Industrial zones are catalysts that help catapult a nation’s economic activities and shore up investor confidence.

To that end, the establishment and optimization of halal industrial estates can prove instrumental for the Islamic economy ecosystem.

However, Indonesia’s halal industrial estates leave much to be desired, and a long shot from coming into their own. Numbers back up the claim: their occupancy levels continue to remain low, despite being in operations for three years.

The three halal industrial estates - Modern Halal Valley Cikande in Banten, Halal Industrial Parks Sidoarjo in East Java, and Bintan Inti Halal Hub in Riau islands - were less than 34% occupied as of end of last year.

Modern Valley’s occupancy rate is only 19% (95 hectare occupied out of 500) by three small and medium companies, while Industrial Parks Sidoarjo is only 33.1% occupied (39 out of 118 standard factory buildings) by 39 small and medium companies. Bintan Inti is a mere 4.7% taken (5 out of 106 hectare) by a large entity.

Indonesia’s halal industrial estates have been developed by private developers and assisted – in the form of tax and non-tax incentives - by various ministries and institutions, including coordinating ministry for economic affairs, coordinating ministry for maritime affairs and investment, ministry of investment/Indonesia investment coordinating board, and ministry of industry, among others.  

The initiative was meant to develop and offer an incentivized location for investors. For why is it contra-productive now?

Afdhal Aliasar, halal product industry director at Indonesia’s National Sharia Economy and Finance Committee (KNEKS) told Salaam Gateway that competitiveness is one of the shortcomings.

Halal requirement is not a top priority for most investors. Instead, cheaper labour, close proximity to locations from where raw materials can be procured, and a more established ecosystem are considered more critical factors.

“There were investors from South Korea, China and the European Union visiting us recently (Q3 2023) to examine the probability to invest in halal industrial estates. However, they prefer locations offering a more established ecosystem. For instance, for F&B materials companies, the ask is regarding proximity of F&B industries. Investors are quite interested, but again, there are many factors, including Indonesia’s general election next year, that factor in,” Aliasar said.

Meanwhile, Indonesia’s finance ministry, according to Aliasar, is also exploring the possibility of offering heavy tax incentives such as tax holiday and allowance, exemption of VAT and luxury goods as well as import tariff, likened to those in special economic zones, to boost investor’s appetite in halal industrial estates.

KNEKS will also launch Indonesia’s halal industry master plan for 2023 - 2029 next month to boost halal industry infrastructure development, especially halal industrial estates, similar to neighbouring country Malaysia.

Eko Cahyanto, director general of international industrial cooperation at Indonesia’s ministry of industry said that the government had already issued the Presidential Regulation Number 134/2022 on 2023’s Government Working Plan Revision to boost halal industrial estates performance. 

The renewed working plan for 2023 outlined the government’s intent to add an additional halal industrial estate to three existing ones this year, and for it to be fully operational. The government also aims to fully integrate one of the existing estates with the country’s halal supply chain system. 

Cahyanto added that the industry ministry is also working to improve non-tax incentives for companies, such as providing better supply chain or warehouse facilities, ease of doing business related to port authority, licensing processes as well as other services.  

“The more parties (supporting and developing halal industrial estates), the better. It is still September now. Hopefully, by the end of this year, there will be another (halal industrial estate),” Cahyanto said. 

Building on existing capabilities

Muti Arintawati, president director at Indonesia’s halal inspection agency LPPOM MUI said that it is onerous to accelerate investment in completely new halal industrial estates except when the government offers huge tax and non-tax incentives.

LPPOM MUI is also a partner of Modern Valley and Industrial Parks Sidoarjo.

“It is almost impossible to attract many investors at an extremely quick period into a completely new halal industrial estate that is built from scratch. They need to prepare road access infrastructure at first, but at the end what matters is the ecosystem,” Arintawati said. 

She adds that it is easier to attract investment by adding a halal zone or cluster in existing industrial estates with a more established ecosystem.

