Introduction faithfully implemented its entirety by certain countries



Islam propounds the guiding principles, and prescribes a set of
rules, for all aspects of human life, including the economic aspect. An
economic model espoused by the principles of justice, equality and transparency
has the power to unite people of divergent beliefs and create wealth at all
levels in society. These principles are not unique to Islam only as these
principles are universal values that can contribute to a just, tolerant and
progressive society. Islam is a rahmatan lil ‘alamin, which means a mercy to
all creation and relevant for all times.

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Currently we are in the 21st century, which we can see
the world is moving fast and promoting the borderless world keeping up with
creation and innovation in digital. The financial system worldwide is also
adapting the digital world. The system is reorganising itself to regain its
robust health, reduce costs and make its services more efficient day by day. In
Islamic finance, we can say that it offers an ethical system based on religious
values, with the fundamental requirement that all financial transactions be
linked to real economic activity. This system is already being adopted and
faithfully implemented its entirety by certain countries and contributed
towards the economic development.

Financial technology or fintech, a trending term, being discussed in
finance conferences, news or reports in global. The term refers to a widely
promoted and potentially disruptive alternative to the technology and solutions
offered by traditional large-scale, highly regulated financial institutions and
transforming the financial industry through mobility of technology, ideas and payments
(Mcaughtry, Financial
Technology: Force For The Future or Flash In The Pan?, 2016). Common themes
across the sector include the monetization of data, fraud and identity
protection, infrastructure replacement and disintermediation. A revolution in
the financial activities such as payments (Apple, Paypal and Alibaba, that have
sprung up to offer solutions to replace physical wallets online), lending (with
a multitude crowdfunding platforms matching lenders and borrowers in various
ways through online platforms), investment or wealth management  (‘roboadvisors’ such as WealthFront using
data analytics to provide digitized online financial advice and investment
management), digital currencies or cryptocurrencies (Bitcoins), insurtech and
regtech. All we can say that, fintech is fast gaining traction in the financial
services and products industry, as both start-ups and traditional finance
companies such as banks or insurance companies proactively incorporate methods
to stay in the lead.


Ethical Issues in the Financial Services Industry


There are major ethical issues of the financial crisis in 2007-2009,
according to Booth (2010), one of the reasons is greed because as we know the
financial system is built upon in management of the wealth of the public. Schoen
(2016) had listed all the activities that cause of the financial crisis that
critical to be discussed such as the housing and bond bubbles, excessive
leverage, lax financial regulation, disgraceful banking practices, and abysmal
rating agency performance, and thereby identify the actions of the major participants,
such as mortgage brokers, subprime mortgage lenders, financial institutions,
bond rating firms, and regulatory agencies, which contributed to the financial

            He added the major ethical questions
that rise from the activities of the players contributing to the financial crisis
back from the brink of total global collapse. These activities include the
shoddy conduct of mortgage brokers in pushing clients into dodgy subprime
loans, the massive securitization of mortgages and other loans into overly
complex bond investments acquired by financial firms around the globe, the
failure or regulatory agencies to correct the slapdash lending practices and
excessive leverage of financial institutions, the disgraceful work of bond
rating firms in evaluating the complex, multi-trenched investments churned out
by the banks, the abysmal risk management system employed by AIG, and the
massive operations of the shadow banking and over-the-counter derivatives

            All these practices run counter to
the moral obligations of investment and commercial banks to provide accurate
information to investors so that they can make an informed decision to invest
or divest the securities.

            The main problem in the post-crash
analysis is that we have been over-confident in human-self beliefs in regulating
the financial system. Investors, the industry players and even the common
people are hardly to trust the financial system although it is backed up by the
regulatory and the government (Booth, 2010). This has stirred
rising global consciousness of the need to bring ethics back into finance.


Ethical Practices Based on Shariah Practices


            Ethical concerns become imperative
given the fact that Islamic banking and finance is extending across the globe.
Evaluation is necessary to ensure the good health of the industry, so that in
the efforts to provide an Islamic panacea to the global economic problems we do
not grope in darkness. For even Western economists and financial experts are
now willing to consider Islamic finance and banking as possible ways of
overcoming the instability caused highly speculative and exploitative
free-market forces. (Kayode & Ishola, 2012)

Islamic finance has made significant progress domestically and
globally, the next growth phase requires the industry to ride the fintech wave.
Islam is syumul, means complete, provide guiding principles based on the main
sources of Shariah, which is the Qur’an and Sunnah (Hadith). This paper discuss
the three main principles that should be uphold in the fintech in order to
promote and strengthen the Islamic fintech to the global.


