Financial intermediation, fintech and Sharī‘ah compliance

This chapter examines how fintech-led financial intermediation would help to solve some key Shari‘ah issues faced by traditional financial intermediation led by banks. Financial intermediation based only on interest-rate mechanisms has obvious limitations as it hampers both investments and employment. The chapter shows that fintech-led financial intermediation would lead to better Shari‘ah compliance and address the issue of financial inclusion as well as better financing of small and medium-sized enterprises (SME) who have hitherto been unable to access mainstream financial market. Fintech is resolving both these issues of moral hazard and information asymmetry. Fintech-led newer marketplaces, like crowdfunding platforms, have enabled an opportunity and an access to capital to businesses/projects, especially the SMEs which would have been unable to do so in the traditional banking, are driven financial intermediation. Fintech provides an opportunity for Islamic financial institutions to increase their equity capital base.