Innovation, FinTech & Digital Transformation in Islamic Finance
Q1. How is digital transformation reshaping the operational models of Islamic financial institutions?
The honest answer is that digital transformation is reshaping operational models far more slowly than the conference panels would suggest. Most Islamic financial institutions are still running on legacy core systems held together with spreadsheets and manual workarounds. The real transformation is not happening inside the incumbents — it is happening around them, through fintech platforms, regulatory sandboxes, and third-party service providers that offer modern infrastructure without requiring a five-year core replacement programme.
What I find encouraging is the regulatory push. In the GCC, regulators are moving toward execution-based compliance — real-time reporting, full audit trails, and system-enforced governance. That shift rewards digitally-enabled institutions and punishes manual operations. For Islamic financial institutions specifically, this is an opportunity: Shariah compliance inherently requires documented governance, transparent structures, and audit trails. Digital systems make that easier, not harder. The institutions that recognise this will turn a compliance burden into a competitive advantage.
In insurance and takaful — the world I operate in — the transformation is most visible in claims and underwriting, where AI-driven automation, digital damage assessment, and API-first integration are replacing manual workflows. But the biggest shift is cultural, not technical: leadership teams learning to trust data over instinct, and to outsource operations where a specialist partner can do the job better, faster, and more transparently than an in-house team running on outdated systems.
Q2. What key opportunities do Islamic FinTech, digital banking, and embedded finance present for the future growth of the industry?
The numbers tell a clear story: Islamic fintech is growing at roughly 21% annually, more than twice the rate of traditional Islamic banking, and the sector is projected to surpass USD 300 billion within a few years. That growth is not hypothetical — it is backed by real capital. When an AI-native Islamic digital bank like Mal raises USD 230 million in a seed round, it signals that institutional investors see a structural opportunity, not a niche.
I see three primary opportunities. First, embedded finance: the ability to build Shariah-compliant financial products directly into the platforms people already use — e-commerce, ride-hailing, property portals. Takaful coverage embedded at the point of purchase, murabahah financing triggered at checkout. This eliminates the friction that has historically kept Islamic financial products out of reach for younger, digitally-native consumers.
Second, the underwriting data gap. In my world — motor insurance — the difference between a well-priced risk and a loss-making one comes down to granular, confidence-scored data. Islamic financial institutions have the same problem: pricing, risk assessment, and portfolio management all depend on data quality that most institutions simply do not have. Fintech bridges that gap.
Third, and perhaps most important: financial inclusion. Around 44% of Muslims globally prefer Islamic financial products, but only a fraction have meaningful access to them. Digital banking removes the physical infrastructure barrier. A farmer in rural Pakistan or Indonesia does not need a branch; he needs a mobile app that offers murabahah financing with transparent terms and a Shariah compliance certificate. Several countries are accelerating this shift through policy: Pakistan’s mandate for full Islamic banking transition by 2028, Indonesia’s growing digital Islamic ecosystem, and the GCC’s sandbox infrastructure are all converging to bring hundreds of millions of new participants into the Islamic financial system.
Q3. How can blockchain technology and smart contracts enhance transparency, governance, and Shariah compliance in Islamic finance?
Blockchain and smart contracts address what I consider the single biggest operational weakness in Islamic finance: trust verification. Today, Shariah compliance is largely a manual, periodic audit exercise. A Shariah board meets quarterly, reviews transactions after the fact, and issues a compliance certificate. That model does not scale, and it does not catch violations in real time.
Smart contracts change this fundamentally. When you encode Shariah compliance rules into a smart contract — no riba, no gharar, asset-backed structures, profit-and-loss sharing ratios — compliance becomes automated and continuous rather than retrospective and sampled. Every transaction is verified against the rules before it executes, not months later during an audit.
We are already seeing this in practice. In Bahrain, INABLR has built a sukuk-as-a-service platform on the Tezos blockchain with built-in KYC, AML, and Shariah checks — it has graduated from the Central Bank of Bahrain’s regulatory sandbox. In the UAE, ADIB’s smart sukuk enables retail participation in instruments that were previously wholesale-only. These are not pilot programmes; they are live, operating platforms.
The governance implications are equally significant. Blockchain provides an immutable audit trail — every transaction, every compliance check, every modification is permanently recorded. For regulators who now demand real-time reporting and full audit trails, this is not just helpful; it is exactly what they are asking for. The technology and the regulatory direction are converging, and that is rare.
Q4. What is your perspective on cryptocurrency and digital assets within the framework of Shariah principles?
I take a pragmatic view on this, which I think reflects where the serious scholarship is heading. The framing of “is crypto halal or haram” is too simplistic and, frankly, unhelpful. AAOIFI has not issued a blanket ruling — instead, it has established a three-tier classification framework that evaluates each cryptocurrency against the core prohibitions: riba, gharar, and maysir.
Under that framework, commodity-backed cryptocurrencies — tokens backed by gold, silver, or other physical assets — have the clearest Shariah path. They eliminate gharar because the value is anchored to something tangible. Fiat-backed stablecoins follow similar logic. The difficult category is decentralised, unbacked cryptocurrency like Bitcoin, where the absence of intrinsic value and the dominance of speculative trading create legitimate Shariah concerns around gharar and maysir.
