Does_Islamic_Fintech_important_in_Malaysian_Islamic_Banks_1

BIBS2013
ISLAMIC BANKING (A)



A212
2021/2022 SESSION



GROUP ASSIGNMENT 2
TITLE: DOES ISLAMIC FINTECH
IMPORTANT IN MALAYSIAN

ISLAMIC BANKS?



LECTURER NAME:
DR. NOR SYAHIDAH BINTI ISHAK

Member's Group:
1. MUHAMAD AMMAR AMSYAR BIN MOHAMAD AZHAN (281604)
2. NUR EDLINA MAISARAH BINTI AZIZI (281499)
3. NURULAIN BINTI JAFRI (280133)
4. SITI NURAFIINI BINTI MUSTAPA (278311)
5. NUR AFIFAH BINTI AZHAR (277856)
6. NURUL IZZATI BINTI MHD NAZARUL ZAINI (271766)
7. MOHAMAD BAIHAQI ATIQULLAH BIN MOHAMAD BASSET (277106)




Prepared by:

Group 3 & Group 5

DOES ISLAMIC
FINTECH IMPORTANT

IN MALAYSIAN
ISLAMIC BANKS?

What is
Islamic
Fintech for
Malaysian
Islamic
Banks?

1.0 INTRODUCTION

The term financial technology (Fintech)
refers to new technology that aims to
improve and automate the delivery and use
of financial services. Fintech also short of
financial technology. When the term
"fintech" first appeared in the twenty-first
century, it was originally applied to the
technology used at the back-end systems of
established banking firms. Fintech now
refers to a wide range of financial activities
that can be performed without the
assistance of a person, such as money
transfers, check depositing with your
smartphone, bypassing a bank branch to
apply for credit, raising funds for a business
startup, or managing your investment.

In addition, FinTech also provides
cost-effective solutions for businesses,
particularly startups, to help them
reduce costs and improve business
processes also in islamic banking. But,
islamic financial services, which
incorporates additional faith-based
filters into the product development
process. As a result, there is a case to be
made for thought leadership in relation
to this critically important subject in
order to guide policymakers, regulators,
and practitioners on the dynamics of
fintech in Islamic finance, as well as
provide a good understanding of Shar'ah
and legal and regulatory parameters for
fintech solutions.

The advantages of fintech in Islamic banking contribute to economic
growth, but this increases the workload of regulators, who must ensure
the financial system's stability and protect it from fraud or crisis.

2.0 THE DEVELOPMENT OF ISLAMIC FINTECH IN MALAYSIA

FinTech businesses have been utilising technology to
make it simpler for customers to invest, pay bills, and even
receive loans online since 2015. FinTech is especially intriguing
to millennials since they grew up with mobile devices and want
to conduct financial transactions in the same manner they
share photographs or apply for jobs. This is the mindset that
permits FinTech to thrive.

For decades, technology has played an important role in
global financial services markets. In the twentieth century,
financial technology (FinTech) fuelled by IR 4.0 substantially
improved financial services, operations, business models, and
customer contact (IFR, 2018). FinTech enterprises are non-
financial organisations that use technology to offer financial
services such as loans, investments, payments, risk
management, data analytics, and wealth management (GIFR,
2017). FinTech activities include mobile payments, money
transfers, trading platforms, public finance, and peer-to-peer
lending (P2P). In the context of Islamic FinTech, all of these
activities must be Shariah compliant. According to Thomson
Reuters (2018), the Islamic finance industry has significant
potential, with assets expected to reach USD3.9 trillion by 2023.

