Recommendation two: long-term, committed strategic vision from industry and government leaders

Although Islamic Fintechs have not yet delivered SDG and Mm/astW-aligned outcomes, they are still the best source of hope to deliver change to the Islamic Finance industry and beyond. The types of Islamic Fintechs that we have highlighted here combine Islamic Finance, responsible finance and technology. This alternative Islamic Finance requires development from many sides. It is most likely to emerge where there is a strong ‘tone from the top’ in both the financial industry and regulatory communities, as well as within the emergent Fintech sector.

The tone from the top is essential to create change by setting out a strategy that can be injected into every element of a Fintech’s business. The leadership support and drive towards the SDG and .A/ngos/rf-aligned objectives encourage not only the adoption of technology but a change in how a Fintech engages with other stakeholders, including financial institutions, around its economic, social and environmental impact. This will be reflected in developing a coherent value proposition to its shareholders, customers, partners and competitors.

The type of leadership required in Islamic Fintech companies does not only benefit them internally because regulators have encouraged a similar tone-from-the-top attitude towards economic, social and environmental objectives in their regulation of other institutions. As an example, Bank Negara Malaysia Deputy Governor Abdul Rasheed Ghaffour, when addressing a roundtable of bank and takaful executives, explained that Sharia embeds inherent features that make it natural for Islamic financial institutions to play a catalytic role in advancing a sustainability agenda. While considering profit, financial institutions should not avoid the element of being socially and environmentally responsible (Central Bank of Malaysia 2019).

The speaker brings the perspective of a regulator to underpin the seriousness of the message. His message communicates the value of considering environmental and social sustainability within the context of institutions that are ultimately required to maintain their economic sustainability to meet regulators’ expectations for financial stability.

The leadership qualities required to adopt an SDG and Maqasid-aligned business model are essential for a Fintech’s success, but adopting or instituting a leadership mindset on its own from the top is not sufficient to change the institution. The preceding recommendation for outlining a strategic intent is interlinked and pairing that intent together with having good leadership creates a positive reinforcing cycle.

If a strategic intent is embedded to follow market expectations or to emulate the messaging of another successful Islamic Fintech, it is unlikely to be successful. The intent will be implemented only as far as it does not conflict with another business objective and will remain a useful marketing tool, not an asset and objective to drive systemic change. Similarly, a good leader with a positive vision who develops the strategic intent alone and expects others to follow will make others too reliant on his leadership.

The process will not create a strategic intent for the Islamic Fintech that reshapes business-as-usual unless the leader recognizes the need for full buy-in, not only acceptance. This requires the leader to challenge her team as they explore what they value and what is possible for a single Fintech to do. The process requires a leadership strong enough to seek broad input that gives everyone ownership and accountability for the objective expressed in the strategic intent.

For institutions to become examples for others and sources of systemic change, they must be resilient so that they could succeed even if they lost the leader’s vision. This provides the essential link between strategic intent - grasped and supported by every part of an Islamic Fintech’s operations - and leadership, expressed through enabling team-wide buy-in to encourage the responsibility for taking action back to each member of her team.

Recommendation three: objective measurement to validate and ensure ‘on track’ direction

The split incentives that are represented between short and long-term outcomes leave significant ground for a form of ‘greenwashing’ of SDG and Maqasid alignment. Because of imperfect information, it is difficult to assess the authenticity and real-world effectiveness of an institution’s long-term intent. An objectively verifiable Islamic Fintech’s achievement of ESG outcomes will make it easier to gain attention and possibly funding. It can also help rebut scepticism about even the most well-intentioned Fintech. The wide varieties of activities that could qualify as SDG or Afagorff-aligned mean that the metrics will most likely not be standardized and the focus will have to be more on reporting methods and traceability. In some ways, the consistency of the follow-through is more important than the specific ways in which it is measured. Consistency will build credibility, which can help like-minded Islamic financial institutions and Islamic Fintechs match and make the needed collaborations towards a shared objective.

The Financial Services Authority of Indonesia has launched a registration system for Fintech start-ups, marking a formal recognition of the sector. A similar global registry under the auspices of a neutral organization such as the Islamic Development Bank, arguably, the most prominent champion of the SDGs in the Muslim world, could similarly be set up. Without a certified registry, widespread Fintech acceptance by regulators will be limited. Although technology provides an opportunity to move markets, we must question the potential of Fintech to change the fundamentals of the economy and society. Thus, objective standards provide a benchmark to make this crucial assessment, especially as we have been concerned about the limited transparency and ineptitude of mainstream Islamic Finance.

There have been other such efforts established within the impact investment sector which can guide standards-setting. One of the most notable has been the GUN Impact Reporting and Investment Standards (‘IRIS’)- According to the GUN (2019a), the IRIS Catalogue of Metrics was developed in 2008 to allow impact investors to define, track and report social and environmental performance. Moreover, it has been supplemented with other sector and industry-specific metrics in a new IRIS+ which embeds the original Catalogue of Metrics as one component. Furthermore, an overlapping initiative is the Impact Management Project (‘IMP’)- The IMP brings a broader objective more aligned with the ‘strategic intent’ we have outlined by encouraging the creation of a global consensus on how to measure and manage impact (Global Impact Investing Network 2019a). Because IRIS+ and IMP approach from a universal perspective, they may provide a reference point that is useful for those seeking to link SDG and Maqasid objectives.

These two efforts allow for shortening the process of identifying what is possible and offer a shortcut that allows those in Islamic Fintechs to take what others are already doing around the world. Empowered with this information, each Islamic Fintech can evaluate which of the possible desired impacts are most closely aligned with the Maqasid. Therefore, for Islamic Fintechs to realize Maqasid and ESG outcomes, it is crucial to not only translate long-term intent into short-term metrics but also ensure that reporting remains consistent across time.

 
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