What I find encouraging is the regulatory response in the GCC. The DFSA, ADGM, and CBUAE are running sandbox programmes, not issuing blanket bans. That signals institutional pragmatism — a willingness to explore the technology while maintaining Shariah and prudential oversight. The Fiqh Council of North America and the OIC Fiqh Academy have adopted similar case-by-case approaches, emphasising governance, transparency, and real-world utility.
The direction of travel is clear: cryptocurrency will be absorbed into Islamic finance where it can demonstrate asset backing, genuine utility, and transparent governance. The speculative fringe will remain outside. That is a reasonable and workable position for any institution operating in this space.
Q5. How do you see the development of gold-backed digital assets and tokenized commodities in Islamic finance?
Gold-backed digital assets are, to my mind, the most natural entry point for Islamic finance into the digital asset space. Gold has centuries of tradition in Islamic commerce. It is tangible, it is well-understood by Shariah scholars, and it eliminates the gharar problem that plagues unbacked cryptocurrencies.
OneGram, based here in the UAE, proved the concept: one token equals a minimum of one gram of physical gold. Indonesia’s MUI and Nahdlatul Ulama both certified it as permissible under Islamic law. The model works because it maps directly onto existing Shariah frameworks — you are not asking scholars to evaluate something entirely novel; you are asking them to evaluate a digital representation of something they have ruled on for centuries.
Tokenised commodities extend the same logic. When you tokenise real estate, agricultural products, or infrastructure assets, you create fractional ownership that is asset-backed by definition. That opens sukuk markets to retail investors who were previously locked out. INABLR’s fractional sukuk platform and Dubai’s real estate tokenisation initiative both demonstrate this at scale.
The broader significance is that tokenisation democratises access. A retail investor who cannot buy a full sukuk can now buy a fraction of one. An SME that cannot issue a traditional sukuk can tokenise its receivables on a blockchain platform at a fraction of the cost. The technology reduces barriers and costs simultaneously — and it does so within existing Shariah frameworks, not despite them.
Q6. How can Islamic financial institutions effectively compete with conventional digital financial service providers?
This is the question that keeps Islamic banking executives awake at night, and rightly so. Conventional digital providers — neobanks, payment platforms, embedded finance companies — are moving fast, and most Islamic financial institutions are not keeping pace.
But I think the framing is wrong. Islamic institutions should not be trying to out-compete conventional providers on speed or user experience alone. They should be competing on trust and values alignment. The Islamic finance market serves nearly 800 million Muslims who actively seek Shariah-compliant alternatives — a market that no conventional provider can authentically address. The opportunity is not to match the conventional offer — it is to build something that conventional providers cannot easily replicate: genuine Shariah compliance embedded in the product architecture, not bolted on as a marketing wrapper.
The practical path forward involves three things. First, partnership over build: Islamic banks should be partnering with fintech companies that bring technical capability, while providing the regulatory licence, Shariah governance, and customer base. Dukhan Bank’s partnership with PayLater for murabahah-based buy-now-pay-later is a good example. Second, embedded finance: building Shariah-compliant financial products into the platforms consumers already use — e-commerce, ride-hailing, property portals. Third, data: Islamic institutions need to invest in data infrastructure. Pricing, risk assessment, and customer personalisation all depend on data quality that most traditional banks simply do not have.
The institutions that will thrive are those that combine Shariah authenticity with modern delivery. That is a defensible competitive position that no conventional provider can replicate.
Q7. What regulatory and Shariah challenges are currently facing Islamic FinTech and blockchain-based initiatives?
There are two distinct challenges here, and they tend to get conflated. The regulatory challenge is actually less severe than people assume. The UAE has two live regulatory sandboxes — the DFSA’s Innovation Testing Licence and the ADGM RegLab — that are actively welcoming Islamic fintech projects. ADGM is the world’s second-most active fintech sandbox globally. The regulatory infrastructure exists; the gatekeepers are open for business.
The harder challenge is Shariah standardisation. A Shariah compliance certification in one jurisdiction may not be recognised in another. A fintech that receives a favourable ruling from a Bahraini Shariah board may need to seek a separate ruling to operate in Malaysia or Saudi Arabia. That fragmentation increases costs — compliance runs USD 15,000 to 20,000 per startup for legal and Shariah review alone — and it limits cross-border scalability.
The third challenge is talent. Building Islamic fintech requires a rare combination of technical expertise, financial services experience, and Shariah literacy. Those three skill sets rarely coexist in one person, and the industry has not yet developed a reliable pipeline for producing them.
The path forward requires institutional coordination. AAOIFI and the IFSB need to accelerate work on standardised digital finance Shariah frameworks. Regulators need mutual recognition agreements so that a sandbox graduation in one jurisdiction carries weight in another. And the industry needs to invest in talent development at the intersection of technology, finance, and Islamic jurisprudence.
Q8. How can collaboration between traditional Islamic banks and FinTech startups accelerate innovation?
