The digital butterfly effect: unleashing the Islamic Banking industry in a post-pandemic era.

Authors

  • Hadjer Boulila Abou Baker Belkaid University
  • Widad Metadjer Lecturer at Al-Maktoum College of Higher Education and The Business School of University of Dundee
  • Ibrahim Elsayed Durham University – Business School, England
  • Seyf Eddine Benbekhti Abou Baker Belkaid University, Department of Economics

DOI:

https://doi.org/10.13135/2421-2172/10239

Keywords:

Fintech, digital butterfly effect, chaos theory, Islamic banking, Bayesian VAR

Abstract

This study draws on the parallelism between digitalization and the complexity of the Islamic banking industry (IBs) in a post-pandemic era. It examines the digital Butterfly Effect on the Islamic banking industry to promote tech-driven IBs through an empirical lens. The study constructs a Fintech adoption index (FADi). It uses a Bayesian vector Auto-Regressive model, causality tests and impulse response functions for yearly data from 2008 to 2022 to examine the possible magnified effect of adopting Fintech by the Islamic banking industry in Malaysia. Key findings suggest that embracing Fintech by the IBs enhances the profitability of the banks, which is measured by the return on asset and return on equity. In addition, the study reports a ripple effect of FADi on the broader spectrum of the Malaysian economy. This indicates that Fintech fosters economic growth, household consumption, financial and insurance services, and corporate taxes. On the other hand, Fintech adoption helps reduce the unemployment rate. The findings contribute to the literature by investigating the IB as a system within financial chaos theory and the possible Butterfly Effect triggered by Fintech adoption.

References

Abakah, E. J. A., Tiwari, A. K., Ghosh, S., & Doğan, B. (2023). Dynamic effect of Bitcoin, Fintech and artificial intelligence stocks on eco-friendly assets, Islamic stocks and conventional financial markets: Another look using quantile-based approaches. Technological Forecasting and Social Change, 192, 122566.

Abdeljawad, I., Hashem, S. Q., & Rashid, M. (2022). Fintech and Islamic Financial Institutions: Applications and Challenges. Fintech in Islamic Financial Institutions: Scope, Challenges, and Implications in Islamic Finance, 193-222.

Abojeib, M., & Habib, F. (2021). Blockchain for Islamic social responsibility institutions. In Research anthology on blockchain technology in business, healthcare, education, and government (pp. 1114-1128). IGI Global.

Abu-Bakar, M. M. (2018). Shariah analysis of bitcoin, cryptocurrency, and blockchain. Shariah Analysis in Light of Fatwas and Scholars’ Opinions, 14-19.

Aini, I., Nasution, A. M., Kurniawan, F., & Lubis, R. H. (2022). Fintech opportunities and challenges in the Sharia banking industry in pandemic times. Al-Masharif: Jurnal Ilmu Ekonomi dan Keislaman, 10(2), 143-157.

Al-Jamili, O. (2019). Smart Contracts, Their Reality and Their Relationship to Virtual Currencies. In International Islamic Jurisprudence Assembly conference Dubai, Dubai, Islamic Affairs & Charitable Activities Department & Government of Dubai.

Asif, S. (2018). The halal and haram aspect of cryptocurrencies in Islam. Journal of Islamic Banking and Finance, 35(2), 91-101.

Atiyah, G. A., Manap, N. A., Ibrahim, A. I., & Rahman, A. (2024). Legitimacy of Smart Contracts from the Perspective of Islamic Law: A Case Study of Blockchain Transactions. Al-Istinbath: Jurnal Hukum Islam, 9(1), 155-192.

Benlala, M. A. (2023). Exploring Risks and Issues Related to Policy Making and Regulation in FinTech. Perspectives of Law and Public Administration, 12(2), 249-255.

Ben Romdhane, Y., Kammoun, S., & Loukil, S. (2023). The impact of Fintech on inflation and unemployment: the case of Asia. Arab Gulf Journal of Scientific Research.

Bovens M. (2010) Two Concepts of Accountability: Accountability as a Virtue and as a Mechanism. West European politics. Vol. 33, No. 5, 946–967.

Charles, W. E. (2015). Bitcoin in Islamic banking and finance. Journal of Islamic Banking and Finance, 3(1), 1-11.

Chouldechova, A., & Roth, A. (2020). A snapshot of the frontiers of fairness in machine learning. Communications of the ACM, 63(5), 82-89.

Ciccarelli, M. M., & Rebucci, M. A. (2003). Bayesian VARs: A survey of the recent literature with an application to the European Monetary System.

Dahlberg, T., Guo, J., & Ondrus, J. (2015). A critical review of mobile payment research. Electronic commerce research and applications, 14(5), 265-284.

De la Mano, M., & Padilla, J. (2018). Big tech banking. Journal of Competition Law & Economics, 14(4), 494-526.

Dwyer, G. P. (2015). The Johansen tests for cointegration. White Paper, 516.

Evans, C., (2015). Bitcoin in Islamic Banking and Finance. Journal of Islamic Banking and Finance. Vol. 3, No. 1, pp. 1-11.

