For years, the crypto industry has reminded many of the Wild West. Little to no regulation, elaborate scams, and flocks of neophytes interested in taking part in the financial (r)evolution — it is indeed sometimes like a reimagined Clint Eastwood’s movie in a modern fintech setting. 

Yet, crypto’s emergence has also exposed many malfunctions in the traditional financial system. Approximately 1.7 billion people have no access to conventional financial institutions, and 50 percent of that unbanked population is Muslim: mainly due to limited financial education, the lack of trust in financial institutions, and restricted access to financial services. 

A wave of Islamic fintech companies are entwining ethics with cutting-edge tech to address these issues and empower global Muslim communities. 

How to reconcile shariah and crypto

Traditional banking is largely unacceptable under Shariah law. The collection of interest and speculating on ambiguity are known in Shariah as “gharar,” which means “uncertainty and hazard.” Both are considered haram and ethically unacceptable for religious Muslims. Instead, Islamic finance offers a profit-and-loss sharing system, under which an investor and an entrepreneur enter an agreement based on profit sharing or renting an actual asset.

Besides interest, Shariah also prohibits investments in harmful activities and industries like drugs, alcohol, and tobacco. Shariah-compliant assets must have real utility to prevent allegations of “gharar.” Investments into intangible assets like bonds, stocks, and cryptocurrencies are permitted, given that they provide real economic value. 

Financial exclusion of Muslim communities 

Islam is currently the second-largest world religion, and it represents over one-quarter of the planet’s population. Yet, it is also the one with the highest number of unbanked followers. What are the factors contributing to the financial exclusion of Muslims? 

• Limited access to conventional and Islamic banking: According to World Bank statistics, a significant portion of the unbanked population resides in Muslim-majority countries, indicating a lack of accessible banking services.

• Low levels of financial education: Insufficient opportunities for financial education hinder Muslims from developing the necessary knowledge and skills to engage with financial systems effectively.

• Lack of trust towards financial institutions: Trust issues and skepticism towards financial institutions can deter Muslims from utilizing available banking services.

• Economic instability: In some Muslim-majority countries, economic instability can make it difficult for individuals and businesses to access financial services and resources.

• Limited access to technology: Unequal access to technology and internet connectivity creates a digital divide, making it challenging for Muslims in certain regions to access digital financial services and platforms.

A new vector of financial progress

The advent of Islamic banking services heralds a new era of inclusivity and offers innovations for conducting financial transactions and banking practices adherent to Shariah principles. Major financial institutions are already embracing these new technologies, like the Islamic Development Bank (IDB), which now bolsters inclusion and aids economic and financial development in its 57 member countries from four continents, in addition to Muslim communities from non-member countries. 

IDB’s programs are directed at improvements in inclusion, sustainable development projects, digitalization, and modernization of businesses. Not long ago it was announced that the bank’s net financing for sustainable development programes has amounted to a total of $170.5 billion. The bank has also partnered with startups and businesses to provide funding for the most promising ideas.

Several Muslim fintech startups appeared in the last several years, including, for example, Yoosr — a financial platform that promotes a credit-free lifestyle based on Sharia law. The platform aims to make blockchain-based startups more responsible and attain financial stability for all users. Yoosr is designed for ethical financial products that align with the ideals of Islamic law. Non-Muslim clients can also benefit from enhanced security and simple access to crypto.

Unleashing the blockchain’s potential 

Blockchain startups with Islamic values have garnered the attention of many investors. The moral and ethical principles of Shariah have the potential to open a new page in the history of blockchain, bring fresh ideas into the financial industry, and attract a vast, underrepresented and underbanked Muslim audience.

Some startups are working to incorporate Shariah ethics and values into advanced blockchain use cases like smart contracts and decentralized finance. Islamic ideas of moral conduct can help to prevent immoral practices, scams, and fraudulent activities. Making the crypto space safer is a net gain for everyone in the industry, as it would help convince more people to embrace web3 initiatives. 

These new users will be able to use blockchain for fast, reliable cross-border transactions with low fees and take advantage of new business opportunities. The global Muslim community will get the best financial opportunities available without worrying about staying adherent to Islam.

The Shariah-compliant digital asset Islamic Coin is the native currency of the Haqq blockchain. Haqq, meaning ‘truth’ in Arabic, is a community-run project conceived as a part of an ethics-first financial ecosystem. Haqq is a landmark technology for the Muslim community as it exemplifies how morals and tech could be represented in a single product. 

The Haqq network is committed to charity and bringing direct economic value to Muslim communities worldwide. Ten percent of each Islamic Coin token issuance is invested into Islam-related ventures or donated to charity through special DAO, helping uplift entire communities economically and socially. 

Muslim fintech: Today and tomorrow

These recent developments show that Muslim fintech can become a long-term part of the financial industry. The Islamic principles offer an alternative approach to how blockchain could develop and aid a secular audience that benefits from greater security. 

The primary beneficiaries of the successes of Muslim fintech are, undoubtedly, the ordinary members of the global Muslim community. Platforms such as the Haqq blockchain can address the many problems at the roots of traditional Muslim exclusion from the global financial system. Because this commonly underbanked and massive population now has the potential to access the world financial markets, it’s best to pay attention to developments in Shariah-compliant fintech.

Mohammed AlKaff AlHashmi is the co-founder and CBO of Islamic Coin: a currency dedicated to empowering an ethics-first Shariah-compliant financial ecosystem. He has over eighteen years of experience in computer science and engineering, with a focus on Industry 4.0, artificial intelligence, machine learning, industrial automation, and IoT. He is also a public speaker and mentor, seeking to educate community members.