LPPOM MUI is currently assisting two industrial estates for halal test lab and raw water and is also considering providing desk service for halal certification process for the industrial estate operator. 

Afdhal added that KNEKS also promoted halal zones within existing industrial estates such as Jababeka in Cikarang, JIEP in Pulogadung, Grand Batang City and Kendal in Central Java and also KIMA in Makassar.

“Since the ecosystem already exists, investors will be more eager to come. We just need to add the halal zone in those industrial estates,” Afdhal explained.

LPPOM MUI’s halal partnership and audit services director, Dr. Muslich adds that government and developers can boost occupancy rate in Industrial Parks Sidoarjo, especially for small F&B related companies (raw materials, logistic, meat & slaughterhouse, retail, and restaurant) that are ought to be halal certified by October of next year.

Regional context

Within the ASEAN region, Indonesia's progress on halal industrial estate trails neighbourhood countries, especially Malaysia and Thailand.

Malaysia, through its Halal Development Corporation, has 22 halal parks of which 14 have been accredited with Halal Malaysia or HALMAS.

Meanwhile, Thailand has rolled out a halal economic corridor (HEC) in southern border provinces of Yala, Pattani, Narathiwat, Satun and Songkhla. This corridor will promote the production and export of halal meat, including chicken, goat, and beef to Islamic countries. 

However, Adi Saputra Tedjasurya, president director of Makmur Berkah Armada, operator of Industrial Parks Sidoarjo, affirms that Indonesia can compete with them once halal industrial estates are established and evenly distributed among all its regions.

"We strongly believe in the future if the government can have good synergies with developers throughout Indonesia including us. [In that case], we can outshine competitors such as Malaysia," Tedjasurya added.

To be more competitive, halal industrial estates should be equipped with superior supporting facilities, such as halal economy offices, halal laboratories and logistics, etc., to attract investor interest and develop the wider ecosystem.

Multiple stakeholders across Indonesia are gearing up to boost social Islamic financing in the country, especially for waqf purposes. 

The latest initiative comprises organizing awqaf business matching exercises between relevant stakeholders, such as nadzir (waqf manager), mauquf alaih (waqf recipient), entrepreneurs and investors. 

Indonesia’s National Sharia Economy and Finance Committee (KNEKS) and Gerakan Wakaf Indonesia assembled more than 32 participants from nadzir, entrepreneur and investor circles around Jakarta, West Java, Central Java and East Java on August 12, KNEKS’s Sharia social finance director, Ahmad Juwaini told Salaam Gateway. 

The initiative helped foster seven social Islamic financing agreements, valuing more than 3.3 billion rupiah ($216,520). The participants included Gerakan Wakaf Indonesia, Mojokerto-based cooperative BMT Permata, Sidoarjo-based laundry equipment seller Stupontplus, Arabic language learning app BISA, Sidoarjo-based orphan foundation Yatim Gemilang and The Indonesian Muslim Merchants Association or ISMI.

“We conducted awqaf business matching in Surabaya to facilitate nadzir. For example, those who own land but need to raise money or capital to start a business, or cash waqf nadzir who need a place or buildings to manage their livestock - we led them to investors. Also, fellow nadzir interacted to learn about awqaf management models,” added Juwaini.

Each business matching transaction is capped at 10 billion rupiah ($656,457), as it is simply a prototype to be replicated across other regions. Indonesia has a huge opportunity in awqaf collection across both land and cash waqf, he explained. 

Data from the Indonesian Waqf Agency (BWI) showed that the total value of productive waqf in the country currently totals 180 trillion rupiah ($11.8 billion) per year. Meanwhile, based on the overall waqf land valuation, the potential has reached 2,000 trillion rupiah ($131.3 billion) annually. 

“Apart from awqaf business matching, Indonesia, through the Haj Fund Management Agency (BPKH), also invested more than $11.5 million in Islamic Development Bank's (IDB) Awqaf Properties Investment Fund, and has already received a dividend of more than $100,000 annually,” Juwaini added.

