The urgency of sharia compliance regulations for Islamic Fintechs: a comparative study of Indonesia, Malaysia and the United Kingdom

Abstract

Purpose This article aims to explore legal challenges regarding the regulation and supervision of Islamic Fintech and to construct Sharia compliance regulations to strengthen the supervision of Islamic Fintech operation. Design/methodology/approach This type of research is legal research, adopting the statute approach, comparative approach, and conceptual approach. The focus of the study is Indonesia with comparative studies with Malaysia and the United Kingdom. Findings Malaysia, Indonesia, and the United Kingdom are all on the top five countries in the Global Islamic Fintech (GIFT) Index. The list comprises countries that are most conducive to the growth of the Islamic Fintech market and ecosystem. However, weak supervision and low Sharia compliance are still becoming prominent challenges in the implementation of Islamic Fintech, while Sharia compliance is the core principle for Islamic finance regulation. Another finding is that a good ecosystem of Islamic Fintechs needs supportive regulations and policies, a Sharia Supervisory Board, and standards of Islamic Fintech Shariah governance. Research limitations/implications This study examines the regulation and supervision of Islamic Fintech in Indonesia, Malaysia, and the United Kingdom countries whose Islamic Fintech industry is growing rapidly. Practical implications This study is a strong reference for countries with potential Islamic finance, especially when they are constructing the Sharia compliance regulations to strengthen the regulation and supervision of the Islamic finance industries. Social implications Sharia compliance regulations can be a subsystem in the Islamic financial ecosystem to encourage Sharia economic growth in various countries. Originality/value To ensure Sharia compliance, it is recommended to take some steps: (a) creating the Sharia compliance regulations; (b) creating the Sharia supervisory boards; and (c) standardizing the Sharia governance of Islamic Fintech.

Financial Technology and Sharia Compliance Regulations in Islamic Banking in Indonesia

“…The development of FinTech can also be felt in Islamic finance through Islamic FinTech or Sharia FinTech which continues to gain interest from Muslims and non-Muslims globally (Darmansyah et al, 2020 ;Muryanto, 2022) . Sharia FinTech develops while taking into account the main characteristics of the Islamic economy, namely being halal; aims for social welfare; maintaining a balance between material needs and spiritual needs; and free from usury, uncertainty ( gharar ), and gambling ( maysir ) (Muryanto, 2022) . Sharia fintech has been applied in Islamic banking, Islamic capital markets, the non-bank financial industry, Islamic social finance, Islamic microfinance, and the halal industry (Muryanto, 2022) .…”

“…Sharia FinTech develops while taking into account the main characteristics of the Islamic economy, namely being halal; aims for social welfare; maintaining a balance between material needs and spiritual needs; and free from usury, uncertainty ( gharar ), and gambling ( maysir ) (Muryanto, 2022) . Sharia fintech has been applied in Islamic banking, Islamic capital markets, the non-bank financial industry, Islamic social finance, Islamic microfinance, and the halal industry (Muryanto, 2022) . With the support of a large Muslim population, high compliance with sharia regulations, and the emergence of massive digital transformation, this has resulted in increased positive developments in the sharia economy, especially sharia finance globally (Muryanto, 2022 ;Yudaruddin, 2022) .…”

“…Sharia fintech has been applied in Islamic banking, Islamic capital markets, the non-bank financial industry, Islamic social finance, Islamic microfinance, and the halal industry (Muryanto, 2022) . With the support of a large Muslim population, high compliance with sharia regulations, and the emergence of massive digital transformation, this has resulted in increased positive developments in the sharia economy, especially sharia finance globally (Muryanto, 2022 ;Yudaruddin, 2022) . Darmansyah et al (2020) added that FinTech in Islamic finance is expected to become an important part of the global financial sector and be able to make a significant contribution to the growth of Islamic finance in particular.…”

“…In Indonesia, FinTech is growing rapidly due to the increasing number of internet and smartphone users (Yudaruddin, 2022) . Therefore, Indonesia is included in the top five countries on the Global Islamic FinTech Index (GIFT) as one of the most conducive countries for the development of the Sharia FinTech ecosystem (Muryanto, 2022) . The development of FinTech in Indonesia is increasingly seen by foreign investors as a country with great digital economic potential due to the rapid development of FinTech in Indonesia (Darmansyah et al, 2020 ;Yudaruddin, 2022) .…”

“…The growth of Sharia FinTech in Indonesia has also experienced a significant increase because Indonesia is the largest market share in Southeast Asia which has resulted in many Indonesian people needing Sharia FinTech (Muryanto, 2022 ;Yudaruddin, 2022) . Muryanto (2022) provides several examples of Sharia FinTechs that are developing in Indonesia such as Peer to Peer (P2P) Lending , Aggregators, Project Financing, Insurtech, Funding Agents and Financing Agents.…”