Don’t miss op­por­tu­ni­ties Is­lamic fintech gives HK

China Daily (Hong Kong) - - COMMENT -

In late May the Bank of Eng­land com­pleted a pub­lic con­sul­ta­tion on a sharia com­pli­ant liq­uid­ity tool for Is­lamic banks; the de­posit fa­cil­ity is ex­pected to be ready by next spring. Mean­while, in April, the Fi­nan­cial Con­duct Au­thor­ity ap­proved the first Is­lamic fi­nan­cial tech­nol­ogy startup which man­ages real-es­tate in­vest­ment for re­tail clients.

The po­ten­tial of Is­lamic fi­nan­cial mar­kets is too big to be ig­nored. Ac­cord­ing to the Pew Re­search Cen­ter, it is es­ti­mated that due to their high pop­u­la­tion growth, the pop­u­la­tion of Mus­lims will grow from 1.8 bil­lion in 2010, nearly 25 per­cent of the global pop­u­la­tion, to 3 bil­lion, or 31 per­cent, in 2060.

It is an­tic­i­pated there will be a gi­gan­tic de­mand for Is­lamic fi­nan­cial ser­vices but de­vel­op­ment is rel­a­tively slow to­day, es­pe­cially in fintech. Con­sul­tancy firm Ac­cen­ture said global fintech in­vest­ment amounted to more than $50 bil­lion since 2010. Only 1 per­cent of this was spent in the Mid­dle East and North Africa, where Mus­lims are a ma­jor­ity.

Sharia for­bids spec­u­la­tion, gam­bling and usury, and ad­vo­cates hard work. In­ter­est is con­sid­ered usury, so is pro­hib­ited. In short sharia-com­pli­ant fi­nan­cial ser­vices are very dif­fer­ent from those we are fa­mil­iar with.

In re­cent years, Is­lamic coun­tries have fo­cused on de­vel­op­ing fi­nan­cial ser­vices with­out vi­o­lat­ing their doc­trine. Wamda, an en­tre­pre­neur­ial pro­mo­tion plat­form for the Mid­dle East and North Africa, pointed out that there were less than 20 fintech star­tups in the Mid­dle East in 2010 but by 2015 this had in­creased to 105. It is ex­pected the num­ber will rise to 250 by 2020.

One pre­vail­ing busi­ness is cross­bor­der re­mit­tance and pay­ment ser­vices. The World Bank said the num­ber of mi­grant work­ers in the Mid­dle East amounted to 80 per­cent of its pop­u­la­tion, the high­est pro­por­tion of mi­grant work­ers in the world, which pro­vides The au­thor is hon­orary pro­fes­sor at the Depart­ment of Com­puter Science, Univer­sity of Hong Kong. many busi­ness op­por­tu­ni­ties for re­mit­tance ser­vices. Many de­vel­op­ing coun­tries rely on re­mit­tances from na­tion­als work­ing in for­eign coun­tries to im­prove their economies. The World Bank es­ti­mated the amount of re­mit­tance is huge, reach­ing $583 bil­lion in 2014.

Other fintech ser­vices are un­der de­vel­op­ment. For ex­am­ple, Dubai in March this year signed a co­op­er­a­tion agree­ment with the Sin­ga­pore Mon­e­tary Au­thor­ity to jointly de­velop a mo­bile pay­ment and blockchain project. At the same time, it in­tro­duced its first-ever fintech sand­box in the area, al­low­ing new prod­ucts to be tested for two years. Cairo launched two startup projects last year.

Ernst & Young last year re­ported that the 40 largest Is­lamic banks had ap­proved bud­gets rang­ing from $15 mil­lion to $50 mil­lion to ex­pand dig­i­tal busi­ness in the next three years.

What is Hong Kong do­ing with Is­lamic fi­nance? The Hong Kong Mon­e­tary Au­thor­ity of­fered its third US dol­lar sukuk ear­lier this year. Since 2013, of­fer­ing and trad­ing of sukuk in Hong Kong en­joyed a 100 per­cent prof­its tax and stamp duty ex­emp­tion to boost sales.

To grasp the emerg­ing Is­lamic dig­i­tal fi­nance op­por­tu­ni­ties, in ad­di­tion to the is­suance of sukuk, we can also con­sider us­ing Hong Kong’s ad­van­tages in the de­vel­op­ment of Is­lamic cross­bor­der trade and fi­nanc­ing, and help Is­lamic coun­tries de­velop smart-city in­fra­struc­ture un­der the Belt and Road Ini­tia­tive.

The Hong Kong Year­book 2016 says the Mus­lim pop­u­la­tion of Hong Kong is about 300,000. Apart from 150,000 In­done­sian do­mes­tic helpers, th­ese com­prise 40,000 Chi­nese and many na­tive South­east and South Asian peo­ple, such as those of Pak­istani, In­dian and Malaysian ori­gin who were born in Hong Kong. The gov­ern­ment may con­sider en­cour­ag­ing them to par­tic­i­pate in lo­cal Is­lamic fi­nance. What is more, we can strengthen pub­lic aware­ness of Is­lamic fi­nance by pro­mot­ing the ser­vice, and train more tal­ent and pro­vide sup­port in the field.

The 2016 Top Mar­kets Re­port — Fi­nan­cial Tech­nol­ogy re­leased by the United States In­ter­na­tional Trade Ad­min­is­tra­tion ranked Hong Kong just be­hind Lon­don and New York as a global fi­nan­cial cen­ter based on cri­te­ria in­clud­ing busi­ness en­vi­ron­ment, in­fra­struc­ture, hu­man cap­i­tal and rep­u­ta­tion. We should not miss out on the huge op­por­tu­ni­ties of Is­lamic dig­i­tal fi­nance in the long run so we can main­tain our po­si­tion as a global fi­nan­cial hub.

The gov­ern­ment may con­sider en­cour­ag­ing them (Mus­lims in Hong Kong) to par­tic­i­pate in lo­cal Is­lamic fi­nance. What is more, we can strengthen pub­lic aware­ness of Is­lamic fi­nance by pro­mot­ing the ser­vice, and train more tal­ent and pro­vide sup­port in the field.


Work­ers take a break in the swel­ter­ing heat while set­ting up an ad­ver­tis­ing bill­board at the Lai Chi Kok MTR Sta­tion.

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