What is the missing piece of the puzzle for Islamic FinTech adoption?

Technology offers an ‘interesting nexus’ for Sharia compliance and can fuel Islamic Finance adoption, according to InsureHalal chairman Salman Badr Al-Hasan in a research interview with FinTech Global.

The UK has traditionally had a very strong Islamic finance sector and is one of the countries leading the way in its development. However, Islamic FinTech has been fairly slow to be adopted but this is changing, and more companies are beginning to launch. InsureHalal is one of the companies to be a part of the evolution, being the only active Sharia-compliant digital insurer in the UK, and is looking to move into Europe to do the same.

Al-Hasan said, “Over the last two or three years there have been new entrants into the FinTech sector, not the InsurTech space, but FinTech in the Islamic finance space generally – it’s definitely growing. We know of various other projects that are very embryonic or prior to launch, so it’s an exciting time and is just going to keep growing.”

One of the issues that has faced the space in terms of the adoption of technology is a lack of understanding of what benefits it can bring to Islamic finance. “There is an interesting nexus between Sharia compliance and the use of technology, because technology does something that can enable businesses to be more ethical and Sharia-compliant,” he added. Fundamentally, Sharia compliance is about increasing transparency, creating an open product and improving competition.

Improving the awareness of FinTech within the Muslim community is key to the evolution of the space. InsureHalal does help with this by educating people across the country through hosted talks at universities and Mosques, not only to explain Islamic insurance’s importance and how it differs from conventional insurance, but how technology can benefit consumers and communities.

Al-Hasan said, “If you go out to the Muslim community and ask them about Sharia compliance it’s an emotive subject, people are interested and morally invested in it. If you go and talk to them about FinTech, unless they’re specifically interested in technology, it’s not a particularly emotive topic.” However, he has noticed that if you combine the two areas and how technology can help, there is a much more interested response and engaging discussion around it.

InsureHalal is the UK’s first Sharia-compliant InsurTech company, and currently offers Halal Takaful insurance covers for buildings and their contents. The platform, which is certified by Sharia scholars, enables consumers to get a quote or make a claim from phones, tablets or computers within minutes. Among its benefits include no extra fees for instances like moving properties. The company’s rating engine, doesn’t make a policy holder give a valuation of their contents, as this can lead to over or under protection, instead InsureHalal gives the consumer unlimited cover to reinstate the property back to its original state.

The company was able to speed up its entrance to market and in a more cost-effective manner by partnering with an existent MGA non-Islamic insurance company, Now4Cover. The company already had built up a digital insurance solution, so instead of InsureHalal ‘re-inventing the wheel’ and creating its own, they formed the joint venture. As Now4Cover was already an ethical insurer, it meant the marriage was seamless between the two.

He said, “The general trend is actually the opposite of what we’ve done, but I do think we’ve found a way and pioneered this. There’s going to be more of this because it’s so intuitive. It’s a no brainer, why would we go out and raise seed capital and spend millions of pounds making a technology solution when we can just partner up with someone and just start trading. Although, there is merit to both as you have to give something away to do it.”

Islamic insurance is focused on aligning risk and reward between insurers and those being covered. It differs to a traditional insurance policy by an insurer deploying premiums, or contributions, into a fund, which is then managed by a company like InsureHalal. The insurer is paid a pre-agreed fee which represents a percentage of the premiums and is for providing their licence and capacity for the policy. Management companies, like InsureHalal, are also paid a pre-agreed fee for their services managing the fund. The remaining money is left in the pot to be used when a consumer needs a claim. At the end of the term, any unused money in the fund is deployed back to the consumers and not the insurers. This helps to ensure claims are only made if they are deserved and not under ulterior motives of an insurer.

Most Islamic FinTech companies have decided to build their own technology and in essence ‘bootstrapping themselves, forcing them to go and raise funding rounds’. InsureHalal’s method has helped to accelerate development and offers easier global expansion. The company is looking to expand its services, with a keen eye on Europe. To do this, it will look to partner with a different insurance company backer in Europe to help build its solution.

“There’s going to be much more marriage between the conventional and Islamic sector and the cross-fertilisation of know-how on technology, access to market and that sort of thing. What we have done is given a conventional entity access to the market with a shariah compliant product and they’ve given us a state-of-the art digital solution.”

The Islamic FinTech space is a big opportunity for businesses and customers. Having a more transparent and open product creates more attractive opportunities for all customer types. The space is going to continue to grow with InsureHalal looking towards more regions and counties to move into.

He said, “The UK has had an advantage of being the first mover in the space, but I think it does need to watch its back because some of the Middle East gulf states are putting in a lot of resources into FinTech Hubs and I think the UK needs to get it back together.”

More companies coming into the space will help to support the industry and foster its growth. Al-Hasan said that while these solutions would be their competitors, he wants to see more come through as it is good for customers.

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