Firmansyah, E. A., & Anwar, M. (January). Islamic financial technology (FINTECH): its challenges and prospect. In Achieving and Sustaining SDGs 2018 Conference: Harnessing the Power of Frontier Technology to Achieve the Sustainable Development Goals (ASSDG 2018) (pp. 52-58). Atlantis Press.

Firmansyah, H. B., & Ramdani, A. L. (May). The role of Islamic financial technology (Fintech) start-up in improving financial inclusion in Indonesia case: Angsur. In 3rd international conference of integrated intellectual community (ICONIC).

Fletcher, G. G. S., & Le, M. M. (2021). The future of AI accountability in the financial markets. Vand. J. Ent. & Tech. L., 24, 289.

Grover, M., & Roy, S. Empowering Financial Inclusion: Leveraging Fintech and AI Innovations for Underserved Communities. DTC Journal of Computational Intelligence, Vol-3, Issue-1.

Hasan, R., Hassan, M. K., & Aliyu, S. (2020). Fintech and Islamic finance: Literature review and research agenda. International Journal of Islamic Economics and Finance (IJIEF), 3(1), 75-94.

Hassan, M. K., Rabbani, M. R., & Ali, M. A. M. (2020). Challenges for the Islamic Finance and banking in post COVID era and the role of Fintech. Journal of Economic Cooperation & Development, 41(3), 93-116.

He, M. D., Leckow, M. R. B., Haksar, M. V., Griffoli, M. T. M., Jenkinson, N., Kashima, M. M., Khiaonarong, T., Rochon, M. C., & Tourpe, H. (2017). Fintech and financial services: Initial considerations. International Monetary Fund.

Henriksen, A., Enni, S., & Bechmann, A. (2021). Situated accountability: Ethical principles, certification standards, and explanation methods in applied AI. In Proceedings of the 2021 AAAI/ACM Conference on AI, Ethics, and Society (pp. 574-585).

Huong, A., Puah, C.-H., & Chong, M.-T. (2021). Embrace Fintech in ASEAN: A perception through Fintech adoption index. Research in World Economy, 12(1), 1.

Jaadi, Z. (2021). A step-by-step explanation of principal component analysis (PCA). Retrieved June, 7(2021), 470.

Jolliffe, I. T. (2002). Principal component analysis for special types of data. Springer.

Karim, S., Naeem, M. A., & Abaji, E. E. (2022). Is Islamic Fintech coherent with Islamic banking? A stakeholder's perspective during COVID-19. Heliyon, 8(9).

Khambata, D. (2000). Impact of foreign investment on the volatility and growth of emerging stock markets. Multinational Business Review, 8(1), 50-50.

Khan, S., Hassan, M. K., Rabbani, M. R., & Atif, M. (2021). An artificial intelligence-based Islamic Fintech model on Qardh-Al-Hasan for COVID 19 affected SMEs. Islamic perspective for sustainable financial system, 234-249.

Klioutchnikov, I., Sigova, M., & Beizerov, N. (2017). Chaos Theory in Finance. Procedia Computer Science, 119, 368-375. https://doi.org/https://doi.org/10.1016/j.procs.2017.11.196

Kuderer, N. M., Choueiri, T. K., Shah, D. P., Shyr, Y., Rubinstein, S. M., Rivera, D. R., Shete, S., Hsu, C.-Y., Desai, A., & de Lima Lopes, G. (2020). Clinical impact of COVID-19 on patients with cancer (CCC19): a cohort study. The Lancet, 395(10241), 1907-1918.

Lahmiri, S., Bekiros, S., & Salvi, A. (2018). Long-range memory, distributional variation and randomness of bitcoin volatility. Chaos, Solitons & Fractals, 107, 43-48.

Legowo, M. B., Subanidja, S., & Sorongan, F. A. (2021). Fintech and bank: Past, present, and future. Jurnal Teknik Komputer AMIK BSI, 7(1), 94-99.

Leong, K., & Sung, A. (2018). Fintech (Financial Technology): What is it and how to use technologies to create business value in Fintech way? International Journal of Innovation, Management and Technology, 9(2), 74-78.

Lorenz, E. (2000). The butterfly effect. World Scientific Series on Nonlinear Science Series A, 39, 91-94.

Mandelbrot, B., & Richard, L. (2004). The (mis) behavior of markets. A basic book.

Mat Rahim, S. R., Mohamad, Z. Z., Abu Bakar, J., Mohsin, F. H., & Md Isa, N. (2018). Artificial intelligence, smart contract and islamic finance. Asian Social Science, 14(2), 145.

Mehrabi, N., Morstatter, F., Saxena, N., Lerman, K., & Galstyan, A. (2021). A survey on bias and fairness in machine learning. ACM computing surveys (CSUR), 54(6), 1-35.

Mohtar, J. 2020). Use Blockchain technology to certify halal products: New straits times. NST Online. URL: https://www.nst.com.my/opinion/columnists/2020/12/651806/use-blockchain-technology-certify-halal-products. Accessed: July 17, 2024.

