Islamic Finance

Malaysia’s Serunai looking to digital securities market to finance expansion, interest to pursue Islamic Dev't Bank halal project

KUALA LUMPUR - Malaysian firm Serunai Commerce is engaging in preliminary discussions with a coordinator of the Islamic Development Bank's (IsDB) Reverse Linkage Division to develop a digital halal ecosystem for one of its member countries and it is likely to issue a security token to finance its expansion globally. 

“Serunai Commerce intends to pursue an IsDB reverse-linkage project to develop a digital halal ecosystem in ASEAN countries,” the Jeddah-based multilateral lender confirmed to Salaam Gateway, referring to the ten-member states of the Association of Southeast Asian nations.

Founded in 2009, Serunai has developed a number of halal technology services, including compiling a data pool of global halal manufacturers, suppliers, buyers and retailers. It also markets its Verify Halal app to help consumers track the provenance of supermarket items.

“This includes working with them to design a masterplan for the country, and giving them our platform and also our halal suites of technologies to make sure that authorities are guided, their players are using the correct system and all halal products and restaurants are trackable,” Serunai CEO Amnah Shaari told Salaam Gateway.


To raise further funds for its global projects, Serunai has been investigating the alternative securities markets and the company is likely to issue a security token as soon as in the next six to eight months, according to Amnah. 

“We are an advanced technology company, so any new technology, naturally we are looking at it very seriously. That’s why I’m looking seriously at how to raise [funds] properly through a security token,” Amnah said.

To this end, she has been speaking to Eli Weir, chief executive of Blockchain Labs Asia, a Kuala Lumpur fintech start-up that specialises in regulatory-compliant security token offerings and asset-backed funds.

Token issuances allow companies to raise capital or manage their investors’ shareholdings. For start-ups in the Islamic economy, digital securities offer “additional benefits” by using smart contracts on a blockchain platform to execute contractual agreements.

“It’s because of the ability of a security token to have logic: it’s a programmable security so you can build in the rules for your sukuk, for example, to be an Islamic-orientated security in the token itself,” Weir told Salaam Gateway.

“It doesn’t matter who holds your token, if they are Muslim or not, but it means your initial offering can be compliant with Shariah rules and sensibilities. Also, the additional secondary market trading will be compliant with whatever you deem necessary to make it halal.”


On January 15, Securities Commission Malaysia (SC), the country’s capital markets regulator, published guidelines to control fundraising through digital token offerings, putting it ahead of the curve compared to regulators in other putative digital asset hubs.

According to the outline, any entity that wants to issue digital tokens will have to do so through an initial exchange offering (IEO) platform operator that is registered with the SC.

By limiting fundraising to digital tokens, the framework takes initial coin offerings off the table.

IEOs are very similar to coin offerings, with a main difference in that they are carried out through a cryptocurrency exchange rather than a solo token issuer.

While this doesn’t guarantee the success of a project, it does have some benefits for investors. Under the new Malaysian regulations, for example, exchange operators are obliged to carry out their own due diligence on the offerings they list. They must also assess the viability and characteristics of the token, which can be difficult for individual retail investors.

IEO operators must also meet certain requirements by having a minimum paid-up capital of 5 million ringgit ($1.23 million) and being incorporated in Malaysia.

They must also maintain a trust account for funds received from investors that is licensed by a Malaysian financial institution. If the operator is also going to trade the digital assets they issue, they must register separately as a Digital Asset Exchange platform operator.

The guidelines will come into force in the second half of 2020 to give time for potential issuers, platform operators and investors to be familiar with their requirements.


Sinegy Technologies from the northern state of Penang was one of three market operators in Malaysia to be given conditional licences to operate cryptocurrency exchanges last year.

Its head of business development, Chan Wei Chi, says the newly regulated tokens should be seen as a new class of licence issued by the SC and could attract foreign capital to Malaysia.

“Most countries don’t have regulatory frameworks ready to govern digital asset exchanges and token offerings. But Malaysia is one of the few countries in the world with such mechanisms in place, although it is very preliminary,” Chan told Salaam Gateway.

“When you look across the world, there are very few countries with such robust regulations when it comes to a start-up industry.”

At this point, Sinegy is not willing to comment on whether it intends to apply to be a SC-appointed IEO operator.

“In the event that an issuer is interested in listing their assets on our exchange when regulation permits, we would be open to doing so. We would be interested in hosting a variety of different asset classes on the platform,” Chan added.


For Eli Weir’s Blockchain Labs, the new regulatory framework may put Malaysia ahead of other countries with their eyes on becoming a digital asset hub, but it is still too cautious “in the wrong way” to entice the start-up away from the country’s offshore financial centre in Labuan for future token offerings.

For a start, there are limits to the size of investment.

An issuer may raise funds up to a ceiling of 100 million Malaysian ringgit, for example. There is also a limit imposed for both retail investors and angel investors. Retail investors are limited to 2,000 ringgit per issuer with a total investment limit not exceeding 20,000 ringgit within a 12-month period.

Angel investors are subjected to a maximum of 500,000 ringgit within a 12-month period, whereas sophisticated investors have no restriction on investment amount.

Aside from the investment limits, Weir thinks the regulations are not clear enough.

Now companies know they can issue tokens with the approval of the SC through an approved marketplace, how does that relate to the security they are using to back the token?

“We now have two securities that are the same thing: we have the security token and the share, representing the equity. If I transfer my security token to someone else, I still have to transfer the share, which is problematic,” said Weir.

Another issue is for companies that want to issue tokens but don’t want an exchange listing. A token for a sukuk, for example, that is not meant for trade on the secondary market.

“The two should not be tied together in my mind, so I hope the guidelines evolve. The power of these tokens is in their efficiency in getting something done.

“If you are bound up by too many rules that are either redundant or unnecessary, then it just cuts down on the meaning of these tokens and the uptake will be less,” Weir added.


Should Serunai Commerce opt to float a digital token to raise funds, it will likely be done by Blockchain Labs in Labuan, where the financial services company has seen the movement of about $40 billion in assets through its involvement in token issuances.

The island off the coast of Sabah has its own regulatory system.

Last year, the Labuan Financial Services Authority began offering its first licences for cryptocurrency and digital exchanges.

These exchanges will continue to operate while they are banned in Malaysia until the first exchanges can prove their expertise for an SC licence.

“Labuan is still probably a better jurisdiction to issue tokens for an international audience,” said Weir.

“We feel it could be the premier choice for security tokens in general and within the Islamic world.

“You’ve got Dubai, which is attempting to be the blockchain capital of the Middle East, if not the world, and you’ve got Hong Kong; neither of these have regulations like Labuan or now Malaysia, or an Islamic finance environment to put them ahead.”

(Reporting by Richard Whitehead; Editing by Emmy Abdul Alim

*Corrections were made to this story on Feb 7. Its headline, Para 1 and original Para 6 (directly following cross-header 'FUNDRAISING') were corrected to reflect that Serunai was not appointed by the IsDB but rather that it is in discussions with a division of the IsDB for the new project. Original Para 4, which said that Indonesia was the first country Serunai is working with, was deleted in its entirety to reflect that Serunai's work on the new project is still in discussions with the IsDB. 

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