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Malaysia’s Islamic Economy Ecosystem Key To Enabling World’s First Islamic FinTech Unicorn

  • Malaysia’s robust FinTech ecosystem is a fertile ground for Islamic FinTech to succeed
  • Successful Islamic FinTech companies need to have a unique customer proposition offering a clear value to customers

Over the years, Malaysia has had its fair share of the limelight. According to Dinar Standards’ Global Islamic Fintech Index 2021, Malaysia ranks first in terms of market maturity and stands among the top five Islamic FinTech markets based on transaction volume.

Further, the confluence of three key elements, namely comprehensive regulatory guidelines; steady supply of talent in Islamic finance; and a growing demand base, have led to Malaysia growing the greatest number of Islamic FinTech companies. According to a report by innovation policy advisor Startup Genome, via its Global Startup Ecosystem Report 2020, Malaysian capital Kuala Lumpur is ranked 11 th in emerging startup ecosystem in the world and positioned Kuala Lumpur as an ideal location for startup incubation.

To date, the country hosts 25 companies across nine business segments, ahead of the UK (19), the UAE (16), Indonesia (12) and the US (10). These companies are involved in: tech, IT and infrastructure; blockchain and cryptocurrency; crowdfunding; data and analytics; Islamic enablers; Peer-to-peer funding; robo advisory; payment remittance and foreign exchange; trading and investment; and TakaTech.

All these companies are in the race to become the world’s first Islamic FinTech unicorn. However, several hurdles need to be crossed. Foremost, to be the first to take the coveted title, the privately-owned Islamic FinTech company must achieve a valuation of US$1.0 billion by investors. What are the steps to achieve success? Based on MDEC’s market observation, some commonalities of existing FinTech unicorns include the following:

Unique selling proposition (USP)

Meeting a customer’s expectation and user experience goes a long way in defining the company’s unique selling proposition. With the help of social media, the amplification of a customer’s feedback has had a tremendous impact in branding and franchise development.

Expansion of market access

A growing customer base underscores the strength of the company’s value proposition and elevates a company’s financial standing.

Ease of funding access

The ability to commercially scale-up in the most cost-efficient structure allows a manageable financing/funding model. Since most start-up do not make money in its nascent years, interventions by government-led bodies to seed the initial phase of growth is paramount.

Global and rapid expansion

Note: The measures above are not exhaustive and may include other factors. Several Malaysian Islamic FinTech companies have gained inroads in addressing some of the above actors. “MicroLEAP’s USP centres on its ability to offer complimentary personal accident insurance and technology-based educational financial tool”, highlights Tunku Danny, Founder of peer-to peer (P2P) financing platform MicroLEAP, which offers Islamic financing nodes.

Tunku Danny believes business empowerment via access to P2P funding promotes not only financial inclusion but links back to the government’s initiatives to boost B40’s social standing. Similarly, Robin Lee, CEO and Co-Founder of investment app HelloGold, adds: “Challenging market conditions have put a dent on FinTech investments. Convergence of businesses between FinTech players could potentially speed progression towards market access and build a stronger entity to secure larger funding.”

We also saw Mesinkira’s user base registering double-digit growth since the start of the pandemic. The mobile business management solution, helmed by Syed Omar, helps micro, small and medium enterprises (MSMEs) digitalise without incurring massive costs. “Our value proposition in facilitating digital access to MSMEs at the most competitive pricing level has gained sustainable traction. In time, bigger players (such as. financial institutions, cooperation that supports MSMEs, etc) will realise the value add our platform brings to the economy,” says Syed Omar.

In short, for Islamic FinTech companies to achieve success, they must provide solutions that positively impact the people, including democratising market access and solving actual problems. This is particularly crucial in current times. The COVID 19 pandemic has accelerated the need for digitalisation. Understanding this, the Malaysian Government has – under the PENJANA Economic Recovery Plan – allocated approximately RM700 million for the digitalisation of SMEs and MSMEs.

These incentivisation efforts to help digitalise companies’ operations and trade channels centres on the sectors’ importance, since it constitutes the backbone of the nation’s economy. This is where Islamic FinTech companies come in, to offer solutions that are not only in line with Islamic practices, but are also ethical, sustainable, and safe.

With the launch of the Malaysia Digital Economy Blueprint (MyDIGITAL) in February and the National 4IR Policy in June of 2021, on top of Malaysia’s current standing as the world’s Islamic finance pioneer, there is a clear path to success. The road ahead requires the collective efforts of the government, the regulators, and market players to realise this ambition. Past successes in establishing Malaysia’s trailblazer position as a leader in Islamic finance offers a promising future. Market observers are certainly waiting in anticipation on who will finally be crowned the world’s first Islamic FinTech unicorn.