Prospects and challenges of Islamic fintech in Indonesia: a legal viewpoint

Abstract

Purpose This paper aims to explore the prospects and the challenges of Islamic fintech in Indonesia. This study also proposes a comprehensive legal framework to encourage and accelerate the growth of the Islamic economy. Design/methodology/approach This study is the result of legal research with a statute approach and conceptual approach. The types of data used are legal materials consisting of primary legal materials and secondary legal materials. The technique of collecting legal materials is done by using library research techniques. The legal materials were analyzed using the legal norm method. Findings Indonesia is a country with the largest Muslim population in the world. However, the market size of Indonesia’s Islamic fintech is still below Saudi Arabia, Iran, United Arab Emirates (UAE) and Malaysia. Saudi Arabia’s Islamic fintech is the biggest market in the world, with $17.9bn worth of transactions in 2020 while Iran is at $9.2bn, UAE $3.7bn, Malaysia $3.0bn and Indonesia $2.9bn. This condition was due to various challenges in the Islamic fintech industry in Indonesia, including inadequate regulations; complicated permit procedures; misuse of fintech for financing terrorism; rampant occurrence of illegal fintech businesses; and consumer disputes in the fintech sector. These challenges require the construction of a comprehensive legal framework through the formation of an Act on Fintech. Research limitations/implications The focus of this research was limited to the problems occurring in the Islamic fintech sector in Indonesia as a country with the largest Muslim population in the world. Practical implications The results of this research can be used as recommendations for the formulation of comprehensive policies for the growth and development of Islamic fintech. Social implications Islamic fintech requires a comprehensive legal framework that functions to encourage the development of the Islamic fintech industry, digital economy growth and legal mitigation of various legal risks and misuse of fintech for financial crime and financing terrorism. Originality/value This paper proposes an original idea of creating a legal framework in a form of the Islamic Fintech Act. The Act should cover such legal substances as follows: Islamic compliance; an integrated one-stop permit procedure; division of authority, coordination and synergy among authorities; prevention and resolution of digital financial system crisis; criminal sanctions; and consumer dispute resolution mechanisms and alternative institution for fintech consumer dispute resolution.

Fintech in islamic finance literature: A review

“…this study underlined that FinTech offers more cost-effective financial services than traditional finance and banking. Based on a country level Muryanto et al (2021) stated that Indonesia, as the largest Muslim population country, has massive potential to elevate the economic growth by utilizing Islamic FinTech. Moreover, this study also describes several challenges in Islamic FinTech's development, including weak regulation, inefficient permit procedures, and a higher rate of illegal FinTech practices.…”

“…Moreover, this study does not provide recommendations for the government or future research directions for researchers. (Muryanto et al, 2021) This study assesses the prospects and challenges of Islamic FinTech development in Indonesia.…”

The Online Credit Buying and Selling System and its Compatibility with Islamic Law

“…Financial Technology (Fintech) is an alternative technology that facilitates online loan transactions. The legal position of the Fintech Technology-Based Online Lending and Borrowing Agreement is legally valid because it has a basis in Article 1320 of the Civil Code and refers to Law Number 11 of 2008 concerning Information and Electronic Transactions (UU ITE) (Muryanto et al, 2022).…”

Ahkam Al Munir Tafsir of Online Debt

“…Indonesia is predicted to be one of Southeast Asia's largest digital economy markets by 2025. The growth of the middle income group, the demographic potential factor, which is primarily the productive age population [6], the population growth of technology users, their digital footprint, and the number of internet users are estimated to reach 200 million by 2020, all of which make the association of FinTech industry development in Indonesia more promising [7].…”