How Malaysia’s governance model is offering a blueprint to regulate Islamic fintech

While the Islamic fintech ecosystem in Malaysia thrives on innovation backed by a consumer-centric vision, its landscape overseen by an institutional framework where responsibilities are clearly outlined has emerged as a winning strategy.  

Bank Negara Malaysia (BNM) oversees Islamic banking and sets standards for Shariah compliance across financial institutions, while the Securities Commission Malaysia (SC) regulates capital markets, digital asset exchanges and peer-to-peer (P2P) financing platforms.

The SC’s Shariah Advisory Council provides an additional layer of formal oversight, ensuring that innovation remains tied to recognised jurisprudence.

This structure has given digital platforms a clearer rulebook as opposed to what exists in several other markets. It also reflects a long-standing Malaysian principle: fintech is an extension of the financial system, not a parallel space outside of it.

Programmes such as the SC’s FIKRA ACE Accelerator further integrate Islamic fintech into the capital markets ecosystem, offering structured pathways for start-ups rather than a purely experimental environment.      

At a policy level, cooperation between the SC and the Islamic Development Bank has also positioned Malaysia as a reference point for knowledge exchange among the Organisation of Islamic Cooperation (OIC) states.

Aizuddinur Zakaria, founder and principal at HAL Fintech Advisor and Adjunct Professor at University College TATI, tells Salaam Gateway that Malaysia has built “one of the most extensive Shariah governing systems in the world,” pointing to the formal Shariah governance framework introduced by BNM in 2010, which embeds structured Shariah risk management, review, research and audit functions within Islamic financial institutions. 

He adds that Malaysia’s role as a financial hub, hosting institutions such as the Islamic Financial Services Board has helped shape regulatory thinking beyond its borders, cascading across Southeast Asia.

A practical example: P2P under Shariah rules
The efficacy of Malaysia’s governance model can be seen in its regulated P2P financing sector. Platforms such as microLEAP operate under SC licensing, with Shariah-compliant notes structured around trade-based contracts rather than interest. Shariah advisers review structures, while credit assessment, risk management and disclosure obligations mirror those of conventional platforms.

The model illustrates how Malaysia has embedded Islamic contracts into digital intermediation without foregoing regulatory expectations. Returns to investors are framed as profits from underlying transactions — such as Murabahah sales — rather than fixed interest, and Shariah compliance is treated as a supervisory matter rather than a mere marketing feature.

Influence beyond Malaysia
The Malaysian regulatory handbook offers vital lessons on how to integrate Shariah boards, financial regulators, and digital market supervision within one system for interoperability and greater synergy. 

Regulatory bodies and policy experts across Muslim-majority markets, particularly Southeast Asia, are taking a leaf out of Malaysia’s regulatory book. Neighbouring Indonesia, for example, has expanded its fintech regulatory sandbox under the Financial Services Authority (OJK) and is seeking closer coordination between financial supervisory and Shariah certification bodies.
                                                  
Othman Al Duwaiki, Shariah adviser and compliance manager at Oman-based EthisX, tells Salaam Gateway that Malaysia’s Shariah governance framework has been “widely referenced and, to a significant extent, adopted or adapted across multiple jurisdictions, influencing Shariah governance practices beyond its borders."       

However, regulatory approaches remain “largely country-specific in practice,” Zakaria says, noting that legal systems, institutional structures and Shariah interpretation still diverge, with the GCC markets often aligning more closely with AAOIFI standards while Southeast Asia following regulator-led dual frameworks.

That is to be expected as influence rarely means copy-and-paste. Indonesia’s legal structure and religious authority framework differ, and thus, the regulatory adaptation reflects local priorities around consumer protection and systemic stability.

Another example in the GCC is that of the UAE, which hosts both tightly controlled onshore regulation and more experimental regimes within financial freezones such as the Abu Dhabi Global Market (ADGM). Here, digital assets and tokenised securities are recognised under dedicated frameworks.

These environments often move faster on financial technology, but their Shariah governance structures are not organised in the same centralised manner as Malaysia’s.

Saudi Arabia and Bahrain, meanwhile, pursue their own regulatory paths, reflecting different balances between innovation and prudential caution.      

Technical blueprint
Malaysia’s contribution to Islamic fintech is therefore less about exporting a template and more about demonstrating how digital finance can be integrated into a pre-existing Shariah governance system. The framework illustrates how fintech can operate under formal Shariah supervision without detaching from mainstream regulation.
     
Islamic fintech is still young, and its regulatory direction is far from settled. What Malaysia offers is a case study in sequencing: building institutional oversight first and allowing digital innovation to develop within it.

Whether other jurisdictions move closer to that model will depend on their own financial architecture and policy choices, but the Malaysian blueprint does offer key governance takeaways worthy enough to emulate.