Malaysia gives first Islamic fintech crowdfunding licence

KUALA LUMPUR - A Singapore-based crowdfunding platform will be the first Shariah-compliant service of its kind to operate in Malaysia, after it was named by the Securities Commission as a recognised market operator.

Ethis Ventures, which develops and operates Islamic crowdfunding platforms, will move into Malaysia in the first quarter next year, its co-founder revealed after receiving a licence from finance minister Lim Guan Eng at a ceremony in Kuala Lumpur on Friday.

“There has been no Shariah platform in Malaysia,” Umar Munshi told Salaam Gateway. “That is our value proposition to the Malaysian market: we want to bring Shariah-compliant crowdfunding services here.”

Though this is the third issuance of licences for equity crowdfunding (EFC) and peer-to-peer (P2P) operators, none of the recipients had focused on Islamic finance before Ethis. Two ECF and five P2P non-Islamic operators were also awarded licences today.

Ethis’s flagship service is Ethis Crowd, a real estate crowdfunding platform that connects retail investors and Islamic banks to fund social housing developments primarily in Indonesia. It also operates SME crowdfunder Kapital Boost, and Islamic social finance crowdfunding marketplace Global Sadaqah.

“We have a lot of plans in Malaysia. The first thing is to serve the Shariah market for equity crowdfunding, for SMEs and start-ups that are locally based,” said Munshi.

“Before this there was no Shariah-compliant option available. Now we have this licence, we will give SMEs the opportunity to raise funds that are Shariah-compliant through crowdfunding and, of course, people will be able to invest in these SMEs in Malaysia.”

The company will maintain its Singapore headquarters but will now use Malaysia as an operational base, he added.

In his first budget last year, finance minister Lim announced fintech would be a priority for the new government under Prime Minister Mahathir Mohamed, which recently marked its first year in power. To encourage more start-ups, Lim announced a 50 million Malaysian ringgit co-investment fund to help support them and ordered the Securities Commission to draw up a regulatory framework to govern digital financial platforms.

Speaking at today’s event, the minister said: “The digital economy plays a crucial role in Malaysia’s growth. It grew on average 9 percent annually from 2010-16, making this growth faster than Malaysia’s overall GDP growth.

“The government is committed to drive Malaysia’s digital economy agenda in an inclusive and sustainable manner to get the benefits from it. We are seeing more digital innovations making inroads into the capital markets.”

But before the digital economy can boom, Lim said more Malaysians must gain better financial literacy, particularly among the young and old, which he believes is far behind the level of other countries.

“We need to educate them on the benefits and risks, and ensure that decisions taken by stakeholders are well-informed and well-thought-out. Without this, the development and growth of the fintech industry may not be able to realise that potential,” Lim said.

Announcing the new licensees, Securities Commission chairman Zaid Albar said each operator had been chosen to “provide a differentiated value proposition” including Islamic finance “to meet investors’ growing demand for Shariah-compliant asset classes.”

“While markets have traditionally relied on intermediaries to perform these functions, advances in technology and analytics have since tilted the playing field towards dis-intermediation. In other words, the digitisation of finance has made capital markets easier, faster and cheaper to access, both for issuers as well as investors,” said Albar.

“We hope that these registrations will help to further broaden the ECF and P2P financing segments while ensuring healthy competition and meeting the demands of investors.”

ATTRACTING INTERNATIONAL START-UPS

Aside from helping SMEs raise funds through its platform, Ethis also aims to attract and re-domicile international Islamic economy start-ups to a base in Malaysia where they can raise funds through crowdfunding.

By opening its doors to Islamic crowdfunding, Malaysia can put pressure on its competitors in the race to attract viable fintech start-ups, Munshi believes.

“Places like Dubai have already been facilitating Islamic start-ups and offering them funding, but equity crowdfunding is a completely different ballgame. We have an unlimited number of issuers that we can raise funds for, whereas the specific funds allocated by governments are limited.

“Global investors who want to invest in Islamic economy start-ups or Malaysian SMEs and start-ups, there’s a lot of scope for that,” he said.

(Reporting by Richard Whitehead; Editing by Emmy Abdul Alim emmt.alim@refinitiv.com)

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