STARS International University
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Abstract:
In the article, you can see the role and importance of developing Islamic
finance in the digital economy through financial technologies. The characteristics of new
financial instruments in the Islamic financial system, their connection with modern financial
technologies, their place in the world financial market, and efficiency indicators were
analyzed. The level and share of the use of financial technologies of the Islamic bank in
the digital economy are studied and analyzed by the countries of the world. The results of
Islamic finance in the digital economy and the results in several directions were achieved,
and which areas of the financial system of our country can be used more effectively were
analyzed.
Keywords:
digital economy, Islamic finance, financial technology, digital technology,
artificial intelligence, Islamic financial technology, modern technology.
Introduction.
Today, the digital economy is based on software solutions for
issues arising in the market and social relations. First of all, we can count the sectors
with a high dependence on the Internet: transport, trade, logistics, etc. For this
reason, it can also be called “electronic economy”, “software economy” and “API
economy”. The term “digital economy” was first used in 1995 by Don Tapscott. It is
used as a separate concept in the publication “Digital Economy: Promise and Peril
in the Age of Networked Intelligence”. This publication highlights fundamental
innovations, key technologies, and connecting infrastructures as key components
of the digital economy. FinTech has garnered an increasing amount of interest in
recent years.
Banks and financial institutions are taking steps to catch up with the digital
and FinTech wave. At the outset, the new trends that are emerging in financial
communities, such as digital banking, have been challenging the hegemony of
the incumbent banks whose business model has remained constant over several
years despite the changing industry landscape. Simultaneously, AI (Artificial
Intelligence) is key to the future of digital banking, and more importantly, ethics
in AI application is a recurring theme in the literature. Likewise, microfinancing,
through the use of FinTech technologies, has opened up the banking sector to
NILUFAR ALIQULOVA
Teacher of the “Stars
international university”
aliqulova95@bk.ru
DEVELOPMENT OF
ISLAMIC FINANCE IN
THE DIGITAL ECONOMY
THROUGH FINANCIAL
TECHNOLOGIES
https://doi.org/10.47689/STARS.univer-
s i t y - 5 - p p 2 3 7 - 2 4 0
«Yangi O‘zbekiston: Moliyaviy hisobotning xalqaro
standartlarini joriy etishda muvaffaqiyatli
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an entirely neglected part of the business sector. Recently due to the COVID-19
pandemic, digital finance has garnered much support from users in GCC and
beyond and FinTech will further drive the digital transformation of the financial
services industry
1
.
Results.
Technologically, the digital economy can be divided into 4 areas:
mobile technologies, business analytics, “cloud” technologies, and social media.
Also, the creation and improvement of various platforms for ordering services,
joint use of resources, sorting of counterparties, electronic trade, payments, and
other purposes will accelerate
2
.
According to the ledgers, the digital economy has a significant impact on more
than half of the various industries. According to the World Bank, a 10% increase
in the number of high-speed Internet users can increase annual GDP growth by
0.4-1.4%52
3
. In recent years, the growth of Internet speed and usage has been
accelerating. Global Internet traffic alone was 100 Gb/s in 2002, reached 46,000
Gb by 2017, and is projected to increase to 150,700 Gb by 2022.
The main factors of the transition of socio-economic development to the
trajectory of the digital economy are as follows:
- implementation of the electronic government concept;
- the creation of the concept of a “digital city” based on comprehensive
informatization of transport, housing, and other areas;
- popularization of new technological products on the market (such as driverless
cars);
- wide use of 3D printers;
- the large-scale production of construction and finishing products for smart
and environmentally friendly houses;
- increase in demand for innovative pharmaceutical products intended for
human rejuvenation;
- increase in outsourcing and one-time alternative and free-form employment
(freelance services);
- the creation of a large number of professional networks to advertise the orders
of employers
4
.
Islamic finance is one segment of the finance industry that offers a lot of
potential for digital transformation due to the tremendous number of opportunities
available for Islamic finance institutions (IFIs) to embark on to achieve multiple
strategic objectives. With the help of digitalization, IFIs can achieve financial
inclusion, offer customer-oriented financial services, and operational excellence
and gain a competitive advantage over their peers. Crowdfunding, peer-to-peer
model and payment platforms, smart contracts and blockchain, cryptocurrencies,
cybersecurity, and so on are among a few emerging channels of digital
transformation that could be utilized in the Islamic finance industry. Even though
Islamic banks are at par with their conventional counterpart when it comes to
technological development, the Shariah aspect of the financial transaction can
1 Nafis Alam, Syed Nazim Ali. Fintech, Digital Currency and the Future of Islamic Finance. Gulf Research Centre Caml-
bridge 2021. – p1.
2 Паньшин Б. Цифровая экономика: особенности и тенденции развития // Наука и инновации. 2016. Т. 3. № 157. С. 18.
3 Савина Т.Н. Цифровая экономика как новая парадигма развития: вызовы, возможности и перспективы // Фи-
нансы и кредит. — 2018. — Т. 24, № 3. — С. 584.
4 Паньшин Б. Цифровая экономика: особенности и тенденции развития // Наука и инновации. 2016. Т. 3. № 157. С. 18.
STARS International University
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be a hurdle to digitalizing the process. Knowhow about the blockchain or the
permissibility of cryptocurrency can deter the adoption of Fintech within the
Islamic finance industry
1
.
