In the News: Islamic Banks and FinTech

Last month, a representative of the Malaysian Industry-Government Group for High Technology—a public-private taskforce overseen by the prime minister to examine ways of using new technology to promote business opportunities—suggested that Islamic banks could reduce legal and administrative costs by using “blockchain.” Blockchain is a type of electronic ledger, and according to the representative, blockchain would allow Islamic banks to automate the contractual process for loans and other agreements, thus saving time and money.

The news in Malaysia follows similar developments in other parts of the Muslim world: In October of last year, for example, the research arm of the Islamic Development Bank—which is based in Saudi Arabia and has 57 member countries—announced that it had hired two financial technology firms to explore the feasibility of using blockchain, with the goal of clearing and settling transactions more quickly.

Blockchain is also the technology that underlies cryptocurrencies, such as Bitcoin (the Bitcoin blockchain is basically a database containing all Bitcoin transaction records). Islamic law scholars differ on whether cryptocurrencies are religiously permissible due to their speculative nature. This past Ramadan, in May, a London mosque became the first in the country to accept Bitcoins for zakāt (alms for the poor, one of the five “pillars” of Islam).

The SHARIAsource Portal contains a diverse mix of Islamic finance-related content, including:

  1. An expert commentary on the three models of Islamic finance regulation, including a case study of Malaysia’s centralized model
  2. An interview of a sharīʿa auditor at a Morocco bank, discussing opportunities and challenges in the world of Islamic finance
  3. A “plain English” review of SHARIAsource Senior Scholar Mohammad Fadel’s journal article on the most prominent feature of Islamic finance: the ban on usury
  4. Primary sources, including a 2015 fatwa from Indonesia’s top clerical body banning hedging, and a US federal court case that considered whether the 2008 financial bailout violated the Establishment Clause by allowing funds to be used to support companies that invest in sharīʿa-compliant financial instruments