24 percent of the world’s population are Muslims. That’s almost 1.8 billion people at the last count. Indonesia has the greatest number of Muslims at 231 million, followed by Pakistan and India, each with over 200 million. Africa represents 16 percent of the world’s Muslim population, with Egypt at 85 million, Nigeria at 75 million followed by Senegal and Kenya. AIBC examines why the launch of Islamic Digital Currency is a significant milestone.
Countries with large Muslim populations are vying to take advantage of the growing Islamic banking and finance sector, which is on track to reach US $4 trillion by 2026. Iran represents a quarter of the volume, followed by Saudi Arabia. Malaysia, at US $250 billion ranks third. Keen not to miss out, the governments of several Asian countries are actively promoting the development of Islamic financial markets and digital currency. With Indonesia Islamic banking realising US $5 billion a month, it is clear why.
While Africa lags far behind at just 2 percent of the Islamic finance market, its growing population which is 40 percent Muslim, is also attracting the attention of bankers and investment funds. In a recent report Moody’s stated that Islamic banking assets in Africa are expected to increase noticeably over the next ten years.
Put simply, Islamic banking provides financial services based on the ethical principles of Shariah law that governs social, political and economic relationships and actions. However, investment in illicit (Haram) activities, such as alcohol and gambling, is forbidden. In Arabic, Maisir (or Maysir) or Qimar describes speculation or gambling, prohibited in Islamic finance because it creates wealth from chance.
What is unclear is if the definition of creating wealth from chance also covers rewards for iGaming skills. Until recently, Islamic banking generally resulted in the Islamic financial service provider becoming a co-owner of the underlying assets, thereby assuming some risks and sharing losses and profits (Sukuk). But several new avenues have opened within Islamic investment, such as charitable trusts, private equity, exchange-traded sukuk funds, Shariah-compliant mortgage investment funds and halal mutual funds. The offerings will likely appeal to a broader consumer base beyond the Muslim population, improving demand for Islamic instruments.
With new applications within AI, blockchain and IoT being explored, new digital solutions are likely to enhance the market attractiveness of the sector. Digitization is disrupting business models across the industry with services such as digital payment platforms and wallets to robo-advisory services, insurance (takaful) and Shariah-compliant crypto, which is a fast-emerging financial product that is expected to attract investors from within and out of the Islamic world.
A leader in the field is ‘Islamic Coin’. Co-founder Hussein Al Meeza has over 40 years of experience spanning the Islamic banking, finance and insurance sectors and was involved in establishing the world’s first Islamic Bank ‘Dubai Islamic’. Sheikh Dr Nizam Mohammed Saleh Yaqub chairs Islamic Coin’s board. The Sheikh sits on the Shariah boards of HSBC, Lloyds TSB, Barclays, BNP Paribas, Credit Agricole and Citigroup and is recognized by Bloomberg as ‘The Gatekeeper’ of a $2 trillion market for Islamic financial
The Islamic Coin mobile wallet is Master Card-enabled. Backers believe this gives anyone a means to make daily transactions and payments without being crypto experts. Also in progress is the introduction of a halal Shariah-compliant exchange, ‘Stable Coin and listings on major global exchanges this year. However, a red flag for iGaming is the Islamic Coin’s rule never to back projects with ‘’a negative impact on the community, such as gambling’’.
Indonesia is an early crypto adopter
Mohammed AlKaff AlHashmi and Hussein Mohammed Al Meeza of the competing Islamic coin ‘Haqq’ believe the Haqq coin will ‘’help the Islamic community make their day-to-day online monetary transactions ethical. It uses ‘Point of Sale’ which is more eco-friendly and is also Ethereum-compatible.
Indonesia has emerged as an early crypto adopter with online speculative trading driving use. The government was due to launch a crypto stock exchange in 2021 but postponed it to 2022 and again to sometime in 2023. It is unclear if the Indonesian Ulema Council, the body of Islamic scholars, declaring that cryptocurrency as a means of payment and a commodity to trade is ‘Haram’ [unlawful for Muslims] is the cause of the delay.
Closer to home, in a recent interview with AIBC News, Malta-based Islamic financial expert Reuben Buttigieg stated that; ‘’Islamic Coin has a huge potential in Malta. The main thing is that the mechanisms of how crypto functions are very much in line with the principles of Islamic finance provided that no speculation is done on the particular gain.” Going on to speculate that the crowdfunding element ‘’could be a huge boost for the Islamic finance world.”
Central to Islamic finance is that money itself has no intrinsic value. Investment manager at Sparrows Capital, Mark Northway, believes Crypto Currency complies with the central tenant of Islamic finance as Crypto coin is not underpinned by any intrinsic value; instead, it is determined by one thing: confidence’’.
If this interpretation is accepted, the door to using Islamic Coin for online games of skills could be wide open. There are similarities between this approach and the one taken by Gaming companies in Japan where gambling is illegal. Pachinko (pinball) is regarded as an exception and treated as an amusement activity. Although awarding direct money prizes for it is illegal, parlors may reward players with tokens which can then be sold for cash at nearby exchange centers.
Malta an ideal platform for Islamic Banking
The Malta Financial Services Association (MFSA) was the first EU regulator to issue guidelines on Islamic finance, believing Malta to be an ideal platform for Islamic Banks and establishing Sharia-compliant funds: Malta’s robust regulatory framework, tech-savvy skills pool, and location provide a strategic but perishable competitive edge.
In 2016 the Malta Stock Exchange launched an Islamic Equity Index. Subsequently, it certified the stocks of listed SME companies whose activities are Sharia-compliant. Since then, however, Malta appears to have lost its early adopter advantage. London has become the hub for Sharia-compliant finance in the Western world, with 5 licensed Islamic banks and over 20 conventional banks offering Islamic financial products.
Malta has also lost ground to other EU countries: Luxembourg was the first in the EU to issue a sovereign sukuk, and 49 sharia-compliant funds are domiciled there. Germany, Switzerland, and France are also pushing hard to gain market share.
Why has Malta not gained a stronger foothold? There is speculation that as a 95% catholic nation, association with Islam may have a negative effect on business and reputation. However, as perceived higher levels of ethical credibility and rapid adoption of digital solutions contribute to Islamic finances, accelerated growth, Malta has an opportunity to leverage its digital strengths to share in this market.
Malta ranks 5th out of 28 EU Member States and performs above the EU average in all five dimensions of the 2020 Digital Economy and Society Index. With Malta, one of the world’s leading iGaming hubs and an incubator of iGaming innovation, companies active in the sector are well placed to benefit from the digital transition and support the growth of Islamic Coin adoption as payment.