As industry growth slows down, new technologies will lead the way
Islamic banks should embrace, not fear, disruption from fintech
Until a few years ago, Islamic banking was booming. With annual growth rates of 15 per cent or more in some markets, conventional banks raced to set up specialist divisions to tap into rising demand for sharia-compliant products and services.
Now, of course, the sector has matured and growth rates have slowed – impacted, too, by sluggish economic conditions.
However, attendees of the World Islamic Banking Conference (WITC) in Bahrain this week were adamant the sector still has significant untapped potential.
The governor of Central Bank of Bahrain, Rasheed Al Maraj, forecast annual growth of 5 per cent for Islamic banking industry in the the next two years – higher than for conventional banking – and pointed to a steady rise in the number of Islamic banks and the total value of their assets.
However, delegates expressed concern over the disruptive impact of fintech on a sector that has been slower to engage with new technologies than conventional banking.
Bahrain, which for years has positioned itself as the Middle East's Islamic banking hub, is trying to get ahead of the game. On the opening day of the conference, three of its best-known banks – KFH Bahrain, Al Baraka Banking Group and Bahrain Development Bank – announced the establishment of a company dedicated to research & development (R&D) in the sharia-compliant fintech sector.
Algo Bahrain aims to support the Islamic banking sector by developing sharia-compliant fintech products to rivals and surpass the innovations causing shockwaves across the financial services industry.
The ‘If you can’t beat them, join them’ approach is to be lauded. Right now, while there are hundreds of firms threatening to render some traditional banking services obsolete, there are only a handful of sharia-compliant fintech solutions.
Among them is the new sharia-compliant ‘robo adviser’ Wahed Invest, a digitally automated wealth adviser launching in Mena at present with a new office in Dubai.
But there are plenty of other segments of Islamic banking that are yet to be served by the burgeoning fintech sector. The conference's message this year was a firm warning to Islamic banks to grasp the mettle of change and ensure they can compete in the digital world.