{"title":"Digital risks and Islamic FinTech: a road map to social justice and financial inclusion","authors":"Mohammad Alsaghir","doi":"10.1108/jiabr-10-2022-0262","DOIUrl":null,"url":null,"abstract":"<h3>Purpose</h3>\n<p>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 <em>Maqāṣid al-Shariah</em> 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?</p><!--/ Abstract__block -->\n<h3>Design/methodology/approach</h3>\n<p>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 <em>Maqā¸ṣid al-Shariah</em> 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.</p><!--/ Abstract__block -->\n<h3>Findings</h3>\n<p>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 <em>gharar</em> 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.</p><!--/ Abstract__block -->\n<h3>Research limitations/implications</h3>\n<p>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.</p><!--/ Abstract__block -->\n<h3>Practical implications</h3>\n<p>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.</p><!--/ Abstract__block -->\n<h3>Originality/value</h3>\n<p>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.</p><!--/ Abstract__block -->","PeriodicalId":46046,"journal":{"name":"Journal of Islamic Accounting and Business Research","volume":null,"pages":null},"PeriodicalIF":2.5000,"publicationDate":"2023-12-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Islamic Accounting and Business Research","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1108/jiabr-10-2022-0262","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
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.
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.