Malaysia leads global Islamic fintech growth, SE Asia leads other regions

Muslim fintech Malaysia
Image by motortion | Bigstockphoto

When it comes to Islamic finance, Malaysia is number one in the world according to the 2021 GIFT (global Islamic fintech) Index. It also has the most developed ecosystem for the industry, ranking first out of 64 key Islamic fintech markets worldwide.

In recent years, Islamic fintechs or iFintechs have seen tremendous development and possibilities in Southeast Asia. Malaysia and Indonesia, in particular, have large Muslim populations, where governments have been actively pushing for Islamic economic development.

As a global leader in Islamic finance, Malaysia is home to approximately 2% of the global Muslim population but accounts for over 20% of global Islamic finance assets.

The sector caters to Malaysia’s Muslim population through consumer and business banking, investment funds, insurance, and capital markets activities. In the fintech space, Malaysia’s digital users have seen innovations in ECF and P2P lending.

Meanwhile, in Indonesia, BNI Syariah, Bank Syariah Mandiri and BRI Syariah merged to launch Bank Syariah Indonesia in February of this year. According to Hery Gunardi, Head of Project Management Office for the Integration and Value Improvement of BUMN (state-owned) Sharia Banks, this merger is a milestone for Islamic finance in Indonesia.

In an interview with krAsia, Dima Djani of P2P lending platform Alami Sharia hopes that BSI will drive the growth of the sharia fintech ecosystem and expand options for funding such as P2P lending and equity financing.

According to the World Bank, Islamic finance serves around 1.8 billion Muslims worldwide. The top Islamic finance markets include the Middle East and North Africa (MENA), Asia, and the Gulf Cooperation Council (GCC). According to the Islamic Financial Services Board (IFSB), 95.5% of global Islamic finance assets are concentrated in these areas. Islamic banking accounts for the most significant percentage contribution to the overall asset base.

However, the World Bank also highlights that Islamic banking has a small market share in most countries in these regions and comprises a tiny percentage of total bank assets. This is where fintechs can make inroads, as the GIFT Index shows that there are plenty of opportunities for fundraising, deposits and lending, and payments and alternative finance, among others.

Over time, iFintechs are projected to have a higher growth potential than other fintechs. By 2025, conventional fintechs are expected to grow at 15%, whereas iFintechs will increase by 21%.

This year alone, more than 50% of the 241 Islamic fintechs worldwide plan to seek equity financing, with an average round size of US$5.0 million. The sector’s total assets have breached US$2 trillion and will potentially reach US$3.8 trillion by 2023.

Related article: Looking through pandemic lens: Superboosting the Islamic digital economy

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