Islamic fintech offers potential for SMEs, investors and operators to grow

18 November 2020 - Micro, small and medium enterprises (MSMEs) in Malaysia should consider alternative forms of capital funding which has been made more accessible through the use of digital platform from Islamic fintech companies.

In addition to complying with the regulations issued by the Securities Commission of Malaysia (SC), the RMOs also ensure that the funds raised adhere to Islamic teachings with resolutions issued by the Shariah Advisory Council of the Securities Commission of Malaysia (SACSC). 

“Islamic fintech can provide a strategic avenue of financing alternatives that provide meaningful contribution to the development of MSMEs, not only for their strict adherence to Shariah compliance but also ease of access to funding,” said Zalina Shamsudin, General Manager for Capital Markets Malaysia (CMM), which is an affiliate of SC.

The growth potential is complemented by Malaysia’s commitment to becoming a leader and enhancing its role as a prominent international centre for Islamic fund and wealth management, which includes a commitment to support and drive Islamic fintech companies. 

Malaysia – where there are currently 22 RMOs in Malaysia, with only three offering Shariah compliant financing – is ideally placed to serve as an Islamic fintech hub for the region, she added, because of its robust Islamic finance regulatory framework and conducive regulatory infrastructure.

The general consensus amongst the RMOs is positive as there is interest from both potential investors as well as Halal issuers, while the Islamic capital market offers a unique proposition and differentiation factor that gives them an opportunity to disrupt a relatively untapped niche market where there is currently relatively less competition compared to the ‘overcrowded’ conventional sphere.

Based on feedback they have received, the RMOs are also confident that sourcing for Shariah compliant businesses seeking to raise funding through alternative sources is feasible.

For microLEAP – an Islamic and Conventional P2P (Peer-to-Peer) microfinancing platform regulated by the Securities Commission Malaysia (SC) – its CEO Tunku Danny Nasaifuddin Mudzaffar said the awareness and appetite for fundraising in Malaysia via ECF or P2P platforms is growing, but there still is a lot to do, especially for micro-enterprises.

In the general P2P market, the conventional version is still more popular because, he believes, there hasn’t been an active Islamic P2P Financing operator until now.

“microLEAP launched our Islamic Investment Notes / Islamic Financing in April 2020 and since then the funds disbursed to micro-enterprises hosted on our platform have grown more than 1,000% in 5 months. That just shows the demand for Islamic P2P investments at the moment.”

“On microLEAP’s platform, where we are the first platform to be able to do both Islamic and Conventional P2P financing, Islamic is more popular. In fact, our Islamic financing is 92% vs 8% for Conventional financing.”

He attributes the popularity for the Islamic version on the microLEAP platform to there being no difference in cost in raising Islamic funds compared to raising Conventional funds as it absorbs the Commodity Murabahah brokerage fee.

“microLEAP saw a huge gap in the market which we are trying to address. There is actually a huge appetite for investments in Islamic P2P Financing, there has just been a lack of awareness at the moment as there really hasn’t been an active Islamic P2P Financing operator until now.”

He suggests that companies should consider raising Islamic P2P financing if they want to raise funds in an ethical and Islamic manner while getting investors who are not only looking for Shariah-compliant investments, but also sustainable investments.

Funding Societies Malaysia co-founder and CEO, Wong Kah Meng, said P2P financing has been gaining traction in recent years owing to its digital approach and speedy processes that swiftly address the pain points of traditional financing, with the mission of benefiting the underserved and unserved SME segments.

“As a leading global Islamic hub with favourable demographics, Malaysia has the ability to lead the digital financial inclusion agenda via Shariah compliant propositions.”

“We are highly supportive of this agenda as we believe that Islamic FinTech offerings will further advance our mission to improve the livelihoods of SMEs and individuals through greater access to Shariah compliant financing and investments, subsequently realising our greater vision of financial inclusion for Southeast Asia."

Ethis Malaysia CEO Mohd Shehzad Islam said the Ethis Malaysia platform was developed to reduce the funding gap by enabling local companies to raise capital through Shariah Compliant Equity Crowdfunding.

"We are aware that obtaining funds especially at a time when the economy is currently affected by the impact of COVID-19 is a challenge to businesses."

Although Ethis does not guarantee investors from investment risk, a company is only allowed to raise funds through Ethis Malaysia after satisfactory due diligence.”

"We aim to be the leading Fintech Islamic Global platform, using state-of-the-art technology that activates retail and institutional investors from around the world."

Background information

ECF allows small businesses to offer equity in their companies to investors, who in turn invest in the idea they see potential in while diversifying their investments beyond the traditional asset classes.

The ECF license enables platforms to raise funding for Malaysian registered sole proprietorships, partnerships, incorporated limited liability partnerships, private limited and unlisted public companies.

P2P financing is another form of financing that broadens the ability of locally registered entrepreneurs and small businesses to unlock capital from a pool of individual lenders in small amounts by borrowing and for investors to lend capital through online platforms registered by the Securities Commission Malaysia.

Copyright Press Releases 2020

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