ISLAMIC FINANCIAL TECHNOLOGY AND STARTUP FINANCING

Abstract

The purpose of this paper is to investigate how Islamic Financial Technology (FinTech) is transforming how startups receive funding throughout the Arab world, focusing specifically on the potential of Islamic crowdfunding. Although digital finance is developing rapidly, the intersection between the application of technology for funding purposes and principles compliant with Shariah, provides an increasingly attractive alternative to traditional funding sources that have yet to be fully utilised. This paper will trace the history of startups evolving from early-stage funding difficulties to the emergence of venture capital as a viable solution; map out the expansion of the FinTech ecosystems in the United Arab Emirates (UAE) and Saudi Arabia; and examine the governance models that underpin Shariah-compliant crowdfunding as a financing option for startups. As per the statistics provided, despite several years of phenomenal growth in FinTech across the Arab Gulf countries, Islamic crowdfunding represents only 3-5% of the overall funding available for FinTech. This is indicative of several underlying structural issues: issues related to fragmented regulations; issues related to inadequate digital infrastructure; issues related to financial literacy; issues related to the lack of an adequate number of platforms specifically designed for Islamic crowdfunding; and issues related to the vastly larger funding available in more mature markets. Drawing from regionally-specific case studies and data; this paper offers practical recommendations for stakeholders (e.g., policymakers, entrepreneurs, and investors), who are pursuing opportunities to further develop Shariah-compliant Financial Innovations within the MENA region.