iFintechs are taking Southeast Asia by storm

iFintechs, or, Islamic fintechs, are seeing rapid growth and opportunities in Southeast Asia. Malaysia, an ASEAN emerging economy of 32 million, was named the leader in the iFintech hubs maturity model. The ASEAN nation of 32 million boasts high growth and high conduciveness, according to the 2021 Global Islamic Fintech Report. 

Malaysia is also number one out of 64 key iFintech markets worldwide when measured by the GIFT (global Islamic fintech) Index, showing the most robust ecosystem supporting the industry.

Six countries in the Asia Pacific made it to the top 20 of the report’s country index list: Indonesia (4th place), Pakistan (8th), Singapore (12th), Hong Kong (14th), Australia (16th), and Bangladesh (19th).

The report, produced by Islamic economy management consultancy DinarStandard and ethical digital finance advisory and investment firm Elipses, counted 241 iFintechs worldwide, with 62 in Southeast Asia. The GIFT Index looked at 32 indicators covering five categories: Islamic fintech market and ecosystem, talent, regulation, infrastructure, and capital.

Malaysia and Indonesia digital economy and Islamic finance

Malaysia and Indonesia both have substantial Muslim populations and governments who are driving Islamic economy aspirations. Malaysia has its Shared Prosperity Vision and Indonesia has its National Shariah (Islamic law) Economy Plan.

“The government has identified the digital economy and Islamic finance as key catalysts in its Shared Prosperity Vision. With those two pillars, Malaysia will continue its push to become the Heart of Digital ASEAN and the instrumental driver for various advancements within Industrial 4.0,” said Surina Shukri, former CEO of Malaysia Digital Economy Corporation (MDEC), in a report last year.

“Since it is widely recognized as a benchmark of excellence in Islamic finance by the international community, Malaysia has all the makings to lead the Islamic fintech agenda.

“Its robust regulatory environment, well-established Islamic financial community, increasingly influential and affluent population, unshakeable government commitment to Shariah finance, and foresight as well as the willingness to adapt and lay the foundation for a fertile Islamic fintech sector.”

Indonesia’s Vice President Ma’ruf Amin, speaking at the Indonesia Sharia Summit 2021 inauguration on Wednesday (22 Sept), said: “In terms of sharia economy and finance, the Government continues to take measures to strengthen the regulation and management, digitalization, research and innovation, human resources, awareness, and literacy.”

iFintechs seek to fill the gap 

iFintechs have a higher growth projection at 21% CAGR by 2025 than conventional fintechs at 15% CAGR for the same period, the report said. iFintechs seek to fill the gap for the underserved or unserved Muslim population, which numbers 1.8 billion people globally, by following Shariah principles.

Last year, a World Bank (WB) paper said more than half of the global population under 34 years old are Muslims. “This young demographic is highly tech-savvy with source markets having high mobile and internet penetration relative to the global average,” the paper said.

iFintechs also attract ethical finance consumers as they both champion common environmental, social and corporate governance (ESG) factors and outcomes.

The WB report identified three opportunities for iFintechs:

  1. Helping leap-frog Islamic financial services reach and impact.
  2. Addressing significant financial inclusion gaps within core markets.
  3. Delivering Islamic social financing to support global Sustainable Development Goals (SDGs) and needs.

The United Nations Development Programme (UNDP) in 2018 estimated zakat (obligatory charity for Muslims) could contribute between US$200 billion and US$1 trillion globally towards poverty alleviation.

Nurturing solutions by iFintechs 

Last May, the Securities Commission Malaysia (SC) and the United Nations Capital Development Fund (UNCDF) launched the FIKRA Islamic Fintech Accelerator Programme, the first of its kind for its Islamic capital market.

It aims to nurture iFintechs to generate new ICM offerings, accessibility, and social finance integration. The three-month program will hold a public virtual demo day to showcase its participants at the SCXSC Fintech Conference 2021 next month. 

The Global Islamic Fintech Report listed nine iFintech services segments, raising funds, deposit and lending, and payments as the most popular categories. The other segments include alternative finance, capital markets, digital assets, wealth management, insurance, and social finance. 

With the Islamic fintech market projected to reach US$128 billion by 2025, coupled with the widening reach of digitalization and increasing demand for its services by Muslims around the world, the future holds the promise of a more varied and dynamic iFintech ecosystems in ASEAN and beyond.