Sharia banks need not fear with fintech

New technologies will lead the way as the industry evolves

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, also affected by sluggish economic conditions. However, attendees of the World Islamic Banking Conference in Bahrain this week say 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 slow to engage with new technologies.

Bahrain, which for years has positioned itself as the Middle East’s Islamic banking hub, is trying to

There were concerns about the disruptive impact of fintech on a sector slow to engage with developments

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. 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 with a new office in Dubai.

The conference’s message was a firm warning to Islamic banks to grasp the nettle and ensure they can compete in the digital world.