Societal contributions

Several facets of the society have also been chipping in. Bank Syariah Indonesia (BSI) conducted initiatives in expanding social Islamic finance, especially cash waqf. Through its CSR arm, BSI Maslahat, that is also registered as nadzir at BWI, BSI collected cash waqf from individuals to be invested in productive instruments such as the Cash Waqf Link Sukuk (CWLS). It also distributed its dividends across beneficiaries. 

Rizqi Okto Priansyah, director of waqf and digital platform at BSI Maslahat, told Salaam Gateway that the dividend has been deployed for purposes of health, scholarship or/and business capital of the mauquf alaih. More than 192 million rupiah ($12,643) cash waqf has been collected through the program till now.

BSI has also been appointed as a distribution agent for the government's retail CWLS issuance series SWR001 and SWR002. Dividend from the former series has been channeled for the cause of the underprivileged. Meanwhile, business capital for 50 micro, small and medium enterprises (MSMEs) was funded via dividends accumulated from the latter series.   

Room for growth 

Imam Nur Aziz, Commissioner at the Indonesdian Waqf Agency emphasizes that Indonesia still has to implement a solid model for social Islamic financing, especially waqf. He refers to Thailand’s Pattani project as a viable waqf and commercial concept.

One of the unique traits of the Pattani project is that it combines the concepts of waqf and commerce. The 300-hectare land area has been acquired by a Sharia cooperative and later donated to the Medina Al Salaam Foundation. 

A residential property and an educational institute (Fatoni University) have been constructed on the land, alongside facilities for a mosque or Islamic centre, a sports area (stadium), hospital, a convention centre, Asean Mall and others. The development and management of most of these projects are commercially cooperative.  

“As a result of this long-term commercial and operational cooperation, most of the profits will be returned to the waqf. And Pattani Asean Mall, which was built on waqf land but operated commercially, will be developed in other ASEAN countries through the Pattani Jaya Commercial institution, one of the subsidiaries of Pattani Jaya Holding (PJH), along with the Madinah Al Salaam Foundation,” Nur Aziz.

The Pattani province, with five of its districts namely Yala, Narathiwat, Songkhla, Patani and Satun, is a Muslim-majority area. Therefore, the urgency of establishing a space that can offer solutions to fulfil basic needs has become a shared obligation. However, the project has a broader goal: To send a message that waqf can perhaps be a key contributor to developing societies.   

“Within a limited spectrum, Pattani, with a population of 3.8 million people with various limitations, is able to provide examples of productive waqf. How about Indonesia, which already has BWI with legal standing and set of rules regarding waqf? This is where BWI's challenge is, to create quality waqf entrepreneurs with high social impact,” added Nur Aziz.

The private equity (PE) industry has experienced some extraordinary periods in recent years, fuelled by resilient fundraising and growing economic activity.

Momentum created in the year 2021, in the wake of the Covid-19 pandemic, cascaded into the first half of 2022.

It was a purple patch for the Islamic economy space as well. Investments across halal food, halal cosmetics, travel, pharmaceuticals, media and recreation, modest fashion and Islamic finance, totaled $25.7 billion in 2020/21, up from $11.8 billion recorded in 2019/20, the State of the Global Islamic Economy Report 2022 (SGIE), published by  DinarStandard, revealed. Of the 210 deals recorded during 2020/21, 114 were venture capital (VC) transactions.

Amid growing awareness and a rise in the adoption of Shariah-compliant financial instruments, the Islamic PE space has gained considerable momentum.

“Private equity and venture capital (VC) will continue to be vital engines to boost the growth of the Islamic economy. Availability of PE and VC funding and expertise has helped innovative startups to get off the ground and scale, creating a vibrant and diverse economic landscape,” notes Adela Mues, partner, Global Corporate Group at Reed Smith.

