CHAMPIONING ISLAMIC FINTECH AGENDA

Article written for @Halal Magazine

The Malaysia Digital Economy Corporation (MDEC) plans to establish a leading body at a national level to champion the Islamic fintech agenda

MDEC intends to position Malaysia as an early-stage Islamic fintech start-up hub to attract local and foreign start-ups to anchor regional operations in the country and use Malaysia as a gateway to Asean.

“We want to build an inclusive fintech ecosystem. It will comprise Islamic fintech start-ups, corporates, non-governmental organisations (NGOs), Shariah banks, Islamic asset managers and practitioners in the Zakat, Waqf and Sadaqah space," Chairman Datuk Dr Rais Hussin Mohamed Ariff said.

“We also want to develop a local talent base and improve the awareness and understanding of Islamic fintech among stakeholders, especially investors and corporates.”

MDEC also wants to encourage B2B collaboration between Islamic banks to conduct research and development and support Islamic fintech ecosystem.

It will establish an effective mechanism to address regulatory grey areas and utilise existing tools or establish new ones to facilitate private investments into Islamic fintech.

On whether there was a need to rethink Malaysia’s approach to Islamic Fintech, Rais said the wide variety of Islamic FinTech and its diversified business plans make it challenging for regulators to build up a one-size-fits-all regulatory framework.

The government thus needs to think of providing supportive regulations for the Islamicfintech sector.

“Not too loose or too strict. The too-loose regulation will result in problems such as negligence of customer protection and privacy while the too-strict regulation may hamper the development of Islamic fintech.

“The rules should protect all parties involved in the Islamic fintech practice, namely, the firms, customers, and investors,” Rais added.

He said another challenge was the threat to information security and privacy.  It was imperative as for the consumer; trust is everything. The adequacy of current security standards and protocols is questioned considering the high number of cybersecurity events in recent years.

“There should be a rethink of two important matters. Regular meetings and engagement between the regulators and fintech stakeholders in the early stage of regulatory development are very crucial and necessary in building clarity and a secure environment."

Rais said the growth rate of Islamic finance in Malaysia was impressive by any standard.

However, to encourage more industry stakeholders across different sectors in enhancing the growth of Islamic finance in Malaysia, the products and services should be diversified in attracting every area to participate in Islamic finance. 

“There should be more effective initiatives for every sector in terms of providing precise and detailed encouragement as well as a clear explanation of the differences between Islamic finance and the conventional system.

“Our Islamic finance system has been growing tremendously for the past few years, from retail to commercial Islamic banking and finance, to general and life takaful insurance and sectors of the Islamic capital market. So, it is not difficult to continue encouraging it if the approach for Islamic finance is appropriate,” he said.

From time to time, he said, Islamic finance should be conducted more efficiently by reducing its limitations such as the conflicts between its implementation and the rule of Islamic law.

He felt the related authorities should improve shariah governance through research and development.

Also, the infrastructure to support further development of the Islamic financial industry in addressing the institutional capacity for the national and international levels should be strengthened to avoid complications and people's reluctance to take part in Islamic finance.

MDEC can help Malaysia, which is a global leader in Islamic Finance, drive the Islamic digital economy. Rais said as with most services in the B2C space, addressing Muslim consumer needs and pain points was critical to driving digital Islamic services opportunities, adoption and growth.

“Digitally and commercially, Islamic finance, Islamic media, halal travel, modest fashion and halal food stand as the most attractive industry verticals with the most significant digital services activity and online market potential.

“For instance, the global revolution in communication technology (through social media, mobile and broadband technologies and smartphones) has enabled the Islamic Economy lifestyle sectors to achieve a wider global reach and exposure,” he revealed. 

He said MDEC could provide platforms for relevant businesses to enhance and improve their sales portal for modest fashion apparel and accessories. It can be as good as other giant e-commerce platforms like Amazon and eBay, since e-commerce, in general, was the most effective and fastest-growing digital service, not only in Malaysia but all over the world.

There are also excellent opportunities in the Islamic economy education and Smart Mosque areas. Smart Mosques is where mosques are employing modern ICT technologies that enable them to interact with users in a way that enhances their understanding and improves their prayer experience. It also includes mosques which apply smart technologies to resolve practical issues to improve their efficiency, effectiveness, sustained operation and maintenance.