Islamic economy ecosystem key to enabling world’s 1st Islamic fintech unicorn

OVER the years, Malaysia has had its fair share of the limelight.

According to Dinar Standards’ Global Islamic Fintech Index 2021, Malaysia ranks first in terms of market maturity and stands among the top five Islamic fintech markets based on transaction volume.

Furthermore, the confluence of three key elements, namely comprehensive regulatory guidelines; steady supply of talent in Islamic finance; and a growing demand base, have led to Malaysia growing the greatest number of Islamic fintech companies.

According to a report by innovation policy advisor Startup Genome, via its Global Start-up Ecosystem Report 2020, Malaysian capital Kuala Lumpur is ranked 11th in emerging start-up ecosystem in the world and positioned the city as an ideal location for start-up incubations.

To date, the country hosts 25 companies across nine business segments, ahead of the UK (19), the UAE (16), Indonesia (12) and the US (10).

These companies are involved in technology, IT and infrastructure; blockchain and cryptocurrency; crowdfunding; data and analytics; Islamic enablers; peer-to-peer (P2P) funding; robo-advisory; payment remittance and foreign exchange; trading and investment; and TakaTech.

All these companies are in the race to become the world’s first Islamic fintech unicorn. However, several hurdles need to be crossed.

What are the steps to achieve success?

Based on MDEC’s market observation, some commonalities of existing fintech unicorns include:

  • Unique selling proposition (USP)

Meeting a customer’s expectation and user experience goes a long way in defining the company’s unique selling proposition.

With the help of social media, the amplification of a customer’s feedback has had a tremendous impact in branding and franchise development.

  • Expansion of market access

A growing customer base underscores the strength of the company’s value proposition and elevates a company’s financial standing.

  • Ease of funding access

The ability to commercially scale-up in the most cost-efficient structure allows a manageable financing/funding model.

Since most start-ups do not make money in its nascent years, interventions by government-led bodies to seed the initial phase of growth is paramount.

  • Global and rapid expansion

Expansion of market reach allows the company to leapfrog into new markets and strengthen its product offerings which ultimately has a direct bottom line impact.

Several Malaysian Islamic Fintech companies have gained inroads in addressing some of the above factors.

“MicroLEAP’s USP centres on its ability to offer complimentary personal accident insurance and technology-based educational financial tool,” highlighted microLEAP founder and CEO Tunku Danny Nasaifuddin Mudzaffar.

microLEAP is a financing platform that offers Islamic financing nodes.

Tunku Danny believed business empowerment via access to P2P funding promotes not only financial inclusion but links back to the government’s initiatives to boost the B40 lower income group’s social standing.

Similarly, Robin Lee, CEO and co-founder of investment app HelloGold, pointed out that challenging market conditions have put a dent on fintech investments.

“Convergence of businesses between fintech players could potentially speed progression towards market access and build a stronger entity to secure larger funding.”

We also saw Mesinkira’s user base registering double-digit growth since the start of the pandemic.

The mobile business management solution, helmed by Syed Omar Almohdzar, helps micro, small and medium enterprises (MSMEs) digitalise without incurring massive costs.

“Our value proposition in facilitating digital access to MSMEs at the most competitive pricing level has gained sustainable traction,” said Syed Omar.

“In time, bigger players such as financial institutions, cooperation that supports MSMEs will realise the value add our platform brings to the economy.”

In short, for Islamic Fintech companies to achieve success, they must provide solutions that positively impact the people, including democratising market access and solving actual problems.

This is particularly crucial in current times, with the COVID-19 pandemic accelerating the need for digitalisation.

Understanding this, the Malaysian Government has – under the PENJANA Economic Recovery Plan – allocated approximately RM700 mil for the digitalisation of SMEs and MSMEs.

These incentivisation efforts to help digitalise companies’ operations and trade channels centres on the sectors’ importance, since it constitutes the backbone of the nation’s economy.

This is where Islamic fintech companies come in, to offer solutions that are not only in line with Islamic practices, but are also ethical, sustainable, and safe.

With the launch of the Malaysia Digital Economy Blueprint (MyDIGITAL) in February and the National 4IR Policy in June 2021, on top of Malaysia’s current standing as the world’s Islamic finance pioneer, there is a clear path to success.

The road ahead requires the collective efforts of the Government, the regulators, and market players to realise this ambition.

Past successes in establishing Malaysia’s trailblazer position as a leader in Islamic finance offers a promising future.

Market observers are certainly waiting in anticipation on who will finally be crowned the world’s first Islamic Fintech unicorn. – Sept 29, 2021

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