Malaysia maintains its The Financial Technology Enable
position as the most advanced
Islamic financial market in the Group (FTEG), the Community
world (Thomson Reuters, 2017).
Malaysia, on the other hand, has Alliance of FinTech (aFINity), and the
to boost its position in Islamic
FinTech. Several steps are being Islamic FinTech Global Hub are other
taken to expedite the growth of
Islamic FinTech in the country. FinTech ecosystem support factors for
As a reference document,
Malaysia's FinTech Regulatory Islamic finance FinTech players. The
Sandbox regulations have been
provided. This framework aims Malaysian Digital Economy
to provide a favourable
environment for the use of Corporation (MDEC) has offered
financial technology in order to
foster financial service opportunities for Islamic digital actors
innovation that contributes to
the growth and development of to improve capacity and increase
the financial industry. Under
specified constraints and demand for goods and services with
timetables, the initiative also
permits Islamic and the publication of the Islamic Digital
conventional FinTech
technology to be examined and Economy Guide (IDE). These
utilised in real-world contexts.
guidelines, known as Mi'yar, are

intended to be a resource for start-

ups, venture capital companies, and

other ecosystem players interested in

studying and grasping IDE

components. These components

include Islamic venture finance, firm

operations, and halal or Shariah-

compliant goods and service.

3.0 IMPORTANT OF ISLAMIC FINTECH IN
MALAYSIAN ISLAMIC BANKS

Islamic Banking Finance and Islamic FinTech is an important pillar in the Twelfth Malaysia
Plan (12MP) where it is an initiative that can develop and advance the community's

economy in a more progressive and inclusive manner and it is also an action to focus more
on expanding the market national exports through available businesses. The role of Islamic
Fintech is something that is very important and useful in the life of society especially in the
present times so that it continues to develop in line with the available progress. With this,

there are several reasons why Islamic Fintech is important in the development of Islamic
banking in Malaysia.

·ISLAMIC FINTECH SAVES TIME AND ENERGY

Next, Islamic fintech in Malaysia can save time and energy when it comes
to financial management. This is because the current generation prefers a tool
or mechanism that saves time, money, and energy while also prioritising
personal safety. The existence of this fintech advantage makes it simple to
divide the tasks because it saves money on hiring humans to complete the
work. Meanwhile, when compared to traditional financial institutions,
organisations that embrace Islamic fintech may often come up with solutions
at lower costs. Fintech companies, on the other hand, have low overhead costs,
allowing them to give savings without commission. This persuades customers
to employ this approach while managing their finances. MicroLEAP, for
example, is an Islamic and Conventional Peer-to-Peer (P2P) microfinancing
platform that has been tightly regulated by the Securities Commission
Malaysia (SC). This platform is used as an alternative financing instrument,
allowing issuers to raise funds from investors without having to go via
traditional financial institutions. As a result, Islamic fintech has emerged as one
of today's time and energy-saving systems.

·FINTECH IS A MORE COST-
EFFECTIVE OPTION

When opposed to older financial institutions,
fintech startups may often give the same solution at a
cheaper cost. Fintech companies can save money by
using technology to automate tasks rather than hiring
individuals to execute the work. They also save money
by not having actual locations where clients can be
served. Fintech companies, on average, have low
overhead costs, allowing them to pass those savings on
to you. In this modern generation we can see that we
can find that bank account without any fees and stock
for trading apps without any commission. With this
Fintech it can save our money because we can have
more money for us.

Islamic Fintech is an application that can bridge ·ISLAMIC FINTECH EMPOWERS
the gap for small businesses to continue to develop SMALL BUSINESSES
as well as large corporate businesses. This is because
Islamic Fintech is an invention that serves as a
bridge in bridging the gap between technology and
Islamic finance, especially where it adapts in various
financial -related activities such as internet banking,
public data and blockchain. With this, for example
before the existence of the advantages of Islamic
Fintech, businesses for large companies have more
advantages in using the latest technology and
financial tools but with the existence of Islamic
Fintech now, small entrepreneurs who work solo can
also use some tools used by the big company. This is
for example as through Islamic Fintech, small
businesses are also able to process payments
through applications that are already available easily
such as Square and Stripe or can also use Xero or
QuickBooks where it’s able to manage accounting
efficiently. Finally, through this Islamic Fintech
product as well, it is able to produce innovative work
that allows small businesses to further expand their
services and operate at a higher efficiency and scale
which in turn can indirectly further the development
of the Islamic banking system in Malaysia.

