Friday, April 22, 2022

Challenges for Islamic Fintech Firms

Islamic fintech firms started to flourish in Indonesia. Today, I checked the website of the Islamic fintech association, and there are 39 members registered there (source: In addition to researching Islamic fintech, I personally attempted to be a part of this new movement by investing some money in one of the Islamic fintech P2P firms. My primary motivation was not to earn a return; instead, I just needed to figure out how they operate and serve the customers. Here in this writing, I will share a bit of my experience and viewpoint about Islamic fintech firms. This writing might possess my subjective opinion. I am not going to mention the company's name anyway.

In March 2021, I invested some money in an Islamic fintech firm to fund a project using musyarakah contract. The advertisement for the project was excellent, attracting me to take part and surely other investors. I saw many projects on that website were easily to get funded. The required findings were quickly funded by the investors. It was a good sign, wasn't it? The project I was involved in was expected to last for 6 months. I thought that my cash would recover at the end of September 2021. However, the project seemed to face problems. The company obtaining the fund didn't finish its project on time. Thus, this firm hadn't payback the fund to the Islamic fintech firm distributing investors' cash. Now is April 2022, and the investors' money has not been paid. So, it has been more than a year. 

From this experience that I have, I believe the first challenge that Islamic fintech firms face is related to the repayment of investors' money. Although the contract was musyarakah, in which investors also bear the risks that might appear, some measures must be taken to safeguard investors' money. Islamic banks seem to have a better approach in this regard. Thus, Islamic fintech firms may need to learn from Islamic banks to operate better, primarily in repaying the investors. The second challenge that I predict is related to the diversification of investors. Since each project is quickly funded, I doubt that the money comes from individual investors (the real peer-to-peer lending mechanism). A large portion of individual investors would be better, showing the inclusiveness of these Islamic fintech firms. I assume that the most money pouring projects in Islamic fintech platforms comes from large institutional investors, perhaps banking and the like. Thus, the inclusiveness of these Islamic fintech firms is still questionable. However, I cannot support this argument since no data is available regarding the investor portion. Arguably, some empirical research can be done to explore this issue.


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