Fundamental Prohibitions in Fintech


According to Tan (2017), the co-founder and CEO of distributed
ledger tech company Neuroware, Mark Smalley, claimed that blockchain-based
digital currencies are more Shariah. He had on multiple occasions vocalized
that blockchains and most of their corresponding cryptographic-based currencies
fit the mold of Sunnah money as they hold intrinsic value from the energy used
to produce them, they are not based on interest, they are often inflation-proof
and blockchain transactions are virtually tamper-proof and transparent. Many of
the scholars including Mufti embraces virtual currencies with open arms as some
of them believe that the current monetary system is unsustainable. It is only a
matter of time that the world would move toward digital currencies. However,
like most products in the Islamic finance world, differing opinions are common,
including for cryptocurrencies. Tan (2017) also quoted in her writing that the
Chief Executive Officer (CEO) of legal and financial consultancies said that,
if a digital currency has a value, which can be independently verifiable and
has an ownership linkage between the digital currency and the commodity/asset,
then it will be a perfectly fine cryptocurrency. The notional, ambiguous and
uncertain in the digital currencies lead to major speculation.

In Islamic principles where Shariah is designed at ensuring equal
and fair business transactions and protects parties against exploitation, fraud,
misrepresentation, explicit or implicit harm and injustice to anyone in the
contract. The Quran (5:1), God says: “O ye who believe! Fulfill your
undertakings.” Hence, the Shariah regulates all aspect of life (social) and
transactions (economic). Notwithstanding, in any transaction, money is the main
consideration. The future of cryptocurrencies depends on regulators. Once
regulatory standards are refined and adopted, cryptocurrencies will play an
essential part in our life. This will be the end of counterfeit notes in the
market and transparency in the corporate world be more prevalent. It is only a
matter of time that the world would move toward digital currencies.

Lastly, in the Islamic finance arena, according to the Accounting
and Auditing Organization for Islamic Financial Institution (AAOIFI) first
Shariah standard is on “Trading in Currencies” and it has recently issued a
Shariah standard on Gold. Both standards could consider having relevant
information on the Shariah rulings relating to digital currencies. Any currency
which is acceptable to any community, it is a currency. The fundamental
prohibitions that always to be remembered in transactions are still relevant in
and applied in fintech, that are prohibition of riba (interest), gharar fahish
(major uncertainty) and maysir (gambling). (Lallmahamood, 2017) and by uphold this
principle, any transaction in the economy are protected from unethical
practices including major speculations that cause the global financial crisis
since 1900.


The Concept of Brotherhood


            This is based on the hadith Ibn
‘Umar (May Allah be pleased with them) reported: The Messenger of Allah (pbuh)

            “A Muslim is a brother of (another)
Muslim, he neither wrongs him nor does hand him over to one who does him wrong.
If anyone fulfils his brother’s needs, Allah will fulfil his needs; if one
relieves a Muslim of his troubles, Allah will relieve his troubles on the Day
of Resurrection…” (Bukhari and Muslim)

            In another Hadith, Abu Hurairah (May
Allah be pleased with him) reported: The Prophet (pbuh) said:

            “He who removes from a believer one
of his difficulties of this world, Allah will remove one of his troubles on the
Day or Resurrection; and he who finds relief for a hard-pressed person, Allah
will make things easy for him on the Day of Resurrection; he who covers up (the
faults and sins) of a Muslim, Allah will cover up (his faults and sins) in this
world and Hereafter. Allah supports His slave as long as the slave is
supportive of his brother…” (Muslim)

The visionary Muslim leaders in start-ups and the ecosystem are
needed for the growth of Islamic fintech.  With growth of Muslim population, the fintech
investment growth by ten times. An inclusive financial ecosystem for the Ummah can
be created based on Islamic principles and Muslim lifestyles plus driven by the
banks and fintech collaborations. Collaboration is key to fintech growth. (Munshi,
2017) This is also synonym with the concept of brotherhood, as it is based upon
good character with others, treating others the way we want to be treated and
uniting together upon common values.

It is important for the Muslims to tackle the global issues that
obviously dominant within Muslim countries and populations. By empowering the
fintech based on given hadith, the impact will be greater in future and provide
the solutions for the global issues. For banking in fintech, the user can banking,
investing, paying zakat, giving sadaqah and waqf on mobile. This will make more
effective circulation of wealth. It is not difficult at all, as the the fintech
industry just need a very good solution, or a proper solution that has taken
up, and that people contribute to, and facilitates what people want to do. It
is not about reinventing anything, it is just enabling people to do what they
want to do (Elias, 2014).

