Beyond Fintech

The following sections are included:

• CONTENTS
• ADVANCED PRAISES
• FOREWORD

The first chapter provides an overview of our research on connecting the various aspects of technology that now shapes the Sharing as well as the Digital Economies. It underscores the integration of IoT, blockchain, and AI into a decentralized intelligence system that has profound possibilities to employ data in innovative ways. The explosion of data has the potential to transform how we view our current processes and possibilities. How we use and analyze data has become significantly important to our economics, and we discuss its transformative adoption in our industries and policy to enable its development. As we grapple with technology’s inherent risks, we describe how it can be used as a moral agent. It also describes the structure of the book, where each chapter elaborates on a specific application in a particular economic sector.

New innovative digital and advanced technologies are transforming the way we access and use existing financial products and services. Fintech is becoming disruptive more and more by the leveraging latest and advanced technologies such as blockchain, Cloud computing, Big Data analysis, Internet of Things (IoT), robo-advisors, and artificial intelligence (AI).

This research discusses the crucial innovation, structural, and institutional development for financial technologies (fintech) in Islamic Finance. The blockchain proposes a new operational design, where all actors within the capital market sector can work from common ledgers, with collective data-sets in almost real-time, and supporting operations which are more streamlined. The system will also incorporate fraud-detection and compliance enhancements, where applicable.

This chapter assesses the key features of the AI and blockchain architecture and protocol developments. It identifies areas where AI and blockchain can bring substantial transformational change, while at the same time, identify some of the major barriers to adoption within the capital markets. The AI + Blockchain model is envisioned execute to scale the complex levels of human activity, possibly even those that have yet to be imagined, which could further establish a truly risk-sharing and just economy.

Research consistently show that small- and medium-sized enterprises (SMEs) face greater constraints on access to finance than large firms, due to issues of information asymmetry, lack of collateral, and higher cost of servicing loans. In view of the large contribution of SMEs to output and employment in emerging Asian economies, it is critical to enhance the access of SMEs to finance in a way that is consistent with sustainable growth and financial stability. In this chapter, the author recommends putting asset-backed bonds on the blockchain to enable transparency and put forth steps to automate cumbersome processes in asset-backed bond issuances, in order to reduce costs and improve efficiency. Significant advantages of using technology to operationalize trust and instil confidence in properly structured and executed financial instruments will also be discussed. The author will also make these recommendations on the basis of fulfilling a gap in traditional bond issuances, which is currently occupied by the loan markets.

Artificial Intelligence (AI) is a highly-evolved area of computer science that strives to create intelligent machines that can replicate certain human behavior without its irrationalities for better predictability and consistency. Advanced AI that utilizes machine learning makes it possible for machines to learn from previous data (experience), adjust to new inputs (instructions), and perform tasks through updated algorithms. Through sophisticated algorithms, modern AI systems can be trained to accomplish specific tasks by processing large amounts of data, and obtaining insights and recognizable patterns in the data to act upon. As such, AI has become a hot topic, with much interest on its advantages to the highly regulated financial services industry.

Similarly, blockchain technology also has the potential to both enrich and improve financial processes and asset management systems, and progressive corporations have invested and devoted resources to utilize and incorporate blockchain into their businesses. The use of distributed ledgers or blockchains has been explored in areas such as compliance and securities settlement, and these technologies could also be used to improve efficiencies in asset management.

In this chapter, we provide a short discussion of AI and blockchain applications in asset management, understand the benefits and the shift in processes, as well as the challenges that need to be overcome for practical applications for AI and blockchain and how to approach such innovations.

The takāful and insurance industry is an evolving process of safeguarding the assets of people from loss and uncertainty. It may be described as a social device to reduce or eliminate risk of loss to life and property. Insurance offers financial protection to both individuals and business, in the risks of a loss and as such, plays an essential role in mitigating risks through risk-sharing in uncertain but potentially injurious episodes. The risk landscape is continually evolving, and in order to keep up, the insurance industry needs to trace and provide customized insurance policies that can serve specific indemnity needs of the new economy. The insurers have to possess full understanding of every risk covered in their policies and when disaster hits, compensation and claims will be done in a timely and judicious manner.

Latest developments in FinTech promises more efficiency and reduced costs causing significant shifts in the financial landscape, and the impending disruption in the insurance industry is inevitable. Blockchain today is something like where the Internet was in the 1990s — on the strategic interest of forward-looking companies, but still a while from extensive implementation. Therefore, the question for most insurance companies is not whether they will adopt blockchain, but rather, what to start with and how to test and prove the value proposition.

In this chapter, we provide a strategic discourse on how blockchain can provide additional value to the insurance and takāful industries, understand the change in processes, issues that need to be overcome, and efficiency benefits, projected cost-saving, and risk management.

The healthcare industry faces a critical need for digital innovation, as personalization and data science prompt patients to engage in the details of their healthcare and restore agency over their medical data.

In this chapter, we discuss ways as to how technologies like the blockchain can primarily secure personal and confidential patient data giving permissioned-access approved by the patient herself/himself to related parties like healthcare providers, pharmacies, and healthcare or medical insurers. Patients do not transfer the data to the parties requesting it, but he/she is merely giving them access to view it to enable their work. This protects the privacy of the patients.

