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Malaysia approaches fintech with Islamic twist

A fintech Islamic finance platform that links leaders with businesses via banks in Malaysia will change the role of Islamic lenders

Malaysia is adapting to the financial technology (fintech) revolution by adjusting its financial regulatory guidelines with an Islamic angle.

Islamic finance, where businesses raise capital in accordance with Sharia or Islamic law, is one of the fastest growing segments of the financial industry, registering double-digit growth rates in the past decade, said Muhammad bin Ibrahim, governor of the Central Bank of Malaysia (Bank Negara Malaysia).

Speaking at the Global Islamic Finance Forum 5.0 held in Kuala Lumpur in May 2016, Ibrahim said the recent Islamic finance initiative, the Investment Account Platform (IAP), which connects lenders, banks and enterprises seeking funds, could be “the next game changer”.

The IAP is Malaysia’s first bank-intermediated fintech platform that could shift the role of Islamic lenders to investment intermediaries.

Serving as a central marketplace to finance small and medium-sized enterprises (SMEs), with an initial 150 million ringgit (£27.5m) in funds, the IAP was launched by six Malaysian Islamic banks: Affin Holdings, Bank Islam Malaysia, Bank Muamalat Malaysia, Maybank Islamic, Bank Kerjasama Rakyat Malaysia and Bank Simpanan Nasional.

“The IAP is the first Islamic banking-intermediated internet-based platform that combines the expertise of Islamic banks and efficiency of technology to channel funds from investors to viable economic ventures,” said Ibrahim.

“It offers opportunities for industry players to radically transform operational models by adopting digitisation strategies that will be able to deliver much greater scale or, alternatively, a high degree of specialisation,” said Ibrahim.

“It also opens up new possibilities for improving efficiencies, reducing wastage and enhancing the customer experience,” he added.

Ibrahim estimates up to 40% of overall banking revenues could be at risk due to fintech innovations by 2025.

Read more about fintech in the Asean region

Ho Sui-Jon, market analyst at IDC Financial Insights Asia-Pacific, agreed that the backing of six of Malaysia’s principal Islamic banks will certainly lend a degree of reach, accessibility and price transparency to the IAP, both for prospective investors, as well as enterprises in search of capital.

“The strength of any financial platform – be it for investments or retail transactions, for example – hinges on its ubiquity,” said Ho.

Ho said collaboration between fintech startups and traditional financial institutions is happening in the Association of Southeastern Asian Nations (Asean).

For instance, large global banks, including Citibank, HSBC and Standard Chartered, have sourced their IT talent for specific workloads from non-incumbent providers, such as developer communities.

“Banks in Asean, such as DBS, OCBC, Maybank, CIMB and RHB, have initiated fintech acceleration programmes of their own since 2015, and the intensifying commitments observed today is indicative of some measure of effectiveness borne out of the collaborations,” said Ho.

Read more on IT for financial services