·FINTECH LEVEL OF EFFICIENCY Islamic Fintech is something that is listed
AS WELL AS EFFECTIVENESS IN in Islamic finance where it is an invention that
consists of 12 specific areas that have been
ISLAMIC BANKING FINANCE. identified as being able to promote the
national economy through the framework of
MySTIE (Science, Technology, Innovation and
Malaysian Economy). The importance of the
use through Islamic Fintech is because through
this Fintech application it is able to produce a
quality in the relationship between banks and
customers to continue to develop advances
involving technology, conventional finance and
Islamic finance. Through Islamic Fintech, it is
also able to produce more productive work
results where possible to provide efficiency and
effectiveness in the management of Islamic
finance in particular so that it continues to
increase through the current flow in turn can
facilitate customers to deal with financial
institutions through various activities and
financial products through compliance with
shariah guidelines.

4.0 APPLICATION

OF ISLAMIC FINTECH IN ISLAMIC BANKING

FinTech is an abbreviation for "financial
technology" and refers to a relatively new kind of
technology that facilitates financial transactions
between clients and
financial institutions.
FinTech is developing as
a third party competing
with financial institutions
and clients to modernise
and innovate the industry.
Some technologies such
as Blockchain and Smart
Contracts, are now
used in Islamic financial
technology.

BLOCKCHAIN

Blockchain is a FinTech breakthrough
that has the potential to provide several
societal advantages. Blockchain is
simply a database or notebook for all
implemented and shared digital
transactions and occurrences. Each
transaction that is undertaken will have

its legitimacy validated by the agreement of the vast majority of those who are involved in the
system. Once the information and its corresponding data have been entered, the information
cannot be removed. The blockchain is responsible for keeping a record of every single
transaction that has ever taken place. Through blockchain, users may communicate without
knowing or trusting one another, since electronic transactions can be automatically validated
and recorded by network nodes utilising cryptographic algorithms, without the need for
human intervention, central authority, or third parties such as governments, banks, financial
Institutions or other organisations. All zakat collecting and distribution transactions may be
tracked and analysed, which increases the transparency of the collection process. It is capable
to reduce the cost of services by increasing process efficiency, reducing errors and dishonesty,
and eliminating waste. In addition, it may enhance the capability of zakat contributors to
monitor and assess the collecting and distribution of zakat, as well as boost their confidence
and relieve their concerns. This will have a beneficial effect on the amount of zakat that is
contributed in the long term.

In terms of zakat collection, the deployment of smart contracts on the blockchain may
improve the efficiency of zakat collecting. To make tax exemption easier for zakat payers
(muzakki), the Inland Revenue Board (IRB) has been integrated into the blockchain
environment using smart contracts on the blockchain. Once the payer has made the zakat
contribution, it will be updated in the block and the IRB will be made aware of the payment,
simplifying the tax exemption. It will make it easier for people who are eligible for zakat
payments to be informed. Meanwhile, all key government departments and agencies are
members of the blockchain ecosystem, which will make the process of transferring data from
one department to the zakat centre easier. Therefore, after the zakat centre has determined
who is qualified to pay zakat, the zakat payment notice will be sent to the individual within
the department.

The use of smart contracts on the blockchain might increase the efficiency of zakat
distribution. The application for zakat assistance may be shortened for zakat receivers (asnaf)
due to blockchain smart contracts. Typically, processing a zakat application takes a
considerable amount of time. It is possible to reduce the amount of time spent processing
applications for asnaf using smart contracts. It is able to recognize asnaf with more ease,
swiftness, and precision. Multiple government agencies associated with Zakat Institutions
will be integrated into the Blockchain ecosystem. For instance, the Federal Territory
Baitulmal will utilise the demographic statistics for the Federal Territory given by the
Department of Statistics Malaysia to determine which asnaf are eligible for receiving zakat.
Consequently, it will minimise the risk of asnaf dropout in zakat distribution. In addition, the
Smart contract can identify asnaf who is qualified to receive zakat, and the authorities may
distribute zakat to asnaf using the Smart contract. By using this new fintech system, it is
possible to prohibit a household from obtaining more zakat and also keeping the asnaf from
losing the right to receive zakat. The terms and conditions of the smart contract could be
determined by the governing bodies. Therefore, emphasis should be placed on the equitable
distribution of zakat, and help should not be duplicated. In order to minimise duplication of
zakat donations, the social welfare department and other relevant agencies must participate
in the blockchain ecosystem in order to gather information about other recipients.

