The time is now and right for Islamic finance players to take on a more prominent role in the finance technology (fintech) ecosystem.
 
Deputy Finance Minister Datuk Amiruddin Hamzah said the technology is ripe, with higher penetration of mobile and Internet across markets while the consumers are also becoming more and more tech-savvy.

He added that the emergence of fintech has opened up new opportunities which can greatly benefit the financial industry. At its core, fintech has led to the creation of various business models that help improve and simplify financial transactions, which 10 or 20 years ago seemed impossible.
 
The Deputy Minister was presenting his keynote address at the opening day of Kuala Lumpur Islamic Finance Forum 2019 in Kuala Lumpur this morning.
 
He noted that Islamic finance fintech is still considered new but growing.
 
“Encouragingly, we are seeing increasing number of fintech start-ups, innovation labs and incubators that are based on the values and principles of Islamic finance.”
 
Digital-banking consumers stand at an estimated 670 million in Asia alone and are expected to reach 1.7 billion by next year. In Malaysia, within a population of 32 million, there is high mobile and Internet penetration rate at about 141% and 85.7% respectively.
 
He believes that with a diverse population and a growing middle class, Malaysia is an ideal test bed for developing and commercialising fintech solutions in Islamic Finance.
 
“Malaysia may have the Islamic finance part of the equation but not enough of the tech start-up ecosystem, but it should adopt the motto of “dare to ideate” - to become founders and leaders of big ideas; to be able to synthesise the needs of customers; and to develop products to respond to those needs,” he urged.
 
“Customised financial solutions can be achieved through fintech, with Shariah contracts as building blocks for innovation. We can start small and simple, with a view to iteratively improve and fine-tune to meet evolving needs of customers.”
 
He said that more importantly, Islamic financial institutions must be open to rethinking their traditional business models and approach to doing business. In particular, the openness to forge digital partnerships and strategic alliances has the potential for the co-creation of innovative solutions.
 
Globally, 82% of incumbents are expected to increase fintech partnerships in the next three to five years.
 
“Collaboration with the fintech community should therefore become the norm. For example, collaboration with crowdfunding and peer-to-peer financing start-ups can be a win-win growth opportunity. “
 
“Through such partnerships, banks would be better able to service smaller businesses by referring potential borrowers not meeting their targeted credit profiles to these lending platforms. In return, these platforms can refer its borrowers that have gained scale to the banks for larger financing.”
 
Amiruddin shared that entrepreneurs too stand to gain from fintech. First, fintech provides the technological underpinnings to realise the goal of Islamic finance in creating a risk sharing economy. This will in turn benefit entrepreneurs who will gain wider access to bank-intermediated credit.
 
An example is the Investment Account Platform (IAP). IAP is Malaysia’s first multi-bank online platform that combines the credit evaluation expertise of Islamic banks and the power of technology to channel funds from investors to economic ventures.
 
This virtual “multisided” platform facilitates a collection of interesting investment ventures and projects, with transparent risk-return rewards for investors.
 
In addition, fintech has also opened up new sources of funding to entrepreneurs, in what is increasingly being referred to as the alternative financing space. Crowdfunding and peer-to-peer (P2P) funding platforms have emerged as highly efficient “matchmakers” between entrepreneurs and investors.
 
“The matching of funds enabled by fintech also has great application within the social financing space. In particular, we see the potential of digitising the collection and utilisation of zakat, waqaf and sadaqah as holding great promise.”
 
The efficiency and transparency enabled by technology not only provides greater convenience to customers, but more importantly, builds public trust and confidence in the system.
 
In turn, this will see wider participation and greater contributions towards social impact initiatives such as those to improve education, widen access to healthcare and extend humanitarian relief.
 
“In Malaysia, our Islamic financial institutions are in a good position to benefit from the growth multipliers that fintech offers. What is required is for the industry to invest in technology and talent to accelerate the adoption of technology,” he continued.
 
All in all, Amiruddin said fintech is clearly unlocking tremendous opportunities that will bring significant benefits to consumers and the industry. Islamic finance, in embracing what technology offers, would be able to better meet the ever-changing needs of customers and the real economy.
 
Therefore, he added, incumbents have no choice but to quickly learn to adapt, invest and innovate to deploy new technologies,” he added.
 

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