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Reshaping Finance: Malaysia’s Islamic Fintech Boom

By August 24, 2023No Comments

In recent years, Southeast Asia has emerged as a frontrunner in global fintech adoption. Companies like Grab, GoTo, and Sea developed super apps that include financial services, and startups like Xendit, Akulaku, and Dana, to name a few, have raised hundreds of millions of dollars for payments, banking services, and other financial tools, making Southeast Asia a home to a thriving fintech scene.

Due to the potential and enthusiasm these services generate, these fintech unicorns rank among the world’s most well-funded digital startups. They are predicted to amass over $38 billion in annual revenue in Southeast Asia by 2025, a remarkable increase from the $11 billion recorded in 2019. 


Charting the Rise of Islamic Finance

Malaysia, in the heart of Southeast Asia, is among the countries with the largest Muslim population. Fintechs that are only focused on Islamic finance and provide shariah-compliant goods and services are flourishing in Malaysia. This prohibits, among other things, the accumulation of interest, speculating, and financing of non-halal goods.

Buoyed by a robust economic resurgence, Islamic financing has surged to a remarkable five-year pinnacle, marking a substantial 13% growth in 2022. Working capital loans have been increasing steadily, and the household sector’s unwavering toughness is what gives this increase its drive. 

As a result, by the end of 2022, a remarkable 41% of all loans in the banking system included Islamic finance, representing a noticeable rise from the roughly 38% noted at the end of 2021. This success strengthens Malaysia’s position as the third-largest Islamic financial center on the international scene. Notably, Malaysia has a well-established and competitive sukuk (financial certificate) market, with sukuk accounting for a staggering 64% of all local outstanding issuances as of the end of November 2022.


Foundations of Islamic Finance

Islamic finance describes the means by which organizations and people raise money in conformity with Shariah, or Islamic law. Islamic finance is a distinct type of socially conscious investment. Shariah law necessitates a categorical approach to financial services, prompting even conventional banks to introduce products tailored to Muslim customers. Islamic-compliant services are becoming more widely available as more Islamic finance businesses digitize the process.



1. Prohibition of Interest (Riba):

Charging or paying interest is considered exploitative in Islamic finance. Instead, profit-and-loss sharing arrangements are encouraged.


2. Prohibition of Speculation (Gharar):

Excessive uncertainty, ambiguity, or speculation in financial contracts is discouraged. Transactions should be clear and transparent.


3. Prohibition of Investments in Forbidden Goods and Services (Haram):

Investments in industries such as alcohol, gambling, pork, and certain types of entertainment are not allowed.


4. Zakat and Charity:

Islamic finance promotes the concept of giving to those in need. Zakat, a form of obligatory charity, is a significant aspect of Islamic finance.


Integration of Technological Advancements into Islamic Finance


In Malaysia, the Investment Account Platform introduced by Bank Negara stands out as the inaugural Islamic peer-to-peer (P2P) venture initiated by a central bank. Simultaneously, the Malaysia Digital Economy Corporation, under government ownership, facilitates the interaction between investors and halal business proprietors. In 2019, the Malaysian government unveiled the Shared Prosperity Vision 2030, outlining a decade-long blueprint for economic transformation. A pivotal component of this strategy is the establishment of an Islamic fintech hub, demonstrating the nation’s commitment to this dynamic sector.


Malaysia has consistently secured the top position in the Global Islamic Fintech (GIFT) Index since its inaugural launch in 2021, outshining 64 other nations across various dimensions including talent, regulation, infrastructure, the Islamic Fintech market and ecosystem, as well as capital.

In the 2021 IFN Fintech CEO & Founder Survey, nearly 40% of the participants acknowledged Malaysia as the global leader in fostering an ideal Islamic Fintech ecosystem. This recognition is primarily attributed to the proactive involvement of stakeholders, orchestrated by the Malaysia Digital Economy Corporation (MDEC), the principal governmental body entrusted with overseeing the nation’s digital economic transformation.

The regulatory framework, overseen jointly by Bank Negara Malaysia (BNM) and the Securities Commission Malaysia (SC), is consistently updated in line with the 2022-2026 Financial Sector Blueprint for Malaysia’s Islamic fintech direction. BNM’s recent efforts include discussing digital Takaful operator licensing and upcoming revisions to the Innovation Green Lane to support Fintechs. Currently, the Innovation Green Lane fast-tracks trials and approvals for Islamic Financial Institutions (IFIs), with Islamic Fintechs included upon partnership with IFIs.


Malaysia’s governance of Islamic Fintech stands firmly on the foundation of value-based intermediation, a concept introduced by BNM. This principle governs the comprehensive regulatory framework of Islamic finance in the country, with the overarching objective of attaining social finance, comprehensive development, and inclusive goals.


Malaysia’s Dominance in Islamic Banking and Robust Financial Landscape



Islamic banks are widely present in Malaysia’s financial services industry; significant examples include Maybank Islamic Bhd., CIMB Islamic Bank Bhd., and RHB Islamic Bank Bhd. These organizations are essential components of sizable banking organisations that are endowed with abundant resources and wide-ranging customer bases, which strengthens their power within the sector.

Six of the top 20 Islamic banks have their global headquarters in Malaysia, a country that stands out in the global Islamic financial scene. Maybank Islamic, CIMB Islamic Bank, Bank Kerjasama Rakyat Malaysia Bhd., RHB Islamic Bank, Bank Islam Malaysia Bhd., and Public Islamic Bank Bhd. are among the top banks that have been recognised in The Asian Banker’s ranking of the top 100 Islamic banks and financial holding companies for 2021.

In terms of technological improvements, these banks stand out from traditional fintech players by providing a wide range of complete digital services. Their mobile banking platforms are based on cutting-edge technology, giving them a competitive advantage. These services possess the capacity to benefit all businesses by enhancing payment systems, refining customer relationship management, and streamlining invoicing and collection processes. It holds the potential to foster a greater array of opportunities, amplify economic activities, and catalyze overall economic growth.

By integrating fintech solutions into their Islamic financing operations, banks in Malaysia have the potential to enhance efficiency, elevate customer satisfaction, and achieve cost reduction. This synergy allows Islamic banks to introduce novel services like peer-to-peer lending, crowdfunding, and robo-advisory services, thereby expanding their service offerings.


Industry analysts predict these elements are expected to continue such banks’ development trajectory and market dominance, outpacing the growth possibilities of fintech companies in Malaysia. This is anticipated to bring about a transformative shift, leading to a more innovative and competitive industry that is well-equipped to effectively cater to consumer demands.


Authored by Nishka Agrawal

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