Malaysia could lead the global Islamic Fintech industry, say experts

Malaysia could lead the global Islamic Fintech industry, say experts (Photo by Mohd RASFAN / AFP)

Malaysia could lead the global Islamic Fintech industry, say experts

  • Industry leaders from around the world met at the Islamic Fintech Leaders Summit 2022 held at Kuala Lumpur two weeks ago.
  • Experts reckon Malaysia has a strong ecosystem to support the industry.
  • The tech community also regards Malaysia as an ideal place to set up an Islamic financial technology company.

Malaysia has been the undisputed regional leader within the Islamic fintech industry. Based on the annual Global Islamic Fintech (GIFT) Report, over the last few years, the country has been dubbed as a leading Islamic financial technology hub, as it has been constantly ranked first in Islamic fintech market and ecosystem, talent, regulation, as well as infrastructure and capital. 

Experts now believe the country is ready to lead the global Islamic finance technology  industry as Malaysia is ready to capitalize on and serve the international market. At a recent Islamic Fintech Leaders Summit 2022 held at Kuala Lumpur, chairman of the Shariah Advisory Council for both the country’s central bank and the Securities Commission, Dr Mohd Daud Bakar in his keynote address reckons that, things are looking up for the industry as Islamic finance players play catch-up with their conventional peer. 

“Today, Malaysia remains the global leader in Islamic finance and is ranked first among 81 countries for the ninth consecutive year, according to the  Global Islamic Economy Indicator.  No doubt, Islamic fintech is growing exponentially in Malaysia, and 33% of the world’s Islamic financial technology companies are headquartered here,” he said.

Resonating with him, Malaysia Digital Economy Corp (MDEC) director of fintech and Islamic digital economy Ruslena Ramli also believes that Malaysia is a “potential leader in the fast-growing Islamic Digital Economy landscape”. She also noted that there are ongoing conversations amongst government, regulators as well as market players, in effort to further strengthen the country’s small yet high potential Islamic fintech market.

Traditionally, Islamic financial technology companies in Malaysia have been making slow progress in a booming Islamic finance market, amid competition from large local banks and a lack of funding and product offerings. However, in recent years, especially since the pandemic, there has been a dramatic increase in the digitalization of the sector as spending on technology and new digital financial services surges. 

Top 20 Countries by GIFT Index Scores --- Global Islamic Fintech Report 2021

Top 20 Countries by GIFT Index Scores — Global Islamic Fintech Report 2021

What is Islamic Fintech and how is Malaysia championing?

Based on Shariah principles, Islamic financial technology emphasizes the use of technology to deliver Shariah-compliant financial solutions, products, services, and investments. The Malaysian government and regulators have been recognizing the potential that lies within the market, and have been taking initiatives to spur the growth of this industry.

Through the country’s Shared Prosperity Vision 2030 (SPV 2030), the Malaysian government has identified Islamic finance and Islamic digital economy as Key Economic Growth Activities (KEGA) and aims to position the country as an Islamic Finance Hub 2.0. Apart from this, the Malaysia Digital Economy Corporation (MDEC) has also introduced a dedicated unit that has been tasked to support the Islamic digital economy and fintech space. 

Even the Ministry of Science, Technology, and Innovation (MOSTI) have separately established a fund to support Islamic fintech while both the International Center for Education in Islamic Finance (INCEIF) and the International Shariah Research Academy for Islamic Finance (ISRA), which was established by Bank Negara Malaysia, have also introduced initiatives to support capacity building as well as research and development in the field.

Additionally, the SC, together with the United Nations Capital Development Fund (UNCDF), has also launched FIKRA. This is an Islamic fintech accelerator program aimed at identifying and scaling relevant fintech solutions in Malaysia. FIKRA also aims to create a fintech talent pipeline in Malaysia by increasing awareness about Islamic financial technology.

As of 2019, there were a total of 26 Halal financial technology providers operating in Malaysia, higher than the UK (19), United Arab Emirates (16), Indonesia (12) and US (10). Despite tough competition from banks, the sector in Malaysia is expected to grow by a compound annual growth rate of 23% to US$8.5 billion by 2025, according to the GIFT Report 2021 published in May. 

“Malaysia offers the perfect platform for Islamic fintech companies to roll out their product offerings before tapping into other Muslim-majority countries,” the report said, noting that the government has been instrumental in providing support to Islamic finance and digitalization.