In Islamic fintech, risk-sharing opportunities are being created through innovative
startups for those who want to invest based on Islamic principles. Digital banks
(virtual banks) can be cited as an example. Islamic fintech platforms must fully
comply with the principles of Islamic finance such as asset-based, interest-free,
and risk-sharing. It should also be free of asymmetric information, fraud, and
mistrust between participants and counterparties. The use of smart contracts in
the open database of calculations (blockchain) serves to increase the efficiency
and transparency of fintech companies. Similarly, takaful will ease the processing
of insurance claims through IoT platforms. By applying blockchain technologies
in waqf (scholarly endowment), great achievements can be made. It can also be
noted that Islamic fintech solutions for crowdfunding provide the opportunity to
provide financial resources to large social projects that are usually not financed by
traditional banks.
There are an increasing number of countries that are seeing Islamic Fintech
activity or are well-placed to facilitate such activity. As such, a clear need exists
for a relative comparison of each country, and this report presents the only
Global Islamic Fintech (GIFT) Index. This Index represents which countries are
most conducive to the growth of the Islamic Fintech Market & Ecosystem in their
jurisdictions.
Generally, the introduction of the internet, e-commerce, mobile network, and
smart devices has greatly contributed to changing the shape of monetary and
financial services. However, the inception of Bitcoin, and other crypto-assets,
has been among the greatest influencers and strongest catalysts for disruption.
Although the crypto-asset class, like Bitcoin, is still at its infancy stage; experts have
already regarded its impact and effect as the beginning of a new technological
revolution, particularly relevant to the financial services sector. Money has a
history of transformation through several items; shells, wheels, beads, and even
cows. Broadly, commodity money was made of a substance that had its own value
such as gold and silver coins, unlike representative money which is a certificate or
a debit receipt. While fiat currency does not have intrinsic usage or benefit and
does not represent an underlying asset in a vault somewhere. Money has indeed
already recorded a significant transformation. Today, digital money in the form of
virtual currency as represented by Bitcoin and other currency tokens is another
significant milestone in the transformation of money. While the value of fiat
currency comes from being recognized as legal tender by the government of the
issuing country which then leads to its acceptance by the people, Bitcoin’s value
emanates from the recognition of stakeholders in the participating community.
In other words, it is derived from the general people’s trust in the system and the
economic principle of demand and supply of Bitcoin.
According to Ifnfintech, a Malaysian publication that covers and analyzes fintech
in Islamic finance, there is 122 Islamic fintech operating as of April 2020. This data
is regularly updated and in March it recorded 148. A dramatic change occurred
1
Nafis Alam, Syed Nazim Ali. Fintech, Digital Currency and the Future of Islamic Finance. Gulf Research Centre Caml-
bridge 2021. – p:5-6.
«Yangi O‘zbekiston: Moliyaviy hisobotning xalqaro
standartlarini joriy etishda muvaffaqiyatli
xalqaro tajriba» 16 dekabr, 2022 yil.
242
due to the fact that the March IT technology and infrastructure group was not
included in April. The publication categorizes Islamic fintech companies into more
than ten groups as follows:
- alternative financing;
- digital bank;
- blockchain and cryptocurrencies;
- data analysis;
- takaful
- incubator, venture fund, and suppliers;
- personal financial management;
- P2P financing;
- crowdfunding;
- roboconsulting;
- trade and investment;
- payment, transfers, and forex.
Conclusion.
As Islamic finance is a new field, there is a high demand for fintech
in all its areas. Through fintech, Islamic financial services will reach unreached
sections of society and untapped potential will be tapped.
As with any industry, there are several obstacles to the development of Islamic
fintech, and the sooner they are resolved, the more economic results will be
achieved. For the development of Islamic fintech, it is important to overcome the
following obstacles and challenges:
- regulatory and legal documents. The existence of certain legal documents for
the creation and introduction of innovations for businesses to protect them from
legal negative consequences.
- financial support. The vision of fintech platforms is to provide funding from
investors such as venture funds and business angels for high-risk innovative ideas.
- staff training. Unlike traditional fintech, staff needs to have a good understanding
of both Sharia and financial issues.
- flexibility. In recent centuries, in the era of very fast-changing technologies, it is
important to adapt to the market conjuncture immediately. As well as reducing the
role of technology in making Islamic finance unable to compete with conventional
finance.
- entrepreneurial skills and determination. Creating an equally necessary business
environment for all sectors of fast-changing finance is a new trend.
Literature cited/bibliography:
1.Nafis Alam, Syed Nazim Ali. Fintech, Digital Currency and the Future of Islamic
Finance. Gulf Research Centre Cambridge 2021.
2.Паньшин Б. Цифровая экономика: особенности и тенденции развития //
Наука и инновации. 2016. Т. 3. № 157.
3.Савина Т.Н. Цифровая экономика как новая парадигма развития: вызовы,
возможности и перспективы // Финансы и кредит. — 2018. — Т. 24, № 3. — С.
584.
4.Аброров Сирожиддин Зухриддин ўғли. Ўзбекстонда рақамли иқтисоди-
ётни шакллантириш шароитида сукукларни жорий этиш истиқболлари. Мо-
нография. ТОШКЕНТ–2020