“The infusion of Islamic finance principles in the PE and VC space has contributed to the popularity of private funding structures in Islamic economies. One successful example is the rise of Shariah-compliant funds, which provide an ethical investment approach, and resonate with a wide range of investors.”

Key alignments

Private equity, via its various strategies such as venture capital, growth equity and leveraged buyouts (LBOs), has been a significant mode of investment, fuelling innovation, growth, and impact.

However, realigning it to Shariah values warranted structural modifications, which included strong oversight on permissible sectors and lines of business of the target company as well as acceptable Islamic instrument structures.

The most typical form of Islamic private equity and venture capital investment structure includes contracts such as Mudarabah – a contract between an investor (rab-al-maal) providing capital and an entrepreneur (mudarib) running the venture; and Musharakah – a partnership in which all parties fund the business and share profits and losses.

A lesser deliberated and often overlooked fact, however, is that the conventional private equity and venture capital structure essentially mirrors a Mudarabah contract. Investors are, in essence, limited partners (LPs), while the general partner (GP) is the PE firm itself.

“The GP/LP structure is the most vivid example of a Mudarabah structure in modern finance. The simple dynamics of a GP/LP structure is very much in the spirit of Islamic finance because it includes the 'mudarib', better known as the general partner, who invests capital on behalf of the investors and has a share in profits,” Dr. Aamir A. Rehman, chair, Innate Capital Partners tells Salaam Gateway. 

The ‘leverage’ conundrum

As is largely perceived, Shariah law is not categorically opposed to debt. Rather, Islamic finance helps create sustainable levels of debt, pursued through a Shariah-compliant route. This has paved the way for leveraged buyouts to enter the fray, in which a company looks to acquire another business largely on borrowed money (leverage). 

Shariah debt financing instruments such as Murabahah (cost-plus-financing facility) are lending themselves to this cause.

The key difference, however, lies in the way leverage is created in a Shariah-compliant buyout deal. “In an Islamic LBO transaction, the leverage that's put on the target company must directly finance specific assets that the company will use. Debt, is thus limited, to the value of assets being financed. A conventional LBO, by contrast, is more like a general-purpose debt facility. A free cash flow analysis of the target company is conducted. Based on that, banks agree to a level of debt, which is typically expressed as a multiple of earnings and can be used for any purpose,” adds Dr. Rehman.

Companies under non-Muslim ownership leaning towards Shariah-compliant PE offerings has added to their visibility and growth – 40% of the notable Aston Martin deal was financed through a Murabahah instrument, arranged by German lender WestLB AG, back in 2007.

A decade later, Shariah-compliant refinancing of an office accommodation owned by Youngberry Properties in Scotland, was furnished. The funding was achieved via a commodity Murabahah facility, with properties let out to Petrofac and NHS Scotland.

Essential support

To propel the Islamic private equity and venture capital space, several Muslim-majority countries have chipped in, via initiatives and incentives.

In 2008, Malaysia's Securities Commission introduced new guidelines and best practices to develop the Islamic venture capital industry. The country also offers a five-year tax exemption on registered VC companies. In the UAE, Dubai Silicon Oasis, a government-owned free zone, supports 'Islamic digital' and 'Arabic content' initiatives, pursuant to which, the freezone’s regulatory body offers venture capital funding and other incentives to startups operating in these domains.

“Policy makers and public sector leaders should recognise the role private equity and venture capital play in the business ecosystem and encourage more players. This includes both allocating funds for PE investment and raising awareness of its benefits within the broader business community. Aligning PE with the values of stakeholders – including both investors and business owners – is an important part of enhancing its relevance. In that context, Islamic PE firms have a lot to offer,” explains Dr. Rehman. 

Sector focus

From a sector perspective, the Islamic finance space has proven to be a sweet spot for PE/VC investment. Of the 346 Islamic finance professionals quizzed by IslamicMarkets.com in August 2022, 41% predicted a dramatic growth in PE and VC investments in the sector over the next five years. According to the SGIE report, Islamic finance and halal food comprised 66.4% and 15.5% of the total 2020/2021 investment deal value, respectively.

