A Brief Introduction to Islamic Finance and Islamic Fintech

Photo by Hitesh Choudhary on Unsplash

For many, Islamic Fintech is a phrase that doesn’t pop up very often in their day-to-day reading. This article aims to explain the groundings of the industry, as well as how it factors into Yielders’ offering to investors. This article forms part of our weekly blog series, where we aim to bring you interesting and relevant news from across industries such as Real Estate, Economics and Finance.


The Groundings of Islamic Finance

Islamic Finance is a method of doing business which essentially has groundings in Islamic Law, principles from which have existed for many hundreds of years. Given that the ‘Islamic World’ was heavily involved in trade and mercantilism from the very early days, this provided fertile ground for some of the mechanisms seen today within the Islamic Economy. Islamic Financial products really came into the mainstream in the 1960s and 70s, starting with the founding of Nasr Social Bank in Egypt. Many attribute this expansion of Islamic financial products and institutions to the spike in oil prices which occurred at the time due to a number of supply and demand factors, as well as a push to develop financial infrastructure in countries across the Middle East and North Africa.

How is it Different From Conventional Finance?

In a very basic sense, Islamic Finance centres around the avoidance of interest or usury (riba in Arabic), as well as a ban on excessively risky transactions (gharar). There are many other intricacies and principles, however these two help to underscore the idea that Islamic Finance has inbuilt protection for actors such as business partners through profit and risk sharing, and for potential customers of a product through the principles of openness and transparency. This is why products that could be harmful to people such as high-interest payday loans or highly leveraged Contracts for Difference would not be deemed in keeping with the principles of Islamic Law, or Shariah compliant

Ultimately, Islamic Financial products can be incredibly complex, and those who are qualified to assess whether products are compliant or not often have significant training from institutions of learning across the world. This is not to say that all experts agree on what is in keeping with Shariah law when it comes to financial products, and what might be deemed compliant in one country or region may not be halal (permissible) in the next.

 So What Is Islamic Fintech?

 Islamic Fintech is a natural evolution of an approach to economic transactions known as Islamic Finance. Islamic Fintech uses technology to simplify previously complex processes, just like you see with conventional products today. It is likely that you are a user, or at least have heard of a neobank, which allows us to manage our finances in a way that would previously required one (or more!) trips to the bank. In a similar way, technology helps to simplify and streamline the more complex processes that govern the laws underlying a transaction or financial product, allowing entrepreneurs and financial institutions to offer products to the market that were previously impossible to get off the ground.

 Development in this area is still progressing rapidly, especially as it relates to the use of newer technologies such as block-chain. Many countries such as Bahrain and the United Arab Emirates are positioning themselves at the forefront of this technological push, attempting to integrate such mechanisms into their broader financial system. Success in this area requires close collaboration between regulators, scholars and financiers; watch this space over the next few years.

 How does Yielders fit in?

 All of Yielders’ investments are technically underpinned by an Islamic structure, which means they are completely free of debt or leverage. In essence, we have taken technology and used it to facilitate an ethical investment opportunity available from as little as £100. In addition to being fully authorised by the Financial Conduct Authority meaning that we are subject to the same regulations as the big banks, our Shariah Certification at founding was backed by the UK Islamic Finance Council. We also undergo a yearly Shariah audit by a qualified expert in the field, to ensure we are maintaining our high standards.

 The inspiration for the company came when our founders were young professionals in financial services, finding that they couldn’t find anywhere to invest their funds without having to compromise on their values. Central to Yielders’ identity is the idea that we are an Islamic Fintech company, for everyone. Being Shariah based essentially means we are bound to act openly and transparently with our investors. For our users, this means we will only provide investment opportunities which are ethically sound, for which we project conservative returns so as not to be misleading or induce investment.

 We are excited to be able to bring your some further exciting investment opportunities over the coming months. If you have any questions about any aspect of investing with us, do not hesitate to reach out to the Team on team@yielders.co.uk.

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