12 October 2021
This article was first published in IFN Volume 18 Issue 40 dated the 6th October 2021
Technology continues to disrupt the traditional industries and Islamic banking is not an exception. Fintech, short for financial technology, is an omnibus term that basically includes any technology which helps the banks and other financial institutions deliver services and products to their customers faster and in a more efficient way. Today anything from cryptocurrency to e-payment services come under the ambit of fintech.
Islamic fintech is a segment of financial technology that adheres to the Shariah principles. It has the same values and ethics which form the basics of Islamic finance. There are approximately 30 fintech companies operating in Kuwait (Arab regional fintech guide realised in July 2021).
Though it is still in its nascent stage in Kuwait, there has been tremendous growth in the recent past. Driving force behind this might be Kuwait’s established financial sector, flourishing entrepreneurial ecosystem and its globally exposed population with a strong business acumen.
High level of mobile penetration has also laid a strong foundation for innovative fintech. The pandemic provided additional impetus to the adoption of fintech by traditional banks. Lockdowns and fear of the virus spread accelerated trends like contactless payments.
Two sides of a coin
The main advantage of Islamic fintech is transparency, increased financial inclusion, cost effectiveness, easy accessibility and usage. On the flip side, some of the biggest shortcomings include security concerns, some products can be difficult for non tech savvy people to understand and use, shortage of personnel having knowledge over fintech and principles of Shariah and lack of proper regulations governing them.
The Kuwait government has been taking numerous steps like establishment of regulatory sandboxes and forming a dedicated Fintech Unit to encourage the adoption of fintech. With the ongoing pandemic, celebrations had also become digital. Central Bank of Kuwait launched an app called “Eidity” enabling the public to send and receive Eidia electronically.
If you can’t beat them, join them!
Kuwait Islamic banks have teamed up with financial technology companies to provide various digital services and products or for digitalisation of their banking processes. Traditional banks have the resources to fund fintechs and the relatively new companies will have the expertise and know-how lacking with traditional banks, hence a win-win situation.
Islamic banks like Kuwait International Bank and Kuwait Finance House have partnered with tech companies like ProgressSoft, Mobiquity & Aion Digital to help them achieve their digital transformation goals.
Recent trends and innovative products launched by Islamic banks in Kuwait
Segments of Islamic fintech that Kuwaiti banks have shown interest include Deposits & Lending, Payments, Wealth Management, Insurance, Social Finance and Banking Operations. Open banking is another area which offers attractive benefits to Islamic finance. It is a secure banking model which enables third parties to access customers’ financial information with customers’ consent. Islamic financial institutions are also keen on establishing a fully digital bank.
All major listed banks in Kuwait have enabled Samsung/Garmin/Fitbit pay feature. Kuwait Finance House, had launched an Electronic Forms Solution that fully transforms traditional banking forms into electronic ones.
Boubyan Bank has been introducing various digital services and products for its customers. The recent one being the launch of world’s first Islamic international digital bank “Nomo” in July this year. It is a fully licenced and regulated UK Islamic digital bank. Eligible Kuwait customers will be able to open their new UK account within minutes through the app.
On this note, Agility, a Kuwait based Logistics Company, has applied for a licence to open a digital bank. If the company is successful, it will be Kuwait’s first independent digital bank.
As per the Global Islamic fintech report 2021, the market size of Islamic fintech in Kuwait, one of the fast maturing ecosystems, is expected to increase to US$7 billion in 2025 from US$2 billion in 2020, representing a growth rate of 25% (CAGR) much higher than the global growth rate of 21%.
The never ending pandemic, growing young Muslim population seem to add fuel to the growth of Islamic fintechs. Market participants have to be agile and update themselves with the changing trends. While some Islamic banks are lagging behind in terms of the digital products and services being offered, banks in Kuwait seem to be well ahead of the curve.
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