Photo: MDEC Fintech Booster launch in August in Kuala Lumpur, Malaysia. Photo supplied by MDEC.

Islamic Finance

COVID-19 pandemic has given Malaysia’s digitalisation a big boost

The digitalisation of Malaysia’s financial services industry was bullish prior to the COVID-19 pandemic, with new platforms launched and a digital economy developing.

The pandemic pushed plans to digitalise services into hyper-drive, accelerating the development of platforms for customers and clients to manage their money and make payments amid physical distancing and the shuttering of outlets.

“The COVID-19 pandemic has done more than any other event to drive digital usage in Malaysia. It has forced those who initially resisted digitalisation to adopt it,” said Sheyantha Abeykoon, Executive Director of Aspirasi, a digital fintech financier in Kuala Lumpur.

The changes in consumer behaviour are prompting Islamic financial institutions to up their digital game, including automation to minimise human contact, and provide more online services to customers.

“As there’s a need to modernise the current financial services landscape, it’s an opportunity from a technological perspective for Islamic finance to be given a boost,” said Khairul Nisa Ismail, CEO of Sedania As Salam Capital (SASC) in Kuala Lumpur.

SASC’s As-Sidq Tawarruq Trading System, a Shariah-compliant digital commodity trading platform, has carried out 570,000 transactions in excess of 51 billion ringgit ($12.2 billion). The company also has an acquisition and content platform, Assidq.com, to bridge industry and consumer finance.

Digital roll-out

Malaysia is a market ripe for the digital roll-out of Islamic finance, with the country a global player in the sector, and 98.2% of households having access to mobile phones.

There is an immediate appeal for Islamic fintech and the digitalisation of services among the 60% of the country’s 31 million population who are Muslim. “We are seeing a boom in the Islamic financing scene in 2020, especially from discerning consumers that want transparency and a truly halal banking experience,” said Khairul Nisa.

There are some 26 Islamic fintechs operating in the country, and moves are underway to expand offerings as collaborations and partnerships develop with Islamic banks and financial institutions. A digital Islamic bank is also in the offing, pending approval from the central bank, Bank Negara Malaysia.

Such digital roll-out is expected to have widespread appeal, with 74% of Malaysians interested in virtual banking, according to a PwC report.

“The acceptance of Islamic finance in Malaysia is a positive prospect for fintech, especially as non-Muslims are more than 50% of the client base,” said Khairul Nisa.

Digital adoption

The adoption of digital banking by Malaysia’s conventional banks is expected to be replicated across banks’ Islamic divisions and in the wider Islamic finance space.

The Islamic fintech industry itself has gone beyond digital payments and e-wallets to offer peer-to-peer (P2P) financing, crowdfunding, remittances, personal finance, wealth management and takaful (insurance).

“The hot buttons for growth in Malaysia are P2P financing, takaful-tech, and anything robo-advisory. The hardest to crack is social finance - digital waqf (endowments) and zakat (obligatory alms-giving),” said Norhizam bin Abdul Kadir, Vice President for Fintech & Islamic Digital Economy at the Malaysia Digital Economy Corporation (MDEC).

While getting consumers to adopt digital services has been bolstered by the pandemic, there has nonetheless been a need to improve financial literacy among potential clients. This includes encouraging credit agencies that operate conventionally to make a digital switch to Shariah-compliant licences.

“We are encouraging credit agencies to digitalise, and for takaful issuance as well,” said Khairul Nisa.

Digitalisation and MSMEs

The motivation to digitalise the Islamic finance sector is being driven in part by having a larger exposure than conventional banking to micro, small and medium sized enterprises (MSMEs), microfinance and lending to low income individuals, according to Refinitiv, a global financial solutions company. MSMEs, which form the backbone of the economy, have been negatively impacted by the pandemic, with digitalisation providing a way to keep businesses running in a challenging environment by improving reach between sellers and buyers.

Malaysia’s promotion of a digital economy has therefore come at the right time. The central bank, Bank Negara Malaysia (BNM), has overhauled the regulatory environment to spur the growth of fintech, while MDEC has helped lay the foundations, including the recently launched Fintech Booster programme.

“It is imperative that MSMEs are better positioned to strengthen their agility and build resilience against future aftershocks,” said Surina Shukri, CEO of MDEC, adding that the agency’s quest is to digitally empower businesses and accelerate the growth of a digital society as the nation embraces the Fourth Industrial Revolution towards shared prosperity.

To off-set the economic ramifications of COVID-19, the country created a National Economic Recovery Plan (PENJANA), with digitalisation at the forefront. This includes the launch of Sukuk Prihatin, a digital sukuk, open to retail and corporate investors that can be subscribed to via distribution banks’ digital banking platforms.

The plan also includes a Shop Malaysia Online campaign with MDEC for the Penjana Shop Malaysia Online initiative, running from August to end September, to encourage consumers to buy online from local businesses. The government has allocated 70 million ringgit ($16.8 million), and 22 e-commerce partners are to match that figure. Within the first month of the campaign retailers and traders on one e-commerce platform alone, Shopee, generated over 200 million ringgit ($48.1 million) in sales.

 While digitalisation is giving businesses a helping hand to sell online, fintech platforms are enabling micro-financing at favourable terms for MSMEs.

One such initiative is MDEC collaborating with Malaysia’s first fully digital fintech financier, Aspirasi, a part of the Axiata Group, to offer working capital under its COVID-19 Assistance Programme. Through its platform Aspirasi Assist, Shariah-compliant micro-financing is being provided to underserved businesses.

“This has encouraged MSMEs to embrace technology, help continue their business aspiration, while bringing them into the digital economy,” said  Aspirasi’s ED Sheyantha.

As more business moves online, with sales bolstered by the ‘new normal’ of the pandemic, digitalisation is set for major growth.

“As many SMEs have become successful online sellers, it has taught customers to embrace technology like never before. I expect the trend  is likely to accelerate in the future,” Sheyantha added.


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This article is part of a sponsored series by the Malaysia Digital Economy Corporation (MDEC).