On the back of a gamut of progressive Shariah-compliant regulations, quick product approvals, and digitisation of financial services, Malaysia has become among the world’s biggest markets for Islamic Finance and the most developed country in this segment. A mix of policy changes and innovative business models have enabled the country to rise to the top in Shariah-led financial solutions.
The Global Islamic Fintech Index lists Malaysia in the lead spot because of governmental support and a conducive ecosystem. Malaysia has also classified Islamic finance as a part of its key economic growth activities.
As a step forward, the central bank of Malaysia has proposed a new sandbox framework wherein fintech entities, including those willing to test out Islamic Finance, may even get a green lane for accelerated market launch. With 30% of the global Islamic fintech companies based in Malaysia, the country is poised to continue its growth in the Shariah-compliant assets space.
| Country | Assets (USD billion) |
| Iran | 1,235 |
| Saudi Arabia | 896 |
| Malaysia | 650 |
| UAE | 252 |
| Qatar | 182 |
BUILDING ON THE EARLY MOVER ADVANTAGE
Islamic finance is a term used to describe financial products and services that comply with the core principles of the Shariah law. These include:
Malaysia was one of the first movers during the first wave of Islamic banking in the 1990s, where it took a slew of initiatives to build sustainable businesses in the country. These included encouraging Sukuk (Islamic bonds), Islamic Funds, and Takaful where a combination of governance and awareness creation improved accessibility.
In its 2.0 avatar too, the country wants to cement its status as the Islamic Finance hub. Malaysia’s Shared Prosperity Vision 2030 envisages strengthening the country’s position as the Fintech Hub for Islamic Finance. This includes building resilient key new sectors such as Islamic Finance Hub 2.0, which will provide ~600 million ASEAN consumers access to Shariah-adhering finance.
Individual sectoral regulators have taken steps to introduce conducive spaces to build. For instance, the Securities Commission’s Shariah Advisory Council also permitted the use of digital assets including crypto. It also launched a Shariah Screening Assessment Toolkit to enable access to Shariah-compliant financing for unlisted micro, small, and medium enterprises (MSMEs). In addition, an Islamic fintech accelerator by the SC has also helped Shariah-based financial entities grow and scale.
These policy reforms have reinvigorated the Islamic fintech market in Malaysia. New entities in the area of Shariah-compliant finance are set to enter the market. For example, AEON Financial Service and neobank MoneyLion are set to launch their Islamic digital bank in 2024.
FROM LOCAL TO GLOBAL
Malaysia’s Islamic fintech sector contributed $3 billion in global transaction volumes in 2021. The country has about 47 Islamic fintech entities. Shariah-compliant securities account for 80% of the listings in Bursa Malaysia.
After making their presence felt in the local market, these fintechs want to go global. Take the case of TheNoor, an Islamic lifestyle plus e-wallet application that started out in Malaysia but has gone global. The fintech platform is also raising $1 million to support its expansion plan.
Wahed Technologies is another example of a Shariah-compliant fintech that serves customers across the globe. Recently, it also launched its physical branch in London. Peer-to-peer financing platform microLEAP is another fintech platform that aims to serve the funding needs of MSMEs.
This is just the beginning of the transformation. The Malaysian government is looking to tap global financial hubs such as Hong Kong for talent sourcing and Islamic startup funding to give a further boost to these fintech entities.
From $49 billion in 2020, Islamic fintech is expected to grow to $128 billion by 2025. Malaysia, which has already laid out an enabling environment, has the potential to become the global hub for Shariah-compliant finance.
Sumit Dutta is the Founder and Chief Executive Officer of ASEAN Business Partners. Prior to this, Sumit spent 26 years working for HSBC, one of the biggest banks in the world, in countries including Indonesia, Vietnam, USA, Hongkong and India.
Stay up to update with our latest news.
Have Us Contact You
