Financing the Energy Transition through Islamic FinTech: Mechanisms, Opportunities, and Risks

Abstract

The financing of the global energy transition remains a critical challenge, particularly in emerging and developing economies where conventional green finance instruments face structural limitations and financial exclusion persist. This study examines the potential of Islamic FinTech as an ethical, inclusive, and technologically enabled mechanism to mobilise capital for renewable energy and low-carbon infrastructure. Adopting a qualitative and conceptual approach, the research synthesises insights from Islamic finance, FinTech, sustainable finance, and energy transition literature to analyse mechanisms, opportunities, and risks associated with Islamic FinTech in energy transition finance. The findings highlight key mechanisms, including Shariah-compliant crowdfunding, green and digital sukuk, blockchain-based smart contracts, AI-driven project screening, and waqf- or zakat-based platforms, which collectively enable inclusive, transparent, and scalable financing solutions. Islamic FinTech facilitates mobilisation of private and diaspora capital, enhances financial inclusion and energy access, improves transparency and trust, and supports SDGs and climate resilience. However, its effectiveness is constrained by Shariah compliance risks, technological vulnerabilities, regulatory fragmentation, greenwashing, and institutional capacity limitations. The study underscores the importance of integrated governance frameworks, risk management protocols, and alignment with Shariah and sustainability principles. Islamic FinTech thus represents a transformative yet challenging pathway for ethical and inclusive low-carbon energy finance, offering both practical and policy-relevant insights for regulators, financial institutions, and development stakeholders.