Digital risks and Islamic FinTech: a road map to social justice and financial inclusion

IF 2.5 Q2 BUSINESS, FINANCE
Mohammad Alsaghir
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引用次数: 0

Abstract

Purpose

This study aims to map the digital risks for the Islamic finance industry. Since 2010, the financial space has largely shifted from being banking-centric to the entrepreneurship spectrum, benefiting from groundbreaking innovations in computer technology. The problem of Islamic Finance is that it is still within its banking-centric moment that is risk averse leading to financial exclusion. As with all innovations, there are associated risks that require careful consideration to ensure the reaping of the benefits of these technologies while controlling the risks at its lowest. In this context, the aim of this study is to highlight the risks associated with financial technologies (FinTech) to prepare the Islamic finance sector to serve the economic ideals of Maqāṣid al-Shariah in financial inclusion and profit and loss sharing. The main research question is as follows: What do Islamic Finance industry need to do to manage the digital risks for financial inclusion?

Design/methodology/approach

This study uses narrative review method in analysing the discourse of financial technology literature using qualitative data collected from the literature on the topic. It aimed to problematise associated digital risks from the Shariah compliance and Maqā¸ṣid al-Shariah critical viewpoints. Considering the nature of this conceptual study, it adopts a qualitative methodology by using discourse and thematic analysis of the literature that can lay the foundation for future empirical testing on the topic.

Findings

The study found that managing risks faced by the Islamic financial sector while adapting to the digital era can be divided into two main clusters: risk mitigation for Shariah-compliant FinTech and risk avoidance for Shariah non-compliant innovations. The high level of gharar associated with current practices in both cryptocurrencies and smart contracts needs additional regulation and simulation before they can be reconsidered for market-wide application. Cloud computing, crowdfunding and big data have promising applications that can address the limitations of the Islamic finance industry, particularly in terms of reducing transactional costs.

Research limitations/implications

This conceptual article offers some insights into the subject; nevertheless, it does not attempt to establish causation or generalise the results. Additional statistical testing is required prior to generalising the results.

Practical implications

Due to the difficulties experienced since its inception, the Islamic financial industry is in urgent need of the cutting-edge solutions required to gain a competitive edge in the market and get over the limits that came with its late entry into the financial sector. Mapping digital risks is imperative for the development of comprehensive prudential risk management strategies for the Islamic finance industry that can fix its problems and enable it to deliver the more favourable Shariah-based solutions, rather than remaining in the lower bands of Shariah compliance.

Originality/value

Findings of the study lay the foundation for empirical testing the volatility of FinTech innovations for the Islamic finance industry to reduce uncertainties and generate reliable forecasts. Scholarship on managing digital risks for Islamic financial institutions is still developing due to the covid global lockdown and the looming recession, and this study will help enhance theorisation necessary that can aspire economic recovery after current challenges.

数字风险和伊斯兰金融科技:实现社会公正和金融普惠的路线图
目的 本研究旨在绘制伊斯兰金融业的数字风险图。自 2010 年以来,受益于计算机技术的突破性创新,金融领域在很大程度上已从以银行业务为中心转向创业领域。伊斯兰金融业的问题在于,它仍然停留在以银行为中心的阶段,规避风险导致金融排斥。与所有创新一样,需要仔细考虑相关风险,以确保在获得这些技术的好处的同时将风险控制在最低水平。在此背景下,本研究旨在强调与金融技术(FinTech)相关的风险,为伊斯兰金融部门服务于 Maqāṣid al-Shariah 在金融包容性和损益分享方面的经济理想做好准备。主要研究问题如下伊斯兰金融业需要采取哪些措施来管理数字风险,以实现金融普惠?研究旨在从伊斯兰教法合规性和 Maqā¸ṣid al-Shariah 临界观点出发,对相关数字风险进行分析。考虑到这一概念性研究的性质,本研究采用了定性方法,对文献进行了论述和主题分析,为今后对这一主题进行实证检验奠定了基础。研究结果本研究发现,伊斯兰金融业在适应数字时代时所面临的风险管理可分为两大类:符合伊斯兰教法的金融科技风险缓解和不符合伊斯兰教法的创新风险规避。加密货币和智能合约目前的做法都具有很高的 "加拉尔"(gharar)风险,因此需要进行更多的监管和模拟,然后才能重新考虑是否将其应用于整个市场。云计算、众筹和大数据的应用前景广阔,可以解决伊斯兰金融业的局限性,尤其是在降低交易成本方面。实际意义由于伊斯兰金融业自成立以来经历了重重困难,因此急需最先进的解决方案来获得市场竞争优势,并克服其进入金融业较晚所带来的限制。要为伊斯兰金融业制定全面的审慎风险管理战略,解决其问题,使其能够提供更有利的基于伊斯兰教教法的解决方案,而不是停留在遵守伊斯兰教教法的低层次,就必须对数字风险进行摸底。由于全球封锁和经济衰退迫在眉睫,有关伊斯兰金融机构数字风险管理的学术研究仍在发展之中,本研究将有助于加强必要的理论化,从而在当前挑战之后实现经济复苏。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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来源期刊
CiteScore
4.80
自引率
22.70%
发文量
78
期刊介绍: The journal provides a dynamic forum for the advancement of accounting and business knowledge based on Shari’ah and Islamic activities that have an impact on the welfare of society. JIABR publishes articles on the interplay between Islamic business ethics, accounting, auditing and governance, in promoting accountability, socio-economic justice (adl) and everlasting success (al-falah). It seeks to inform, among others, current theoretical and empirical research and practice in Islamic accounting, auditing and corporate governance, management of Islamic organizations, accounting regulation and policy for Islamic institutions, Shari’ah auditing and corporate governance, financial and non-financial performance measurement and disclosure in Islamic institutions and organizations. All styles of research, theoretical and empirical, case studies, practice-based papers and research notes that are well written and falling within the journal''s scope, are generally welcomed by the journal. Scope/Coverage Development of accounting, auditing and corporate governance concepts based on Shari’ah Socio-political influence on accounting and auditing regulation and policy making for Islamic financial institutions and organizations Historical perspectives on Islamic accounting, auditing and financial management Critical analysis on issues and challenges on accounting disclosure and measurement, Shari’ah audit and corporate governance Controls and risks in Islamic organizations Financial and non-financial performance measurement and disclosure.
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