By Abdullo Kurbanov and Zuhursho Rahmatulloev, co-founders of Alif
Fintech, or financial technology, is transforming the way people are able to manage their finances. In the UK, the impact of fintech has been profound. In the space of five years, the rise of challenger banks and revolutionary new products has challenged the legacy banks traditional monopoly of the financial system. In short, technology is empowering society by democratising the banking system.
Importantly, fintech’s influence has not been confined to established markets. If we look to emerging regions like Central Asia, a new generation of innovative fintech disruptors are applying leading technological solutions to achieve broader development objectives. This is not a blanket application of existing technologies. Instead, creative thinkers who understand the core challenges facing people in countries like Tajikistan and Uzbekistan are driving the region’s digital transformation.
Should the current trends continue to unfold, Central Asia is set to become an emerging hub for fintech innovation. The core to the region’s success lies not only in its replication of consumer finance and investment products currently on offer in places like London, New York and San Francisco, but in the creation of new fintech products and services. Core to this new wave of innovations is the rise of Islamic fintech.
Islamic finance is prime for digitalisation
When we speak about Islamic finance, we are referring to a banking system which adheres to sharia principles. These principles include the prohibition of profiting from debt, interest payments and having capital invested into restricted sectors, such as alcohol, tobacco and gambling. It also ensures financial and social stability due to the fact it encourages asset-backed financing.
Evidently, interest payments are inherent to the functioning of non-Islamic banking systems. In response, challenger Islamic banks around the world are offering Muslims the opportunity to access Sharia-compliant systems. At Alif, we also believe Islamic banking offers a comprehensive network for risk management and the improvement of existing corporate governance practices. This is a core reason why governments in Central Asia are open to all innovations that support the ongoing evolution of Islamic finance.
Practically, Islamic fintech has become the fastest growing segment of financial technology among the Organization of Islamic Cooperation (OIC) countries. It is estimated that Islamic fintech in OIC countries accounted for $49 billion in transaction volumes in 2020. While this is an impressive figure, its true potential is realised when we consider how this compares to global fintech transactions – Islamic fintech only accounted for 0.7% of global fintech transactions last year.
The Global Islamic Fintech Report projects the volume of transactions within the Islamic fintech sector of OIC countries to grow at a compound annual growth rate of 21%, or $128 billion. This is compared to the 15% growth anticipated for conventional fintechs over the same timeframe. With Central Asian countries like Tajikistan and Uzbekistan forming part of the OIC, it is evident that this region is prime for growth.
Steps in the right direction
Understanding the needs of the Muslim population, pioneering companies are taking existing fintech solutions that already exist for consumer finance and retail investments, modifying these products and services so they are Sharia compliant. Not only does this cater to the needs of people of the Islamic faith; it also supports the creation of an alternative financial system that is sustainable and contributes to the wider economic development of regions like Central Asia.
The international community is taking note. In May 2021, the International Finance Corporation (IFC) announced it was partnering with Alif Bank to boost digital finance and financial inclusion in Tajikistan. COVID-19 has also highlighted how principles such as Islamic microfinance and Social Sukuk can support social initiatives. Ongoing public assistance of Islamic fintech companies like Alif will only contribute to the rise of Central Asia as an emerging fintech hub.
Leaving the positive developments to one side, there are still challenges that need to be addressed if Islamic finance in Central Asia is to reach its full potential. It is estimated that half of the region’s population is still not covered by financial services. A study from 2019 revealed that the internet was only accessible by 79% of Kazakhstan, and approximately 50% of Kyrgyzstan and Uzbekistan. While these figures have likely improved in the ensuing years, the fact remains that fintech’s success is limited if a significant number of people cannot access the internet.
While the world is becoming globalised, different cultures still manage their finances in different ways. There is no universal solution, and as discussed above, new innovations need to be inclusive, not exclusive. Fortunately, a new generation of fintech companies are using technology to support the needs of populations that have not had access to fintech solutions.
Central Asia is fast becoming a global capital for fintech innovation, particularly when it comes to Islamic finance. To maintain momentum, government support, education and investment into infrastructure is needed for greater digital empowerment of the population.
Alif, founded in 2014 by Abdullo Kurbanov, Zuhursho Rahmatulloev, and Firdavs Mirzoev, over the past seven years developing into one of the leading fintech companies in Central Asia. Alif offers its clients an ecosystem of technological and financial solutions: the most widely used finance app in the country (alif mobi), popular “buy now — pay later” payment system, largest online retail platform (alif shop) and cheap, fast, safe remittance system. For more information, visit: https://www.alif.holdings/