FROM NEW YORK AND SAN FRANCISCO TO LONDON, DUBAI, SINGAPORE AND BEYOND, THE EMERGENCE OF FINANCIAL TECHNOLOGY (FINTECH) START-UPS PROMISES A CHANGE IN THE FACE OF FINANCE AS WE KNOW IT. THE PURPOSE OF THIS PAPER IS TO PROVIDE A VIEW ON HOW FINTECH CAN ACCELERATE THE ADOPTION OF RISK SHARING ISLAMIC FINANCE. IT DOES SO BY FIRST EXPLAINING TODAY’S BUSINESS BUZZWORD. THE PAPER THEN CONSIDERS THE ISLAMIC VIEW OF FINANCE AS SUPPORT FOR REAL SECTOR TRANSACTIONS THROUGH RISK SHARING AND SUGGESTS A WAY FORWARD TO MODELLING A MORE GLOBALLY AND INTRINSICALLY VIABLE ISLAMIC FINANCIAL SYSTEM.

THIS RESEARCH ATTEMPTS TO SHOW THAT RISK SHARING, AS DEFINED UNDER ISLAMIC FINANCE, MAKES FINANCIAL SYSTEMS ANTIFRAGILE. ANTIFRAGILITY SPECIFIES CONDITIONS UNDER WHICH SYSTEMS BECOME RESILIENT TO SHOCKS CAUSED BY BLACK SWANS. ACCORDING TO THIS CONCEPT, THE LONG-TERM SURVIVABILITY OF ANY SYSTEM CENTERS EXCLUSIVELY ON ITS ANTIFRAGILE NATURE, THAT IS, ITS ABILITY TO ABSORB AND ACTUALLY BENEFIT FROM BLACK SWAN-TYPE SHOCKS. THIS RESEARCH AIMS TO QUALITATIVELY INVESTIGATE RISK SHARING ISLAMIC FINANCE AGAINST THE CRITERIA OF ANTIFRAGILITY. THE METHODOLOGY USED IS ALITERATURE -BASED SECONDARY STUDY. IT RELIES PRIMARILY ON EXTENDING THE EXISTING LITERATURE IN THE AREA OF ANTIFRAGILITY INTO THE DOMAIN OF RISK SHARING ISLAMIC FINANCE. THE QUALITATIVE COMPARISONS ARE ACCOMPLISHED VIA A JUXTAPOSITION OF THE IDEAS OF TALEB [1] AND MIRAKHOR ET AL [2]. THE RESULTS OF THIS RESEARCH SHOW A SEAMLESS OVERLAP OF THE IDEAS OF RISK SHARING AND ANTIFRAGILITY, THEREBY SHOWING RISK SHARING ISLAMIC FINANCE TO BE MORE RESILIENT THAN DEBT-BASED CONVENTIONAL FINANCE TO BLACK SWANS. THIS CREATES A POTENTIAL AVENUE FOR RISK SHARING ISLAMIC FINANCE TO MOVE INTO THE MAINSTREAM OF FINANCE.

INTRODUCTION: ISLAMIC FINANCE, THEORETICALLY, IS BASED ON THE ETHOS OF ISLAMIC MORAL ECONOMY (IME) WITH AN EXPLICIT VALUE FRAMEWORK; (I) BASED ON JUSTICE, EQUITY, HUMAN DIGNITY, FREEDOM OF ENTERPRISE AND MODERATION; (II) BASED ON DEVELOPING AND HARNESSING ECONOMIC RESOURCES TO SATISFY SPIRITUAL, MATERIAL AND SOCIAL NEEDS OF ALL MEMBERS OF THE COMMUNITY AND (III) BASED ON A MORAL OBLIGATION TO ALSO SERVE POOR AND DESTITUTE FROM SHARE OF WEALTH. THESE CONSEQUENCE-ORIENTED PRINCIPLES OF IME DEFINES THE UNDERLYING PHILOSOPHY OF ISLAMIC FINANCE IN ORDER FOR ADJECTIVE ‘ISLAMIC’ TO HAVE MEANING IN THE SENSE OF SUGGESTING ‘BENEFICENT OR IHSANI SOCIETY’ IN THE MAKING OF ISLAMIC BANKING AND FINANCE. IN OTHER WORDS.

