this giant community is already concerned about the ‘halalness’ of their finance, a portion may not care too much, and the rest may not be aware at all about such considerations. Clearly, there is a huge target segment, with the potential for it to grow much, much larger.

Muslims – as a demographic group – mostly falls under the category of being unbanked. The Global Findex Database reports that 71% of Muslims have no bank account, whereas the global average is only 38%. A closer look at these numbers shows that almost half of the global unbanked population is Muslim!

Undoubtedly, this is a huge opportunity. First, let’s divide the Muslim world into 4 groups based on financial capabilities.

  1. The Destitute

    We first need to acknowledge that a portion of this group is the destitute, whole communities struggling to survive. These people may not be aware of the value of having access to financial services, and financial institutions are hardly attracted to serving those with little money. Here is where Fintech can provide some solutions, but at this point will probably need the support of developmental institutions.

  2. The Low-Income

    There is also a segment that has some money and needs financial services, but banks and traditional institutions are not willing to serve this needs due to the high costs necessary to expand on a brick-and-mortar model. New Fintech initiatives are already serving this segment.

  3. Underserved Middle & Upper-middle Masses

    There are some Muslims who seem dissatisfied with the services available, even when served by the system. Muslims in some countries just don’t have Islamic Finance products in their country, and where the industry is present, many needs are still unmet especially for the masses.

  4. Inefficiently-served Wealthy

    The rich naturally have the most options and services. Yet, most of the growth of P2P in the West is actually from Institutional Investors and High Networth Individuals. This trend is also starting to play out in the Muslim world. The traditional approach to serving the wealthy may be starting to become less relevant.

Islamic Finance: Fintech Plays an Integral Role

The Islamic view on finance and the economy is that money should be circulated for business, and for good. Hoarding, monopolies, risk-transfer loans etc are haram, as it prevents and obstructs this core principle, creating inequality by keeping wealth in the hands of the few.

What is needed is an open and competitive market, where transparency leads to greater justice, where people are empowered by their own social capital to support and contribute to the things that matter to them.

We need a system that re-focuses priorities to people, to the Ummah, and away from the profit motive or shareholder interest.

We have to embrace new models that can expand and spread huge impact rapidly, at low cost. In addition, we need to implement and integrate existing technologies that are nimble, adaptable and low-cost in the lives of those who need it most.

Observe how the M-pesa, a mobile money platform for developing countries has spread rapidly in Kenya and other countries, with 25million active users. M-pesa transactions in Kenya today make up more than half of their GDP!

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Look at China and we see how incredibly large Fintech can be in a still-developing country. AliPay processes a whopping 175million transactions a day – the equivalent of ten of billions of dollars. WeChat, China’s largest chatting app, has evolved to become a super-app which can process third-party payments (among many other things). 300,000 offline stores currently accept payments from WeChat.

In Indonesia, there are startups providing stickers to roadside food sellers that bring the full functionality of a point-of-sale system, simply through the intelligent use of QR codes. With just this sticker, a smartphone user just scans the QR code to have the menu appear, select, and pay. Once the seller is notified of the payment, the transaction is completed and dinner is served. No cash involved.

What about Islamic Fintech then?

Islamic or Muslim-focused Fintech has been slow to the scene, and only started gaining some traction over the past year and a half. Today, there are a few significant and groundbreaking initiatives from Qatar, Bahrain, the US, the UK, Singapore and Indonesia. Islamic Banking centers Malaysia, Dubai and Saudi are also channeling support and funds to develop this ecosystem.

I envision an Islamic Finance super-app, which can serve Muslim finance needs using a smartphone, as well as on old-type phones. A full app has not been launched anywhere, even though prototypes have existed.

Our own focus at Ethis is on creating an online funding platform or marketplace. Therefore, we believe strongly that Islamic Crowdfunding is closer to the true spirit of Muamalat and facilitates the proper circulation of wealth. (See also: Blockchain in Islamic Finance)

Why Islamic Crowdfunding?

Crowdfunding has boomed globally, surpassing US$100billion in 2016.

Crowdfunding, when done properly, provides a high level of transparency and ease of use, while also showcasing and leveraging the power of community. Campaigns that spread good and create social impact gain much greater support and raise more funds. Campaigns to fund products and services that solve real problems tend to go viral and gain huge exposure and support for its fruition.

Crowdfunding can, and should be exploited to enhance and improve how Muslims deal with money. It can be implemented for investment in business and trade, for sadaqah and charity, and even for waqf!

For a more detailed explanation of crowdfunding, check out Crowdfunding: A New Way to Grow Your Wealth.

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This is a featured article by Umar Munshi, the Founder and CEO of From time to time, Umar will shed light on various topics related to the crowdfunding industry, in a bid to share his thoughts with the community.

Read more about Islamic Investing is the world’s first Real Estate Islamic Crowdfunding Platform. Our international community of 20,000 private investors crowdfunds investments in entrepreneurial, business, trade and Real Estate activities in Emerging Asia.

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We operate ethical investment platforms approved by regulators in Indonesia, Malaysia, and Dubai, and also run a charity platform Global Sadaqah serving ordinary people, high-net-worth individuals, corporates and government entities. Best known for crowdfunding impact investments for Indonesian social housing development projects we adhere to the United Nations Global Compact ethical standards and are based on Islamic finance.