This is where I see the most practical progress happening right now, and I think the model is becoming clear. Banks bring capital, regulatory licences, Shariah governance infrastructure, and an existing customer base. Fintechs bring speed, technical talent, product agility, and modern user experience. Neither can succeed alone in this market.
The partnership models that work share a common structure: the bank provides the balance sheet and the compliance framework; the fintech provides the technology and the customer interface. Bank Nizwa’s partnership with Salispay in Oman, Dukhan Bank’s tie-up with PayLater in Qatar, and SIB’s collaboration with Nagad Bank in Bangladesh all follow this pattern. It is not revolutionary — it mirrors what has happened in conventional banking — but it is effective.
Where I think the opportunity is underexploited is in the insurance and takaful space. In motor claims — the business I operate in — we see the same dynamic: insurers with legacy systems and customer bases, TPAs and insurtechs with modern technology and operational agility. The partnership model works because it allows both sides to do what they do best. A takaful operator does not need to build an AI-powered claims assessment engine from scratch; it needs to partner with someone who already has one.
The key lesson from the successful partnerships is that alignment must go beyond a memorandum of understanding. It requires genuine integration: shared data, shared governance, and shared incentives. The partnerships that fail are those where the bank treats the fintech as a vendor rather than a strategic partner.
Q9. What role can digital finance play in enhancing financial inclusion in Muslim-majority and emerging markets?
This is, in my view, the most important question in this entire interview — because it is where Islamic finance and fintech can deliver genuine social impact, not just commercial returns.
The numbers are stark: roughly 44% of Muslims globally prefer Islamic financial products, but only a fraction have meaningful access to them. The gap exists because traditional Islamic banking depends on physical infrastructure that does not reach rural Pakistan, Indonesia, Egypt, or sub-Saharan Africa. Digital finance removes that barrier entirely.
Pakistan’s mandate to transition fully to Islamic banking by 2028 is the most significant single event on the horizon. That is 230 million people entering the Islamic financial system simultaneously, and the infrastructure to serve them will be digital by necessity — there is no alternative. The fintech companies positioning in Pakistan today are building for a captive market that will materialise within two years.
The Islamic finance structures that drive inclusion already exist and are proven. Murabahah and Qard Hasan models have been delivering SME financing at scale across Indonesia and Malaysia, with Bank Syariah Indonesia reporting a 15.8% year-on-year rise in financing disbursement. Digital microfinance platforms using AI-driven underwriting can reduce origination costs by 30 to 50%, making it economically viable to serve the lowest-income segments. Zakat and waqf blockchain platforms are proving that religious obligations can be digitised without losing Shariah integrity — creating transparent, traceable capital flows to the communities that need them most.
In takaful, the inclusion opportunity is equally significant. Cooperative risk pooling — which is the essence of takaful — aligns naturally with microinsurance for low-income populations. Digital delivery makes it scalable. The combination of Shariah-compliant product design and digital distribution has the potential to bring financial protection to populations that have never had access to it.
Q10. What is your vision for the integration of AI, blockchain, and decentralized finance (DeFi) in the Islamic financial ecosystem over the next decade?
The next decade will see Islamic finance move from a compliance-driven model to a technology-driven one — a shift that will be more profound than most industry participants currently expect.
AI will become the backbone of Shariah compliance. Today, compliance is a periodic, manual audit exercise. Within five years, I expect real-time AI-powered compliance monitoring to be standard — every transaction verified against Shariah rules before execution, every portfolio continuously screened, every contract automatically reviewed for riba, gharar, and maysir violations. The Abu Dhabi initiative launched in November 2025, covering 22 OIC member countries, signals that regulators and scholars are already aligning on this direction. The institutions that build or adopt these systems first will have a structural advantage.
Blockchain will become the infrastructure layer for Islamic capital markets. Sukuk tokenisation, fractional ownership, and smart contract governance are already operational — they just need to scale. Within a decade, I expect most new sukuk issuances to be on-chain, with Shariah compliance coded into the smart contracts and real-time audit trails available to regulators and investors alike. The cost savings — a 20 to 40% reduction in issuance costs by removing intermediaries — will make this inevitable on economic grounds alone.
DeFi is the most contested space, and that is where I see the most uncertainty. Conventional DeFi is largely incompatible with Shariah principles due to riba, gharar, and maysir in yield farming, leverage, and speculative trading. But Islamic DeFi — murabahah-based lending, asset-backed tokens, utility-focused protocols — is gaining scholarly acceptance. A 2025 sentiment analysis of academic literature on the subject, published in the Journal of Islamic Marketing, found that 59% of studied texts exhibited positive sentiment toward DeFi’s potential. Platforms like Marhaba and Takadao are proving the concept. The question is not whether Islamic DeFi will exist, but whether it will achieve enough standardisation and scale to matter.
What concerns me is the talent and governance gap. AI systems that determine Shariah compliance must be auditable and explainable — but most AI models today are neither. Smart contracts need Shariah board oversight before deployment, but most Shariah boards do not yet have the technical literacy to evaluate them. Closing that gap — building governance frameworks that match the pace of innovation — is the central challenge of the next decade. The institutions that solve it will define Islamic finance for the next generation.