Malaysia takes steps to boost growth of Islamic fintech
TECHNOLOGY has been a key part of the financial services market worldwide for decades. Financial technology (fintech) driven by IR 4.0 is exponentially enhancing 20th century financial services, operations, business models and customer engagement.
Fintech entities are not financial institutions but utilise fintech in providing financial services such as lending, investment, payment, risk management, data analytics and wealth management.
In the context of Islamic fintech, all these activities must be syariah compliant. The advent of fintech makes Islamic finance more competitive and attractive to customers as it provides choices which are more aligned to individual needs.
It also attracts more customers by providing a wider range of products and services at a lower cost in a more efficient manner.
Furthermore, users benefit from superior customer experience as Islamic fintech leverages the Internet, mobile devices, social media integration, big data analytics and artificial intelligence.
For small and medium enterprises, fintech also enables Musharakah and Mudharabahbased equity financing to be effectively performed via crowdfunding and P2P platforms.
Following the proliferation of fintech in Islamic finance, traditional Islamic finance institutions (IFIS) face increasing competition.
In addition, broader options available for customer to invest through online P2P and crowdfunding marketplace may result in less deposit and investment portfolio.
At the beginning of the Islamic fintech era in Malaysia, the crowdfunding platform was the first to be introduced to the marketplace. In 2016, significant progress in Islamic fintech was achieved.
They include the introduction of investment account platform, Islamic crowdfunding, Islamic fintech alliance, Islamic PSP financing and Islamic robo-advisor.
Malaysia maintains a leading position as the most developed Islamic financial market globally. However, in terms of Islamic fintech, Malaysia has to step up efforts to strengthen its position.
At this point, several initiatives are being implemented to accelerate the growth of Islamic fintech in the country.
Malaysia has issued a fintech regulatory sandbox guideline as a reference document. The framework aims to provide an environment that is conducive for the deployment of financial technology to foster innovations in financial services that can contribute to the growth and development of the financial sector.
It also enables innovation of both Islamic and conventional fintech to be deployed and tested in a live environment, within specified parameters and time frame.
Other supportive elements in the broader fintech ecosystem are also available for fintech players in Islamic finance to leverage such as the Financial Technology Enable Group, Alliance of Fintech Community and the Global Islamic Fintech Hub.
In 2016, the Securities Commission licensed the world’s first syariah-compliant P2P to one of the six P2P registered companies.
This initiative aims to complement the growing global awareness of Islamic finance with technology to ensure seamless transactions between funding businesses and making returns on investments.
Furthermore, with the PSP, small and medium enterprises are expected to have greater access to funding while investors have an alternative channel to earn higher returns on their investments.
Separately, syariah-compliant robo-advisor services known as Algebra was introduced in July 2017 in Kuala Lumpur as the world’s first robo-advisor. The online system provides automated portfolio management advice to clients.