Collaboration needed for market access and to scale Malaysia’s Islamic fintech

This article is part of a sponsored series by the Malaysia Digital Economy Corporation (MDEC). 

An Islamic fintech company may have sleek user interface and offer the right service that enhances the financial lives of consumers, but unless it has a foot in the door with institutions, efforts to get the ball rolling and scale may be a struggle.

As Malaysia positions itself as an Islamic fintech hub, fintech companies are key to the development of its ecosystem. The country is focused on improving financial inclusion in its progress to firmly establish itself as the heart of digital ASEAN. For Islamic fintech companies to flourish and overcome barriers to market entry, collaborations with established institutions are needed.

“We need stakeholders to push things through, if you go to big institutions it can take a long time and is difficult to get the attention of decision-makers. When the government is involved, the incumbents take it more seriously as it adds credibility to the whole arrangement,” said Umar Munshi, Co-Founder of Ethis Ventures Malaysia, an Islamic equity crowdfunding (ECF) platform that received the country’s first Shariah-compliant ECF license from the Securities Commission Malaysia in 2019.

Ethis has worked with Islamic banks to handle corporate social responsibility and zakat (obligatory alms-giving) on its social finance platform Global Sadaqah, while its new platform, Ethis Equity was recently launched. “We are definitely looking at how we can synergise with banks, with the agricultural sector a key area for us,” said Umar.

The Malaysia Digital Economy Corporation (MDEC) and Bank Negara Malaysia (BNM) are encouraging such synergies to materialize and have jointly launched Fintech Booster with programmes highlighting what companies need to consider when starting out in the Malaysian market, including digital tax, financial crime regulations, digital onboarding, and related “digital risks”. 

“MDEC together with BNM are looking into how we can rejuvenate Islamic finance with a digital approach manner and based on Islamic integrity,” said Norhizam bin Abdul Kadir, Vice President for Fintech & Islamic Digital Economy at MDEC. “The fintech booster programme will help companies grow into digitally-powered businesses, and also facilitate more generic incentives for Malaysian or foreign fintech digital investment, like visa facilitation, company registration and 100% foreign ownership.”

At the Islamic Fintech Week 2020 in September that was supported by MDEC, there were 2,800 attendees and 60 speakers from all over the world. “One of the most valuable outcomes was the investor matching programme, called The Pitch, specifically for Islamic fintech companies. We had 55 applicants from around the world from which 28 went into the final round. We had 25 investors involved,” said Umar.

Three fintech companies were also launched during Islamic Fintech Week 2020, including Ethis Malaysia, a leading Shariah-compliant crowdfunding platform, fursa.capital, the USA’s first Islamic finance crowd equity fund, and UK-based Kestrl, a personal wealth management app co-founded by a Malaysian.

“This shows we are driving the global Islamic fintech ecosystem. Having launches from the USA and the UK is exciting for Malaysia,” said Umar.

MDEC also collaborated with the Securities Commission Malaysia to host SCxSC 2020 on Oct 5 to 7, showcasing an interactive platform for discussions and exploration of new and evolving digital trends.

Supporting entrepreneurs

microLEAP, a Shariah-compliant Peer-to-Peer (P2P) microlending platform, is one of 26 Islamic fintechs operating out of Malaysia that has benefitted from collaborating with MDEC.

“Tie-ups with government-owned companies like MDEC really gave us a push in a big way,” said Tunku Danny Nasaifuddin Mudzaffar, Chief Executive Officer of microLEAP, which was licensed by the Securities Commission this year.

In April, as the COVID-19 pandemic impacted the economy, MDEC partnered with seven alternative investment platforms, including microLEAP, to help entrepreneurs and micro, small-and-medium-sized enterprises (MSMEs) raise funds.

Under a new initiative called eBerkat – a digital financial inclusion platform, MDEC supports these fintech companies to tour the country, particularly rural and more remote areas – pandemic conditions permitting – to inform the B40, the bottom 40% income group, about microfinancing possibilities.

“We will tell them about the alternative financing option in the P2P world, as we want to push digital financial services to the B40 segment. This type of public-private partnership is the way forward,” said Tunku Danny.

microLEAP has also partnered with the Malaysian Technology Development Corporation (MTDC), a company wholly-owned by Khazanah Nasional Malaysia, a government agency under Ministry of Science, Technology and Innovation (MOSTI), which provides management, incubation, advisory, and nurturing services. “They wanted us to do more Shariah-compliant financing, so we are the P2P partner to finance tech companies in Malaysia through our platform. We fund up to 30%, and the rest is through equity crowdfunding,” said Tunku Danny.

Getting issuers (borrowers) to opt for Shariah-compliant financing instead of conventional financing has been eased by heightened awareness around Islamic finance and fintech. Programmes like MDEC’s eBerkat platform also helps facilitate access to digital financial instruments for MSMEs and the B40.

“There’s more demand if it is Shariah-compliant, so we tell issuers to raise that way. It’s really taking off,” added Tunku Danny.

Fifty-Fifty-Fifty

MDEC has worked with 12 fintech companies at the micro capital, insurance and macro investment level to scale up, including Islamic fintech such as HelloGold, the world’s first Shariah-compliant gold trading platform, and Aspirasi, Malaysia’s first fully-digital fintech financier. 

In addition to the country’s 26 Islamic fintechs, there are more at the start-up level. “We have been meeting with a lot of innovators,” said MDEC’s Norhizam.

MDEC has developed an Islamic digital economy guide, or Mi’yar, for start-ups, venture capitalists and Islamic technology companies to better navigate the overall possibilities for digitalising the Islamic economy, which ranges from halal food, cosmetics and pharmaceuticals to finance, takaful (insurance), waqf (endowments) and zakat.

While developing Islamic fintech at a domestic level is a key driver, the idea is also for Malaysia to be a test bed for rolling out platforms that can be utilised in other Muslim-majority countries that are seeking to increase financial inclusion and provide micro-financing for MSMEs.

“Our strategy is 50-50-50, where there are opportunities in Islamic markets that are 50% Muslim, there’s 50% internet penetration and 50% are banked,” said Norhizam.

With that in mind, MDEC has partnered with the Islamic Development Bank (IsDB), which has 57 member countries. “It is exciting, as by having partnerships to help Islamic fintech companies grow we compliment the IsDB’s goals,” added Norhizam.

From Malaysia to the UN General Assembly

The United Nations Capital Development Fund (UNCDF), BNM, and MDEC launched the Digital Finance Innovation Hub in 2018, to further support the financial inclusion of the middle and low-income group while empowering them to become digitally-skilled Malaysians. It operates out of Kuala Lumpur’s Orbit Fintech Hub.

Over the past two years, the UNCDF has run fintech innovation challenges, and in 2019 was a judge alongside MDEC and BNM in selecting two Malaysian fintechs to present at the UN General Assembly on “Digital Finance for Sustainable Development Goals”. The two fintech companies to present their platform was HelloGold  and GoGet.

In the recently held AIM Digital Conference 2020, GoGet representing Malaysia has emerged as the champion for social impact category, under AIM Global National Champions League 2020.

“With Government’s support, collaboration with industry and success stories, it is certainly testimony to Malaysia in becoming a centre of excellence for Islamic fintech,” said Norhizam.

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This article is part of a sponsored series by the Malaysia Digital Economy Corporation (MDEC).