“The global Islamic finance industry continues its growth path. We expect around 10% growth across the industry in 2023-2024 after expanding by a similar number in 2022. However, we note that the Gulf Cooperation Council (GCC) countries - notably Saudi Arabia and Kuwait - largely fuelled this performance,” says Dr. Mohamed Damak, senior director and head of Islamic finance at S&P Global Ratings.

Reed Smith’s Mues adds that startups creating digital platforms for Shariah-compliant banking, lending, and investing services, have witnessed particular interest, mainly due to the level of demand within a large, underserved Muslim population across the globe, and the general shift towards digitisation in the financial sector. 

“While other industries, such as the halal food industry and Islamic tourism have also seen PE involvement and investor interest, the potential for scalability and high returns in Islamic fintech is making this sector particularly attractive for private capital investment.” 

What's in store? 

Muslims are a formidable consumer force, with a strong imprint on the world’s business ecosystem. To cater to this burgeoning segment, new halal values-based players will seek to enter the market, in tandem with existing ones looking to expand their offerings.

In essence, both are expected to seek suitable financing options, industry expertise and added strategic value. This signals immense growth potential for the Islamic PE space.   

“I look forward to seeing a thriving ecosystem of Islamic private equity, where we have a diverse range of managers, pursuing different strategies and mandates. Private equity is, by definition and legacy, a specialised business. We should expect to see an array of PE managers focusing on different strategies (growth equity, buyouts, etc.), as well as specializing in various sectors and regions. There is immense need – and thus opportunity – for asset managers in the real economy with specialized expertise,” explains Dr. Rehman.  

We interview prominent entrepreneurs from across the global Islamic/halal economy ecosystem to gauge their journey and learn how this space influenced them personally, professionally and spiritually

Talk us through your work related to the Islamic/halal economy space. 

Durrani: I am a serial food entrepreneur, and the CEO and founder of American Halal Co, Inc, which wholly owns Saffron Road - a natural and organic food brand that produces ethically sourced halal food, inspired by flavors from around the world.

We are also the largest certified halal brand nationally in the US, as well as the leading Better For You (BFY) animal protein meals brand nationally. Our mantra is Journey to Better: better for the environment, better for farmers, better for livestock and better tasting.

All Saffron Road products are halal-certified by IFANCA (Islamic Food and Nutrition Council of America) and are available in more than 25,000 retail locations across the US.

We paved our way during an Islamophobic era in the country, to set the standard for halal food and prove to major retailers that not only was it a lucrative proposition but that serving the needs of multitudes of Muslims was also beneficial.

Please share your story of how you entered into this space and why.  

Durrani: I have been a venture capitalist (VC) and food entrepreneur for over 30 years now, this being my fourth food company. Almost 14 years ago, I saw a disenfranchised American Muslim community in great need; there were no national halal brands in the US as of 2009.  

Yet, the facts were compelling - there were between 8-9 million Muslims spread across the US and Canada; educated (60% above that of average Americans), with 30% higher income, and 70% below the age of 40. Also, no halal products in the US were natural or clean label (tayeeb). I wanted to leverage my experience and elevate the concept of halal food in the country.

How has the Islamic economy impacted you spiritually?  

Durrani: A distinct blessing of my journey at Saffron Road has been my access to and active engagement with, both Islamic scholars and leaders of the Abrahamic faiths, deepening my God-consciousness. I served as a board member of Zaytuna College (benefitting from inspiration gleaned from Shaykh Hamza, Imam Zaid), and also had the honor of meeting the Pope at the Vatican as well as Rabbi Hillel Levine. These have emboldened my pluralistic spiritual practice. 

How has the Islamic economy impacted you personally and in your family life?  