Monika, A., Azam, A. N., & Teguh, S. I. (2021). The Impact of Fintech Development to Profitability of Islamic Bank. International Journal of Research and Review, 8(1), 250-258.

Murinde, V. (1996). Financial markets and endogenous growth. Financial Development and Economic Growth, New York: Routledge, 94-114.

Murinde, V., & Ryan, C. (2003). The Implications of WTO and GATS for the Banking Sector in Africa. World economy, 26(2), 181-207.

Nawaz, T. (2017). Conventional vs. Islamic banks in dual-banking systems: business model, outlay stratagems and economic performance. International Journal of Business Governance and Ethics, 12(4), 330-348.

Oseni, U. A., & Ali, S. N. (2019). Fintech in Islamic finance. In Fintech in Islamic finance (pp. 3-14). Routledge.

Pagano, M. (1993). Financial markets and growth: An overview. European economic review, 37(2-3), 613-622.

Paparoditis, E., & Politis, D. N. (2018). The asymptotic size and power of the augmented Dickey–Fuller test for a unit root. Econometric Reviews, 37(9), 955-973.

Pessach, D., & Shmueli, E. (2022). A review on fairness in machine learning. ACM Computing Surveys (CSUR), 55(3), 1-44.

Polas, M. R. H., Muhibbullah, M., & Bhattacharjee, A. (2020). Is bitcoin halal or haram in the Islamic banking and finance? An overview. Journal of Economics, Business and Market Research, 1(2), 96-104.

Rabbani, M. R., Khan, S., & Thalassinos, E. I. (2020). Fintech, blockchain and Islamic finance: An extensive literature review.

Rafiki, A., & Nasution, A. (2021). Islamic Financial Technology (Fintech) applications in Indonesia. Artificial Intelligence and Islamic Finance: Practical Applications for Financial Risk Management, 91.

Rahim, N. F., Bakri, M. H., Fianto, B. A., Zainal, N., & Hussein Al Shami, S. A. (2023). Measurement and structural modelling on factors of Islamic Fintech adoption among millennials in Malaysia. Journal of Islamic Marketing, 14(6), 1463-1487.

Salampasis, D., & Mention, A. L. (2018). Fintech: Harnessing innovation for financial inclusion. In Handbook of blockchain, digital finance, and inclusion, volume 2 (pp. 451-461). Academic Press.

Shukur, G., & Mantalos, P. (2000). A simple investigation of the Granger-causality test in integrated-cointegrated VAR systems. Journal of Applied Statistics, 27(8), 1021-1031.

Sidaoui, M., Ben Bouheni, F., Arslankhuyag, Z., & Mian, S. (2022). Fintech and Islamic banking growth: new evidence. The Journal of Risk Finance, 23(5), 535-557.

Siska, E. (2022). Financial Technology (Fintech) and its impact on financial performance of Islamic banking. ARBITRASE: Journal of Economics and Accounting, 2(3), 102-108.

Song, N., & Appiah-Otoo, I. (2022). The impact of Fintech on economic growth: Evidence from China. Sustainability, 14(10), 6211.

Tam, C., & Oliveira, T. (2017). Literature review of mobile banking and individual performance. International Journal of Bank Marketing, 35(7), 1044-1067.

Tieman, M., & Darun, M. R. (2017). Leveraging blockchain technology for halal supply chains. ICR Journal, 8(4), 547-550.

Tsagkanos, A., Argyropoulou, D., & Androulakis, G. (2022). Asymmetric economic effects via the dependence structure of green bonds and financial stress index. The Journal of Economic Asymmetries, 26, e00264.

Uzougbo, N. S., Ikegwu, C. G., & Adewusi, A. O. (2024). Legal accountability and ethical considerations of AI in financial services. GSC Advanced Research and Reviews, 19(2), 130-142.

Vujičić, D., Jagodić, D., & Ranđić, S. (2018, March). Blockchain technology, bitcoin, and Ethereum: A brief overview. In 2018 17th international symposium infoteh-jahorina (infoteh) (pp. 1-6). IEEE.

Yoon, S. S., Lee, H., & Oh, I. (2023). Differential Impact of Fintech and GDP on Bank Performance: Global Evidence. Journal of Risk and Financial Management, 16(7), 304.

Downloads

Published

2024-07-31

How to Cite

Boulila, H., Metadjer , W., Elsayed, I., & Benbekhti, S. E. (2024). The digital butterfly effect: unleashing the Islamic Banking industry in a post-pandemic era. European Journal of Islamic Finance, 11(2), 36–54. https://doi.org/10.13135/2421-2172/10239

Issue

Vol. 11 No. 2 (2024)

Section

Peer-reviewed Articles

License

Authors keep the copyrights for their work and give the journal the work's first publication copyright, which is at the same time licensed under a Creative Commons License – Attribution, which in turn allows other parties to share the work with an acknowledgement of the work's authorship and initial publication in this journal.

Similar Articles

1 2 3 4 5 6 7 8 9 10 > >> 

You may also start an advanced similarity search for this article.