SMALL AND MEDIUM-SIZED ENTERPRISES (SMES) PLAY AN ESSENTIAL ROLE FOR JOB CREATION, EMPLOYMENT, INVESTMENT, INNOVATION AND ECONOMIC GROWTH. DESPITE ITS HUGE POTENTIAL TO SUPPORT ECONOMIC GROWTH, SME LENDING CONTINUED TO FACE CONSTRAINTS ESPECIALLY POST THE 2007 CRISIS. THE PRESENT DEBT-BASED FINANCIAL SYSTEM HINDERS SMES FROM FAIRER ACCESS DUE TO THE PERCEIVED HIGH RISK OF THE SMES. RISK-SHARING FINANCE ON THE OTHER HAND PROMOTES PROACTIVE RISK MANAGEMENT THROUGH THE SHARING OF RISKS IN THE ECONOMY ACCORDING TO THE RISKBEARING ABILITY OF THE PARTICIPANTS. IN MANY WAYS, RISK SHARING FINANCE IS NATURALLY ALIGNED WITH ISLAMIC FINANCE. THE RISK-SHARING MODEL OPERATES ON AN ASSET-DRIVEN BALANCE SHEET MANAGEMENT THEREBY ENSURING THAT THE FINANCIAL SECTOR GROWS IN TANDEM WITH ECONOMIC GROWTH. IT ELIMINATES FINANCIAL OPPRESSION/REPRESSION AND PREDATORY LENDING AS COMPENSATIONS TO INVESTORS ARE DETERMINED BY THE ACTUAL PERFORMANCE OF THE REAL ECONOMIC ACTIVITIES. THIS ENSURES PROSPERITY IS SHARED EQUITABLY AMONGST THOSE WHO SHARE THE RISKS OF ANY ECONOMIC VENTURE. THE RISE OF FINTECH HAS OPENED A NEW DOOR OF OPPORTUNITY FOR THE FINANCIAL INDUSTRY TO PUSH THE PRESENT LIMITS OF DEBT-BASED FINANCE. FOR ISLAMIC FINANCIAL INSTITUTIONS, THE BENEFITS OF FINTECH GO BEYOND AS IT COULD SPUR MORE RISK-SHARING FINANCIAL ACTIVITIES THAT UPHOLD THE RISK-REWARD PRINCIPLE. WITH CREATIVE RETHINKING, TECHNOLOGY INNOVATIONS CAN BE THE GAME-CHANGER NEEDED TO PROPEL THE GROWTH TRAJECTORY OF ISLAMIC FINANCE TO THE NEXT STAGE OF DEVELOPMENT. THE PAPER RECOMMENDS FOR THE INTRODUCTION OF RETAIL LOW-DENOMINATED RISK-SHARING SECURITIES AS A NEW INVESTMENT INSTRUMENT THAT ARE ISSUED BY SMES AND TRADABLE VIA FINTECH-ENABLED PLATFORMS. INTERNET- AND MOBILE-BASED PLATFORMS WOULD REDUCE THE COST FOR FINANCING FOR SMES AND INCREASE INVESTMENT OPPORTUNITY TO THE MEMBERS OF PUBLIC. USE OF BLOCKCHAIN OR DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND SMART CONTRACTS COULD IMPROVE THE APPEALS OF RISK-SHARING CONTRACTS PRESENTLY HINDERED BY THE LACK OF TRUST. DLT ALSO COULD SIMPLIFY AND MODERNIZE OUTDATED PROCESSES DICTATED BY ARCHAIC BUSINESS MODELS.

INTRODUCTION: THE TITLE OF THIS PAPER IS DIRECTLY RELATED TO THE THEMATIC OF THE COLLOQUIUM ON IB/IF: WHAT IS AND WHAT IS NOT. I HAVE A SEQUENCE OF POINTS THAT FOLLOW THE PRINCIPLE OF CONTINUITY. THESE POINTS ARE MIXTURE OF BOTH FACTS AND FOUNDATIONS OF A SIMPLE MODEL OF IB/IF...