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<\/a>\nIn accordance with Shariah, Islamic banks and financial products are based upon specific guiding principles and contracts. These principles allow for economic activities without going against key Shariah principles as some traditional banks or products might. Islamic finance explicitly prohibits the collection or payment of, as well as transactions that allow for monetary speculation or ambiguity.<\/p>\n
The challenge that Islamic banks face is the ability to meet the financial needs of users while staying within the parameters of the Shariah. Most banks today subscribe to a financial management system that successfully navigates the needs of users and requirements of the law, by establishing Shariah compliant contracts for a variety of transactions that are commonly made.<\/p>\n
Shariah compliant contracts that are derived from the framework which Islamic banking is based upon cannot involve the payment or reception of interest, should not result in debt and most importantly, must enable equal partnership and a shared risk and responsibility between all involved parties. For ease of understanding, we will classify the contracts into three categories: Contracts of Sale<\/strong>, Contracts of Partnership<\/strong> and Contracts of Security<\/strong>.<\/p>\n Contracts of Sale<\/strong> allow for the exchange of goods for other goods, the exchange of goods for capital, or the exchange of capital for capital. In this category, there are four common contracts:<\/p>\n Contracts of Partnership<\/strong> allow for two (or more) parties to make money by sharing the risk and the profits. In this category, there are three common contracts:<\/p>\n Contracts of Security<\/strong> are used to enable businesses and individuals to retain and manage their wealth, and in some cases debt. In this category, there are several common contracts:<\/p>\n Going digital while adapting to demands that consumers today have in many regions enabled Islamic banks to respond to the immediate requirements and needs of customers, improve retention levels and reduce the overall cost of serving them in the long run, thus enabling sustainable growth.<\/p>\n Technology applied to digital financial services also allows for more inclusive banking. While financial inclusion is on the rise, research done by UK based digital banking platform Algbra found that 800 million out of the 1.7 billion unbanked adults globally are Muslims<\/a>. Going digital, coupled with low-cost internet and mobile phones available in the market today allows Islamic banks to serve a larger segment of the global Muslim population, especially those in remote areas and offer innovative and seamless digital solutions to the Muslim world easily and consistently.<\/p>\n The global Islamic financial landscape is currently valued at $2.2 trillion and expected to continue growing 10% to 12% in the next year<\/a>. The rapid digitisation of financial services, especially during the Covid-19 pandemic contributes to this. Islamic financial institutions should ride this wave and embrace digital channels as they will enable not just the opportunity to reach new customers, but also allow for the ability to operate on par with other traditional and platform- based financial technology companies globally.<\/p>\n Financial wellbeing is becoming an increasingly important theme for users and financial institutions alike, as we now understand how it plays a key role in maintaining positive physical, emotional and overall wellbeing.<\/p>\n Islamic banks can help consumers adopt better financial habits by personalising their digital services and presenting their users with valuable insights into their finances. This will enable users to receive a steady stream of contextual information about the transactions taking place and allow them to develop a deeper understanding of the state of their financial affairs. In turn, it will also reduce uncertainty (Gharar), as customers become more confident of how much money they have and how much they can spend or will be required to save.<\/p>\n Such personalised recommendations and nudges gradually help consumers know their finances intimately, and present them with useful knowledge or actionable steps they can take to achieve financial wellbeing while staying Shariah-compliant.<\/p>\n Performing Hajj, the Islamic pilgrimage to Mecca, at least once in a lifetime is an obligation for any Muslim, and the fifth of the five fundamental pillars of Islam. From Singapore<\/a> to Bangladesh<\/a> and Nigeria<\/a> among other countries, there are banks providing Hajj saving schemes that are specifically created to help users save, with a target end date in mind to perform their Hajj. These saving schemes are typically Mudarabah (profit loss sharing) savings accounts which users credit a monthly instalment payment to until they reach their goal.<\/p>\n Islamic banks can improve on this service by firstly providing a digital experience for users in their banking app that will allow them to manage their Hajj savings goal. Additionally, a great way to ensure consumers stay on track with achieving their goal is by displaying the progress to their target with visual indicators to keep them motivated and going. For users who might be forgetful, a nudge or notification as a reminder to credit the necessary amount into their Hajj savings goal either at the beginning of the month when they get paid, and even mid-month if they haven’t done so will be useful. This way, banks can form a deeper, more personal relationship with users by helping them achieve their aspirations of performing their pilgrimage.<\/p>\n Zakat<\/a> (alms giving) is the third of the five pillars of Islam, and is another foundational facet of the faith. It is a form of obligatory charity for Muslims and is regarded as a form of worship. Every individual of sound mind who possesses wealth over a certain threshold (Nisab<\/a>) should donate a certain proportion of their wealth to the less fortunate.<\/p>\n Muslims often find themselves guessing how much Zakat they are required to pay. This is especially a pain point for users who have to manage multiple bank accounts and assets. Incorporating a Zakat calculator in the banks\u2019 digital app can be a really beneficial tool for users of an Islamic financial institution. In the case of users who hold multiple bank accounts across several financial institutions, Open Banking and aggregated account information will be highly useful to help with getting a full overview of how much Zakat should be paid.<\/p>\n A Zakat calculator can analyse transactional data and take into consideration the fluctuation and flow of funds in their accounts within the financial year. Users can then be presented with an accurate amount of how much Zakat they are meant to pay in real time based off the current Nisab, against the assets and funds they have.<\/p>\n\n
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Technology as an enabler of financial inclusion<\/h2>\n
Financial wellbeing for Islamic banking customers<\/h2>\n
Hajj savings goals<\/h2>\n
Zakat planner and calculator<\/h2>\n
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