One of the form of Islamic Fintech, is based on community. This is
an opportunity for Islamic fintech that banks may have difficulty to access. Fintech
able to reach and to focus on and to develop communities. It is involving the
circles and groups of people, who want to do things together. Banks are not
able to reach down to that level, fintech can and should and will.

Secondly, fintech also a values driven. This is related to the
earlier point, Islamic fintech will grow based on value, based on principles, where
peoples have a common understanding and a common appreciation of values. And
based on that, it will start to move and will start to grow and that goes on to
the third point which is mobile first.

The advantages of the crowdfunding based on the community concept in
fintech can be clearly seen nowadays. According to Omar (2017), entrepreneurs too stand to gain from fintech. First, fintech provides
the technological underpinnings to realise the goal of Islamic finance in
creating a risk sharing economy. This will in turn benefit entrepreneurs who
will gain wider access to bank-intermediated credit. An example is the
Investment Account Platform (IAP). IAP is Malaysia’s first multibank online
platform that combines the credit evaluation expertise of Islamic banks and the
power of technology to channel funds from investors to economic ventures. This
virtual “multisided” platform facilitates a collection of interesting
investment ventures and projects, with transparent risk-return rewards for

He added also the matching of funds enabled by fintech also has a
great application within the social financing space. In particular, we see the
potential of digitising the collection and utilisation of zakat, waqaf and
sadaqah as holding great promise. The efficiency and transparency enabled by
technology not only provides greater convenience to customers, but more
importantly, builds public trust and confidence in the system. In turn, this
will see wider participation and greater contributions towards social impact
initiatives such as those to improve education, widen access to healthcare and
extend humanitarian relief.


Obedience to Constituted Authority and the Leaders


            One of the most important Islamic
injunctions is obedience (with goodness) to constituted authority and the
leaders in the society. The Islamic scholars said it is compulsory to obey and
follow leaders and constituted authority as long as they do not command us to
disobey Allah and His noble Prophet Muhammad (pbuh). This is in line with what
Allah says in the Qur’an (4:59), “O ye who believed, obey Allah and obey His
Messenger and the people of authority amongst you. And if you disagree over
anything, return the matter to Allah and His Messenger (Muhammad, pbuh) if you
truly believe in Allah and the Last Day. That is the best way and best in

            Munshi (2017) mentioned the need of
visionary leaders which is always in short supply. Visionary leaders not only
in the start-ups but in also in the ecosystem. From the regulators, from the
facilitators, from the investors, everyone in the industry need to take up the
risk to invest in start-ups. The regional leaders also a better idea as in
conventional fintech there is avalaible of global leaders. He also suggested
that regional leaders are better not global because of cultural differences and
also the differences in interpretation of the religion. Plus, the fintech is a
very community based.

            In Malaysia situation, the
comprehensive corporate governance for Islamic financial system is an example
to be followed and adaptable in fintech. This is because of the presence of
Shariah Advisory Councils to assist and advise the leaders in the industry in
providing a better and ethical finance to the public.

Bank Negara Malaysia (BNM) is supportive of the growth of fintech,
including Islamic fintech. At the same time, as a regulatory body with a mandate
for financial stability, the central bank need to ensure that the risks to the
financial system and customers arising from innovations are properly managed.
BNM developed the Regulatory Sandbox which allows new fintech solutions to be
introduced in a live and controlled environment. It provides a “safe” environment
where any risks and failures can be better managed. The time to market for new
innovative products can also be reduced, which would otherwise be a hurdle
under the traditional regulatory process. Its flexibility is also expected to better
improve accessibility, affordability and attractiveness of financial products
and services. Moreover, the bank has also introduced regulatory bootcamp
sessions that are held every quarter. These sessions provide an opportunity for
fintech companies to gain deeper knowledge and understanding before entering
the Regulatory Sandbox.




Conclusion, from a purely commercial perspective, Islam has provided
its followers with general guidelines which must not be ignored or infringed. It
is hoped that more fintech start-ups and companies, Islamic financial
institutions and technology providers would take part in this key and exciting
development and to contribute towards the creation of value added and
meaningful innovations as the ultimate benefit will be gained by the Islamic
finance industry and the public at large. (Omar, 2017)

Fintech solutions have the opportunity to tackle one of the Islamic
finance’s oldest critiques: being a white label for conventional financial
products. This is a genuine opportunity for Islamic financial solutions,
powered by technology, to mitigate risk and humanize finance, both at the heart
of Islamic finance or Shariah principles.