Smart Contract

There are many buzzwords and promises of upheaval associated with the
rise of FinTech. Blockchain is one of the most commonly used terms and
smart contracts are another concept that is gaining popularity.

A smart contract is a computer programme code that can be used to
facilitate, execute, and enforce the settlement or performance of an
agreement utilising blockchain technology. The overall process is
computerised, and it can be used to supplement or replace formal contracts.
The smart contract's provisions are written in a programming language as a
collection of instructions. Smart contracts are expected to hasten the
digitalization of the Islamic banking industry, specifically in the areas of
Islamic capital markets, Islamic investment (sukuk, Islamic stock exchange,
Islamic wealth management), takaful industry (automated claims, renewal of
general takaful products), and Islamic banking (trade finance, crowd-
funding). A smart contract is relatively close to an Islamic contract and in
consistence with Shariah's goal of ensuring clarity in business interactions or
transactions, such as enforcement, payment terms, asset definition and
adhering to the faith concept. It is another instrument of Islamic fintech that
utilize to record financial transactions between parties. The smart contract
also endorses Islamic financing products. Legal documents that contain
precise terms and legal requirements must be followed in the exact order to
achieve Shariah compliance. In other words, smart contracts let Islamic
financial institutions modernized their operations and automate the entire
contracting process. The reception of smart contract by the Islamic banking
industry is the foremost natural thing to do because it is not simply to acquire
a firm position in this technological development, but also to be able to
completely comply with Shariah in a transparent manner. In the Islamic
fintech industry, integrity, accountability, and truthfulness are attributes that
should be present in any financial transaction, and smart contracts are
essentially all of these.

Smart contracts are made between two parties. The
contract's terms and conditions are then written in code. It's
also a type of programmable contract that automatically
carries out an agreement's terms when certain conditions are
satisfied. If the requirements in the contract's fundamental
programme are satisfied, the action (or actions) indicated in
the contract are carried out. There will be no action or
transaction if they are not satisfied. An implemented smart
contract on a distributed ledger could make legal interactions
more effective and economical by potentially minimising the
likelihood of error, misinterpretation, inefficiency or dispute. In
a simple word, A smart contract allows for more simple in
action. For instance, a regular or traditional contract requires
the involvement of a third party such as a bank and a lawyer in
any activity like property acquisition, while a smart contract
does not. It eliminates the need for third-party interference. For
illustrations, party A wants to send money to party B but does
not want to utilise the party C shipping service. The best
approach to get rid of the shipping service is by using smart
contract. As a result, instead of employing C's shipping service,
party A can utilise smart contracts to send cash straightly to
party B.

5.0 CONCLUSION

In conclusion, fintech is proof that
technology can provide greater
convenience for the public to use in all
types of daily activities, whether it is an
investment or a specific transaction.
Fintech In Islamic banking, can provide
islamic consumers with secure banking
guarantees and convenience.
Furthermore, it has the potential to raise
the bar for Islamic banking on a global
scale.

Secondly, Fintech will increase the
efficiency and effectiveness of financial
management, making it easier for
customers to interact with financial
institutions through various activities and
financial products. Financial
management is more efficient because
when fintech in Islamic banking causes
all transactions to be recorded in this
system, it demonstrates more effective
efficiency to the banking institution.

However, the presence of fintech in
business is incomplete unless it is
accompanied by easier, more accurate,
and precise company recording or
bookkeeping. because the technology
used is easily damaged and may be lost
from the system. Lastly. It is always worth
looking over the other countries wall at
other cultures to see what we can learn
from them, just as they learned from us in
the beginning. It can improve our Islamic
banking system in Malaysia.