Durrani: I glean inspiration and sheer joy out of knowing what I do each day impacts many people - and not just Muslims - in a positive way. From their ability to have the choice of clean BFY halal food, to having a brand that stands up for their ethics and Islamic values. 

I gain inspiration from the raft of letters and posts we receive from consumers, complementing Saffron Road and and its role in their lives and livelihoods. Moreover, my dedication to our sustainable values has also deepened.

In addition to economic benefits, my extended family and friends now look up to me for religious or spiritual guidance - an honor I did not see coming a few years earlier.  

How has the Islamic economy impacted you professionally?  

Durrani: I would not hold the voice and influence that I do across media, if it weren't for leading a halal brand. This gives me the privilege of being a change agent at a national level, to be able to educate Americans of the beauty of our faith; to apprise them of ethical consumerism, and of halal, which isn't always inevitably related to food. Additionally, to enlighten how we conduct ourselves and treat employees, vendors, partners, family, through justice, compassion and grace. 

In tandem, I have enjoyed partnering and sharing business practices with Crescent Foods, speaking at ISNA conferences, and mentoring Muslim entrepreneurs. I was also deeply honored by making it to the Islamica 500 list. 

How have you instilled Islamic values across your workplace?  

Durrani: Our team culture is inspiring, due to the ethical codes and mutual respect steeped in Islamic traditions that I attempt to instill among the team and management. 

All of our team members are very passionate about our BFY brand attributes, our clean label ingredients, and especially our socially responsible values - we were the first food brand to get Certified Humane for our poultry products, the first non-GMO Verified entrée in the world, and the first antibiotic free entrée in whole foods.

In fact, we recently became the first halal food brand to achieve B Corp status, having met rigorous standards of social and environmental performance, accountability, and transparency.

Demographically, we are a diverse squad, with the team comprising mostly non-Muslim employees, all of whom have enormous respect for our faith. Many [non-Muslims] enjoy Ramadan and engage with us during the holy month, providing inspiring information about the commonality of our faiths. 

What are your top tips to entrepreneurs looking to enter the Islamic economy space?

Durrani: My primary tip would be to avoid a straitened, narrow focus on just the Muslim consumer. Saffron Road gained acceptance as a mainstream brand, with over 85% of its consumer base comprising non-Muslims, but harbouring a strong affinity to our halal values.

It is imperative for entrepreneurs to eye the broader picture and appeal to a wider audience. We are living in a complex era, where people from around the world are leaning towards companies with values, authenticity, and clean labels.

Both in the US and across the MENA region (unlike Europe, Japan and China), the fastest growing and strongest buying power rests among Millennials and Gen Z, who deeply value halal centric traits.

There is a huge upside in the Islamic economy. It is essential we don’t dogmatically pontificate our Islamic values, rather present them as inclusive.  

Dr. Moutaz Abojeib is Director of Operations at IFAAS, and Dr. Shaher Abbas is the CEO of IFIN.

The fourth industrial revolution is changing the world around us at a faster pace than ever experienced before. While the COVID-19 pandemic pushed the boards of financial institutions to accelerate the digitalization agenda, the management are still struggling in their adoption and implementation. With the constantly increasing number of digital solutions and Fintechs available in the market, the decision on which solution or Fintech to go with becomes more difficult.

One of the newly emerging solutions is embedded finance. Embedded finance is defined as a seamless integration of financial services by businesses. The primary purpose of embedded finance is to streamline customer experiences by eliminating extra steps to obtain financing in which the customer can get the product and the financial service at one stop. While embedded finance is a new concept, it is indeed not a strange notion for Islamic economics. In fact, one could claim that embedded finance is a core philosophy of the Islamic economics and transactions theory.

