Strengthening Islamic Finance in South-East Asia Through Innovation of Islamic FinTech in Brunei Darussalam

Strengthening Islamic Finance in South-East Asia Through Innovation of Islamic FinTech in Brunei Darussalam

Abdurrahman Raden Aji Haqqi (Universiti Islam Sultan Sharif Ali (UNISSA), Brunei)
DOI: 10.4018/978-1-7998-2257-8.ch010
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Fintech solutions can revolutionize Islamic financial services and leverage on the so-called ‘Fourth Industrial Revolution' which is the movement towards combining everyday aspects of our lives, such as finance, into the digital realm that will help increase speed, efficiency, and convenience. The most significant challenge for all countries pursuing Fintech is regulating the industry. Following the issuance of the Financial Sector Blueprint, the Fintech Unit was established under Autoriti Monitori Brunei Darussalam (AMBD). AMBD envisions a vibrant economy powered by ICT through ICT-Smart Citizens as well as being a connected and efficient nation. This chapter discusses the application of Fintech specifically in Islamic finance sector based on the descriptive method of research by concentrating on its regulations. At the end, the research found that though Fintech in Islamic finance sector has been done since it's emerging through Guidelines Fintech Regulatory Sandbox Guidelines Islamic financial Fintech will be strengthened and developed and more diversified.
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Within Islamic finance, as stated by McCaw (2018), money in and of itself cannot be used to generate profit. That is, those involved in Islamic banking cannot lend or borrow money primarily for the purposes of earning interest. While the objective of Islamic finance is not profit maximization, but rather purely to facilitate Sharia-compliant trading, leasing, fee-based transactions and investment activities, Islamic Fintech is rapidly growing in significance and scale. Across the globe, Fintech sandboxes instigated by regulatory bodies have helped bring new players into regulatory scope while making regulators aware of growing trends within the industry. In the US, the Commodity Futures Trading Commission’s Lab CFTC works closely with Fintech innovators, while the UK’s Financial Conduct Authority’s FCA Innovate offers support to market participants.

Although Islamic Fintech (financial technology) is still very limited in number, scope and size, it may grow rapidly into disruptive technology, especially in the growing number of jurisdictions where Islamic banking has achieved systemic importance. Among the technological innovations of recent years, distributed ledger technology (DLT) is often seen as the innovation with the greatest potential disruptive power for traditional banking and beyond.

No Islamic financial institution (IFI) can afford to ignore the march of technology particularly in an environment of thinning margins, low global growth and increasing cost of compliance and doing business. Cheaper, simpler and more efficient financial solutions which do not necessarily require banks or any forms of intermediation are becoming commonplace.

The bigger momentum of Fintech development especially as observed by Abdullah (2017) is in the following areas:

  • 1)

    Rise of Fintech in Asia Pacific region. Now Asia Pacific is already second biggest in Fintech investment after North America which are mainly driven by Fintech hubs in Mumbai, Bangalore, Beijing and Tokyo.

  • 2)

    Emergence of newer Fintech segments such as Insurtech (targeting Insurance space), Risktech (focusing on risk management solutions) and Regtech (focusing on regulatory aspect of financial services).

  • 3)

    Most importantly, there will be more collaborations between banks and Fintech companies as banks seem to have accepted that fact that Fintech disruptions are real and begun to realize the potential of collaborating with Fintech companies to accelerate their evolutions.

The financial industry covers a wide range of activities including financing, payments and infrastructure, operation and risk management, data security and monetization, and customer interface. And Fintech as combination of the words finance and technology, broadly refers to the application of technology within the financial industry. Thus, Fintech applies to the segment of the technology start-up that is disrupting sectors such as mobile payments, money transfers, loans, fundraising and asset management.

The Fintech revolution has been emerged recently. It started after 2007-2008 financial crisis. At that time, policy makers were busy supposedly making finance safer while financial institutions were investing heavily in the solutions for the newly introduced compliance requirements. In between, information technology “geeks” partnered with venture capitalists to introduce a solution that was set to disrupt traditional financial services. The financial solution was technology-based, more convenient, more accessible and more cost effective. Since then, Fintech has been growing rapidly with a global investment reported to be US$12 billion (RM46.92 billion) in 2014 compared to only US$4 billion the year before (Abdullah, 2017; Malaysia World’s Islamic Finance Marketplace, 2016).

The main types of Fintech services are peer-to-peer (P2P) lending, crowdfunding, money transfer, mobile payments and trading platforms. There are also Fintech services for other sub-sectors such as wealth management, insurance, etc. Some names involved in Fintech are Funding Circle, FundedByMe, TransferWise, TradeCrowd and Kantox (Abdullah, 2016).

Key Terms in this Chapter

Regulatory Sandbox: Regulatory sandbox is a framework set up by a financial sector regulator to allow small scale, live testing of innovations by private firms in a controlled environment. It is a bridge between the people trying to solve problems and the people trying to prevent those problems from ever repeating.

AMBD: AMBD is abbreviation of Autoriti Monetari Brunei Darussalam. It is a statutory body, acting as the central bank of Brunei Darussalam which undertakes several core functions, including the formulation and implementation of monetary policies, the regulation and supervision of financial institutions as well as currency management.

MIB: MIB ( Melayu Islam Beraja ) or Malay Muslim Monarchy is Brunei national ideology that fuses Islamic values and Brunei Malay culture.

BIBD NEXGEN: BIBD NEXGEN harnesses the latest innovations in artificial intelligence, virtual reality, machine learning, data analytics and customer insights, symbolising BIBD’s position as a pioneer in the digital space to bring more convenience and connectivity to its customers.

Fintech: “Fintech” refers to the use of technology for delivering financial services, specifically through Internet-based crowdfunding platforms and mobile payment systems. In other word, it refers to the application of technology within the financial industry. It covers a wide range of activities including financing, payments and infrastructure, operation and risk management, data security and monetization, and customer interface.

Islamic Finance: Islamic finance is a financial system that operates according to Shariah (Islamic law) and is, therefore, Sharia h-compliant. Just like conventional financial systems, Islamic finance features banks, capital markets, fund managers, investment firms, and insurance companies. However, these entities are governed both by Islamic law and the finance industry rules and regulations that apply to their conventional counterparts.

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