Islamic Finance

INTERVIEW-China-based VC going big on ‘Taqwatech’ using Malaysia as digital Islamic economy hub


Photo: Taraec Hussein, Gobi Partners vice-president, in an interview with Salaam Gateway in Kuala Lumpur, Malaysia. 

KUALA LUMPUR - There are “easier things for start-ups to crack” than the digital Islamic market, which might be one of the reasons why entrepreneurs and companies have been sluggish in entering it, according to Taraec Hussein, a vice-president at Gobi Partners in Kuala Lumpur.

In his assessment of where the segment is moving, he acknowledges that the digital Islamic economy is starting from a low base. Though it holds huge potential, few start-ups have so far entered the market. He wants to turn this around, in Malaysia.

“Malaysia is a great hub for us,” Taraec told Salaam Gateway, referring to Gobi, a China-headquartered venture capital firm with offices in nine Asian locations. Of these the Malaysian capital is one, and it is spearheading Gobi’s foray into the digital Islamic market, or TaqwaTech, as Taraec calls it.

"A lot of start-ups we’ve seen in Pakistan and the Middle East, we try to bring them here and see if they can scale up. It’s a great place to start: [Malaysia is] leading in sukuk issuances globally, halal certification, and a lot of government institutions like [the government’s digital economy promoter] MDEC are trying to make Malaysia a hub of the digital Islamic economy. We are working with them to make that happen.”

As part of MDEC’s Malaysia Tech Week from Jun 17 to 21, Gobi is offering up to $1 million in funding for TaqwaTech start-ups pitching to it on Jun 20.

Beyond its niche Islamic focus, Gobi is reported to have invested over $420 million across 11 funds, mainly in tech-related companies in China and Southeast Asia, since it launched in 2002.

From 2015 it has sought to invest more in TaqwaTech, a term Taraec claims his VC firm coined.

Gobi’s Chinese founding partner, Thomas Tsao, defined the concept of TaqwaTech to describe any start-up that has built a product to serve a large Muslim community. It could be born in a market that is dominated by Muslims, such as Pakistan, Malaysia or Indonesia, or be built by Muslim entrepreneurs for the global market.

“Thomas gave it a catchy name, but as long as the company is by Muslims or for Muslims, and doesn’t infringe Islamic principles, we consider it a TaqwaTech company. We want it to be as broad as possible,” said Taraec.

HALAL TRAVEL, MODEST FASHION INVESTMENTS

After 18 months or so putting its systems in place and assessing how much potential the Islamic market held, Gobi made its first TaqwaTech invesment, of $750,000, in Malaysian Muslim-friendly holiday booking service Tripfez in 2016.

Taking the view that Muslim-friendly travel has booming potential, it doubled down by sinking $16 million in a similar Middle Eastern platform Holidayme last November, and has since created an international network by merging the two. The plan is to become the Traveloka or Booking.com of halal travel.

“When we went with Tripfez, all of their business was in Malaysia, just serving the Malaysian market. We told them there was a bigger opportunity at play here, with Malaysia being just a small market, while Indonesia, the Middle East and other countries like Pakistan and India are huge,” Taraec said.

“They found a company they could merge with to tackle the halal travel market globally. We supported them, funded them again and open doors for them, and that’s all we can do.

“We don’t want to fund guys who cause us a lot of work. Our job is to invest in people that can solve a problem.”

Other start-ups have joined Gobi’s TaqwaTech portfolio.

It has invested in modest fashion with Indonesian e-commerce site Sorabel, which raised $27 million in a 2017 series B-plus round led by Gobi Partners and Golden Equator.

It reached deeper into the Muslim-friendly travel market by leading a $1.5 million series A round for Pakistan’s biggest online travel agency, Sastaticket, last November.

“Halal travel is huge. There’s a lot of space to grow in halal travel, and [Sastaticket] is growing at 100 percent a year. Travel and e-commerce are always the first ones to boom in the [overall] tech space, and that’s what we are seeing in TaqwaTech, too,” Taraec said.

Sastaticket whetted Gobi’s appetite for investments in Pakistan and in April, the VC firm signed a partnership with Lahore-base Fatima Ventures to launch a $20 million fund for early stage tech start-ups in the country.

INVESTMENTS IN FINTECH

Islamic finance is also represented in Gobi’s portfolio with Singaporean online charity platform SimplyGiving, though the vice-president doesn’t appear overly enthused about the potential of the overall segment.

Taraec has a clear focus on what he currently wants from Islamic fintech.    

“With ICOs and halal bitcoins, I don’t see value in that, to be honest. I tend to steer away from companies that come up with a halal take on blockchain,” he said.

“We may not be into Islamic bitcoin, but there is a lot of opportunity there. We just need start-ups to start getting into it.”

Peer-to-peer financing’s star is on the ascent in Malaysia, where the securities regulator has issued draft guidelines to govern the segment and the finance ministry announced an allocation of 50 million ringgit to co-invest in equity crowdfunding and P2P financing campaigns. Gobi, however, is waiting for evidence that it is a worthwhile segment before diving in.

“Indonesia has just exploded in terms of P2P. But recently there have been too many players trying to tackle this space,” said Taraec.

“You don’t see many in Malaysia, though, but we are eyeing a few. Internally, we have put a hold on P2P financing plays in Indonesia, conventional and Islamic.”

When pressed, he conceded that Islamic P2P might be interesting “to a certain extent”, on the back of Malaysia giving its first licence to a Shariah-compliant operation, Singapore-based Ethis Ventures, in May.

With regulations being formalised, and the P2P approach lending itself well to Islamic social finance fundraising, it is a segment being talked about in VC circles elsewhere, but on the whole Taraec doesn’t seem convinced.

“When our Securities Commission starts issuing regulations for crowdfunding, everyone thinks it’s the next big thing. But where are we with crowdfunding?

“The volume of people getting onto platforms here is miniscule. Yes, there’s buzz around it, but let’s take a step back first: if it proves to be successful, then that’s when we will put in our bucks. With all these regulations and the SC coming up with this and that, it’s not real for us until we see it happen.”

MALAYSIA’S ISLAMIC NICHE

Though Gobi’s TaqwaTech approach centres on bringing start-ups from other countries to Malaysia, it is doing so long after the country lost the war of attraction for start-ups to Singapore.

Taraec, who is Malaysian, accepts this, but recognises the need for Malaysia to charge forward and specialise in the digital Islamic economy.

“From a Malaysia perspective, we have definitely lost to Singapore. That’s something we have to concede. Singapore has won,” he said.

“But there are niche markets that we can still be a leader in, and that’s on the Islamic side. We’ve proved that with food processing, sukuk financing, and we can also do that with Islamic tech.”

(Reporting by Richard Whitehead; Editing by Emmy Abdul Alim emmy.alim@refinitiv.com)

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Richard Whitehead