It is well established that Islamic economics does not promote separating financing process from real economy business transactions. While interest-based conventional finance industry concentrates on making money out of lending money; hence, disconnecting the financing from real economy trading/manufacturing process, Sharia does not allow charging fees on pure lending (Qard). Shariah rather promotes risk-sharing and allows money-making out of commercial and investment transactions only. In fact, the whole modern Islamic banking industry has been designed to bring back the connection between financing and businesses by using trading and investment contracts, such as Murabaha and Mudaraba. These Islamic financial principles create a bridge between finance and business which is the core philosophy behind embedded finance. However, it is important to note here that the Islamic finance industry in practice did not succeed so far in building such bridge due to the extensive use of Tawarruq that works in reality to disconnect the Islamic finance from the real economy.

Understanding the importance of embedded finance, IFIN (the first of its kind Sharia- compliant, cloud-based Fintech solution) has been designed to be the bridge connecting all types of Islamic Financial Institutions with all types of retailers (whether in physical stores or online and whether offering goods or services) allowing customers to submit their finance applications and get them approved instantly. The whole financing process including signing the required contracts can be completed within few minutes. IFIN is a game-changing innovative solution that is geared to redefine the way Islamic finance is being done, making it more efficient and inclusive. With such digital solution, Islamic finance becomes more accessible to all segments of the community at any place and any time.

Through full digitalization, IFIN does not only help Islamic financial institutions reduce transactional cost and operational risk (as no staff intervention is required) but also helps them offer unprecedented customer experience and widen their outreach to new areas and communities that they would not be able usually to reach using their normal distribution channels.

Ashar Nazim is the CEO of Aion Digital.

Presently, financial inclusion is a primary objective of the banking sector. Naturally, Islamic finance is continuously increasing in global relevance as it pertains to a defining demographic of 1.8 billion Muslims worldwide and a broader global ethical finance community (World Bank, 2020). It is important to consider that Fintechs have created a space for enablement and innovation which is disrupting the banking industry, and on the other hand incumbents are hampered by siloed processes and legacy systems. Hence, collaboration is the key to mutually benefit both parties and achieve the intersection of a Venn diagram.

Islamic Fintechs are largely targeting a new customer base that is the younger Muslim population around the world that have been highlighted as a critical determinant of Islamic Fintech prospects as they account for 29% of the global population that are under 30 (Religion Information Data Explorer | GRF, 2022) (United Nations - Population Division, 2019). This younger demographic is highly technologically adept, due to their high-level access and usage of mobile and internet services in comparison to the world average. Further, Incumbents powered by Fintechs have also enabled people who are unbanked or underbanked. Temenos is an excellent illustration of this, as they deliver 8 million new users to the STCpay clientele in the Saudi region (Temenos, 2022).

Innovation is a key emphasis for Islamic Fintechs. A major prospect is the facilitation of Zakat (obligatory donation) and Sadaqah (voluntary donation) which can accumulate $200 Bn to 1 trillion globally, and this could play a tremendous role to alleviate global poverty (World Bank, 2020). Last Ramadan, Saudi’s national charity foundation ‘Ehsan’ generated approximately $493 million in the span of a month via 24 million voluntary donations. Ehsan’s donations were made exclusively through digital channels (ArabNews, 2022).

Fintechs must tackle a complex set of requirements to guarantee compliance with Shariah law. Interest, or riba, is not tolerated. Investments in the stocks of companies benefitting from alcohol, guns, cigarettes, and gambling are also unacceptable. For instance, ‘Wahed’ is an Islamic Fintech that offers Halal investing options to 200,000 clients globally. Currently, they are also partnering with other Fintechs such as ‘Niyah’ to promote their investment pathways. Considering, Ethical and Sustainable investing is a by-product of the Shariah law which creates the principles of Islamic Fintechs, it is garnering interest from Western societies that are eager to join into this endeavour.

The future demands innovation and Incumbents know that in order to stay ahead of the curve and provide the best banking services to customers, they need to select the right vendors and partners. It is impossible for them to innovate on every front and partnering with Fintechs is the only quick way to provide a new feature or service without reinventing the wheel which costs time and money.