Photo: A frontline worker with the Ministry of Health at a health screening, wearing a protective suit with words written on the back: "We Must Win, Fight Covid" in Sendayan, Malaysia, on Apr 14, 2020. Tok Anas/Shutterstock

Islamic Finance

A new normal will require Islamic fintech to address financial inclusion

This article is produced and sponsored by the Malaysia Digital Economy Corporation (MDEC). 

It is evident that there has been a sudden spike in the adoption of digital technology. Young innovative digital businesses that were looking for a foothold have begun to receive traction. The COVID-19 pandemic has been an unexpected catalyst, similar to the Global Financial Crisis in 2008-2009 which provided the impetus to growth of fintech. This global crisis now may well be a boon to businesses promoting digital financial inclusivity as countries look for solutions to rebalance the socio-economic equation arising from wreaked economies.


In this context and to emerge victorious in the long term, our local fintech and Islamic fintech companies will have to seize the moment and future-proof their business during this period.

Approximately 40% of startups will not survive if the COVID-19 crisis continues after May 2020, according to a recent news report. Thus, the strategy will have to be to build new capabilities for Malaysia to retain its position as a strong Islamic fintech hub while overcoming the challenges of the COVID-19 pandemic, and the recovery beyond.


Malaysia has seen significant contributions to its GDP come from its flourishing digital economy, recording 18.5% in 2019 growing to a predicted 21% by 2022. Malaysia is also a nucleus for Islamic digital economic activity comprising of digital products and services catering to the Islamic crowd according to the State of the Global Islamic Economy Report 2019/ 2020.

Another feather in Malaysia’s cap is that it has developed world-class regulation, driving new initiatives to accredit halal certifiers worldwide, granting the first Islamic fintech crowdfunding license and launching a new certification scheme for Muslim friendly hospitality.

“Malaysia has all the right ingredients to be an attractive base for an Islamic Fintech hub; with 95% of Malaysians having deposit accounts, having progressive regulations and ranked 1st in the Global Islamic Economy Index based on 521.3 billion in Islamic Finance assets and 42.2 billion in lifestyle spend on tangible products”, articulates Norhizam bin Abdul Kadir, Vice President – Fintech and Islamic Digital Economy Division, sharing why Malaysia is acclaimed as the world’s Islamic Fintech Hub.

In terms of the market access for Malaysian Fintech, the Islamic economy is largely underserved US3.2 trillion global market with an expected 6.2% CAGR in 2024. The emerging Islamic market covering Bangladesh, Indonesia, Pakistan, Nigeria and Senegal among others, offers significant opportunities to players in Islamic Digital Economy. The Muslim population will touch 2.2 billion by 2030 and 15 Muslim countries represent the top 50 countries with the highest smartphone penetration. Muslim populations are also seen to be increasing in affluence and have a growing appetite for investment.


Technological innovation in finance has always led to the fear of players not falling into the regulatory framework, thus not accountable to the same checks and balances as conventional players in banking and finance.

In terms of regulatory policies, banking and finance is essentially different from the many industries that technology has disrupted of late, such as healthcare or retail. Almost every fintech company, Islamic or conventional, is obligated to its customers’ money management and financial well-being.

However, Malaysia appears to be poised favourably within Islamic fintech to take advantage of the regulations that help its growth; The International Monetary Fund states that “Islamic bank loan growth in the country expanded by 8.9 percent in 2018, compared to 2.5 percent for conventional banks. While Islamic fintech is still in its infancy in Malaysia, the central bank supports efforts to promote the sector.” The regulations work in a way that Islamic financial institutions benefit from improved transparency—a core principle of Islamic finance.

Hence, Islamic Fintech seems to not only be able to withstand regulation, but also turn regulation into a springboard as its principles are deeply rooted in transparency and thus, inclusion.


In spite of our high banked-population 17% of Malaysians have a life insurance policy, possibly pointing to the fact that budgeting and financial planning are still low on the take up. Six out of 10 Malaysians work in the gig economy or are self employed, and thus, have to opt for a scheme that supports their pension or retirement needs either with the EPF, or privately.

Underserved markets in Malaysia offer opportunities for Islamic Fintech players as Malaysia strives towards ‘financial Inclusion’ as a goal within sustainable growth with fair and equitable distribution, in line with Shared Prosperity Vision 2030. Add to that the recent COVID-19 crisis and its anticipated impact on the overall Malaysian economy, and you get an underserved that is readier than ever for digitally abled and enabled enterprises. The underserved will now grow to include those dependent on the digital economy for a boost in their livelihoods - alongside a severe need to educate and connect communities as part of financial inclusion.  

Players successful in Malaysia such as Wahed Invest, Finterra and Ethis are key Islamic Fintech companies which are making a splash, but every activity in the fintech space is of value to the underserved – MSME and B40 population. Take the instance of an initiative by MDEC collaborating with Koperasi Warga Hijrah Selangor (KoHijrah) and Aspirasi (a subsidiary of Axiata Digital), to offer working capital financing up to RM3000 to eligible members of KoHijrah. Successful applicants are then given exposure to digital marketing techniques and instruction on how to activate the customer’s service for food delivery through digital platforms.

Alluding to the fact that Islamic Fintech is all about financial inclusion, Umar Munshi of Ethis Ventures Malaysia said, “The world is rapidly reinventing itself with technology, bringing huge gains to society. Muslims especially, have the opportunity to create new solutions and ecosystems in the Islamic Digital Economy, to match and serve unique needs, based on the universal ethical principles of Islam.”


Islamic Fintech and Islamic Digital Economy encourage financial inclusivity by increasing awareness and providing access to MSMEs, B40 and the gig economy through digital financial instruments which address various aspects of SLIP or Savings, Lending, Investment and Payments.

It is the financial inclusiveness of Islamic Fintech that Norhizam feels is the Islamic Digital Economy’s biggest asset. “Malaysia’s Islamic fintech players will continue to serve underserved markets both locally and globally – as Malaysia builds on the strength of Islamic products and services, to be the #1 Islamic Fintech nation in the world,” concludes Norhizam.

© Malaysia Digital Economy Corporation (MDEC) 2020 All Rights Reserved


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Malaysia Digital Economy Corporation (MDEC)