Role of fintech in credit risk management: an analysis of Islamic banks in Indonesia, Malaysia, UAE and Pakistan

Syed Alamdar Ali Shah, Bayu Arie Fianto, Asad Ejaz Sheikh, Raditya Sukmana, Umar Nawaz Kayani, Abdul Rahim Bin Ridzuan

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)


Purpose: The purpose of this study aims to examine the effect of fintech on pre- and post-financing credit risks faced by the Islamic banks. Design/methodology/approach: This research uses primary data for fintech awareness and adoption and secondary data of various financial and economic variables from 2009 to 2021. It uses baseline regression to identify moderation of fintech controlling gross domestic products, size, return on assets and leverage. The findings are confirmed using robustness against key variable bias. It also uses a dynamic panel two-stage generalized method of moments for endogeneity. Findings: The study finds that the fintech awareness and adoption are not the same across all Islamic countries. The Asia Pacific region is far ahead of the other two regions where Indonesia is ahead in terms of fintech awareness and adoption, and Malaysia is ahead in terms of reaping its benefits in credit risk management. Fintech affects prefinancing credit risk significantly more than postfinancing credit risk. Also, the study finds that Islamic banks suffer from the problem of “Adverse selection under Shariah compliance.” Practical implications: This research invites regulators to introduce fintech in Islamic banks on war footing. Similar studies can be conducted on the role of other risks such as operational and market risks. Fintech will also help in improving the risk profile and stability of Islamic banks against systemic risks and financial crises. Originality/value: This research has variety of originalities. First, it is the pioneering study that addresses the effect of fintech pre- and post-financing credit risks in Islamic banks. Second, it identifies “Adverse selection under Shariah compliance” for Islamic banks. Third, it helps identify how fintech can be useful in reducing credit risk that will help in reducing capital charge for regulatory capital.

Original languageEnglish
Pages (from-to)1128-1154
Number of pages27
JournalJournal of Science and Technology Policy Management
Issue number6
Publication statusPublished - 21 Nov 2023


  • Credit risk
  • Dynamic panel two-stage GMM
  • Fintech
  • Postfinancing
  • Prefinancing
  • Sustainable financial development


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