Accelerating the growth of Islamic fintech in M’sia

MALAYSIA has long shown great potential to be the world leader in Islamic financial technology (fintech), and the COVID-19 pandemic has done very little to impede its efforts.

Despite the turbulent year, however, experts believe that the general growth of the fintech sector in the country is spurred by the need for companies to provide digital services and have an online presence in the first place.

And the statistics are clear evidence of this growth: as mentioned by the Fintech Malaysia Report 2021, for example, online and mobile banking penetration reached 112.5% and 61.8% respectively in 2020.

“Meanwhile, RM460 mil worth of mobile banking transactions were conducted – a 125% jump compared to the previous year.

“E-wallet transaction volume also increased 131% in 2020 while merchant registration for QR code acceptance went up by 164% the same year,” INCEIF (International Centre for Education in Islamic Finance) Head of Islamic Digital Economy Assistant Prof Dr Kinan Salim tells FocusM.

Assistant Prof Dr Kinan Salim

But steady growth aside, the Islamic fintech sector is not without its challenges.

“The number of Islamic fintech companies in Malaysia is still relatively small compared to the number of its conventional counterparts, while regulations for Islamic fintech are still limited to areas of crowdfunding, digital assets and very recently, e-money,” Dr Kinan explains.

There is much room for human development programmes focusing on Islamic fintech as well as a need for innovation labs and accelerators that are dedicated to Islamic fintech, he adds.

And despite the fact that some Islamic fintech start-ups have succeeded in securing funds from general funding schemes, Dr Kinan believed that there is still very much a need for specialised funds that are dedicated for Shariah-compliant fintech solutions.

“Additionally, fintech supporting institutions should also give more attention to Islamic fintech by having dedicated departments and programmes.”

To remedy these issues, Dr Kinan proposes the adoption of a top-down approach to nurture and expand the horizons of Islamic fintech.

“Providing supportive regulations with clear Shariah resolutions from the relevant authorities and establishing dedicated funds for Islamic fintech companies will certainly attract local and foreign start-ups to establish themselves and grow in Malaysia,” he points out.

“While tailored academic and professional Islamic fintech programmes will provide the required human capital for the industry, establishing innovation labs with incubators and accelerator programmes that are committed to Islamic fintech will ensure a conducive environment to conceive, construct and champion Islamic fintech solutions.”

Recently, the i-Connect Fintech in Islamic Finance programme has been launched to create and nurture a conducive innovation ecosystem and provide funds to support and foster innovation in Islamic fintech in the country.

The programme will enable Malaysia to leverage on new economic opportunities in disruptive innovation and lay the foundations for the country to be a global hub for Islamic fintech.

Towards that end, i-Connect has set up a fund to foster innovation in Islamic fintech with two key focus areas, Social Financing Smart Solutions and Digitalisation of Shariah-compliant Financial Solutions.

The research community and Islamic fintech start-ups are invited to submit proposals on innovations in Islamic fintech, particularly projects which are in the development and deployment phases at http://www.inceif.org/i-connect.islamicfintech. – July 15, 2021.

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