Globalization has created complex supply chains to support free trade. The goods move across production facilities and supply chains, connecting markets involving numerous players along the way, while being subjected to different legal standards and quality requirements across multiple jurisdictions. By generating digital versions of real-world assets and tracking their pertinent data as a distributed, shared source of information, significant efficiencies and process improvements can be achieved. The use of distributed ledgers or blockchains to track goods as they move along the supply chain, makes for transparency and accuracy in the location of the goods at any point of time, in real-time. In this chapter, we provide a short discussion of artificial intelligence (AI), blockchain, and IoT applications in supply chain management and understand the benefits and the shift in the processes, in digital applications.

Smart factories represent the fusion of a myriad of technologies and business approaches to production in manufacturing. In its fully-optimized form, smart factories can evolve to be adaptable systems that can enable continuous improvements of processes and optimize supply chain planning.

In this chapter, we explore the convergence and fusion of various technologies to describe the Factory of the Future. We detail how manufacturing will be transformed in the digital era through technologies that have defined it such as AI, IoT, and Machine Learning to form the Digital Twin and the emergence of Cyber-Physical Systems (CPS). We analyze the shifts in manufacturing practices, and illustrate several key factors that will shape the future manufacturing environment such as manufacturing operations, Lean Production principles, advanced prototype modelling, IIoT, and the use of integrated manufacturing analytics and the transformation of value chains to value network. We conclude with our thoughts on sustainable innovation and the workforce of the future with increasing scarcity of proficient IR4.0 professionals to support and build the future.

Digital currencies using distributed ledgers can be a digitized version of currency while retaining its four major features: (1) anonymity, (2) peer-to-peer (P2P) exchangeability, (3) universality, and (4) a steady titular value. There is a variety of potential solutions (formats) that can be adopted depending on the attributes and impact of each format on the financial system. This chapter characterizes and examines the benefits, opportunities, costs, and challenges of four key formats, and gives its assessment on the feasibility as well as possibility of practical adoption. Finally, it recommends the adoption of a CBDC (non-universal) for the interbank settlement and wholesale payment systems which has a minimal disruption to the economy, stronger monetary policy transmission and suggests way forward for adoption of an interest-free monetary system.

Responsible governance is a crucial issue in strengthening the performance of Islamic Social Finance institutions, viz. waqf, zakat, and those pertaining to inheritance (fara’id). Although past research has found that good governance in these institutions has been well implemented in some aspects, they, however, have not been implemented comprehensively.

This research aims at elaborating good governance from the perspective of Islam and proposing technology to fill gaps in governance due to various factors, by effectively tracking and tracing assets such that it ends up to the deserving beneficiaries with minimal leakages.

In this chapter, we provide ways as to how technologies like the blockchain and AI can operationalize the transparency and accountability that is required of important social institutions that govern the dispensation of fara’id law, and the management and distribution of waqf and zakat. These areas go beyond efficiency benefits in processes or projected cost-savings, but demand the highest level of ethical implementation of governance.

Digital innovation has incorporated advanced technologies in transforming the way we access and use existing financial products and services. The Islamic Economy is becoming increasingly disrupted by revolutionary enterprises using technologies such as cloud computing, extensive use of artificial intelligence (AI) and data analytics, integration of interoperable Internet of Things (IoT) devices, and the blockchained decentralization.

Nevertheless, to sustain such innovation, the Islamic Economy has to fully develop digital ecosystems that nurture and develop both the demand and supply sides of the ecosystem. At the same time, regulatory and legal systems need to be strengthened in order for the ecosystem be protected from cyber risks and threats to allow for the market actors to flourish.

This chapter assesses the key features of the Islamic Digital Economy and its network to foster fair competition, innovation, and the entrepreneurship mindset. On the supply-side, recommendations to continually develop and attract talent, expertise, and capital to ensure sufficient funding for groundbreaking ideas and novel scalable business models will be made. The regulatory issues that comes with technological adoption along with financial stability implications and consumer protection, with suggestions that regulators themselves adopt advanced technologies (SupTech) to embark on the new era of market supervision and monitoring will also be discussed.

The persistent financial crises in the last few decades have transformed the global regulatory framework radically, in a concerted effort to enhance the resilience of financial institutions, recapture investor confidence, and improve the overall financial system.

Many financial institutions are struggling with ever-changing regulatory requirements and increased burden of complex rules. Often, such global and local due diligence rules can be conflicting, and non-compliance or the inability to meet the deadlines subject institutions to hefty penalties and multi-dollar fines for lapses in anti-money laundering, know your customer (KYC) and over-the-counter (OTC) trading regulations.

In this chapter, we map out the ongoing regulatory milestones globally and use the snapshot between Q3 2019 to Q2 2021 to illustrate the key regulatory priorities by region, and propose how banks can effectively manage regulatory change within their organizations through an AI-driven regulatory management model. We discuss the evolution, challenges, and recommendations for financial institutions (including Shariah compliance) in the change management for regulations using a structured approach that addresses regional priorities.

The following section is included:

• INDEX