Islamic Fintech in Malaysia: Reality & Outlook 2020/21

Transcription

1. 2020 /21 Islamic Fintech in Malaysia Reality & Outlook
2. Version-02 Published in Dec 2020 by INCEIF & ISRA & MDEC www.inceif.org | www.isra.my | www.mdec.my ©Dec 2020. The International Centre for Education in Islamic Finance (INCEIF), the International Shariah Research Academy for Islamic Finance (ISRA), and Malaysia Digital Economy Corporation (MDEC). All rights reserved This report “Islamic Fintech in Malaysia: Reality & Outlook” is a cooperative work of INCEIF, ISRA and MDEC. It is a product of the staff of INCEIF, ISRA and MDEC with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of INCEIF, ISRA and MDEC. While reasonable efforts have been made to ensure that the contents of this publication are factually correct and properly referenced, INCEIF, ISRA and MDEC do not accept responsibility for the accuracy or completeness of the content and shall not be liable for any loss or damage that may be occasioned directly or indirectly through the use of, or reliance on, the content of this publication, including its translation into languages other than English. The designation of geographical entities in this report, and presentation of the material herein, does not imply the expression of any opinion whatsoever on the part of the publisher or the participating organizations concerning the legal status of any country, territory, or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of INCEIF, ISRA and MDEC, all of which are specifically reserved Rights and Permissions You are free to copy and redistribute the material in any medium or format, under the following conditions: Attribution— You must give appropriate credit, provide a link to the license, and indicate if changes were made. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use. Non-Commercial — You cannot use the material for commercial purposes. No Derivatives — If you remix, transform, or build upon the material, you cannot distribute the modified material. No additional restrictions — You cannot apply legal terms or technological measures that legally restrict others from doing anything the license permits. You do not have to comply with the license for elements of the material in the public domain or where your use is permitted by an applicable exception or limitation. No warranties are given. The license may not give you all of the permissions necessary for your intended use. For example, other rights such as publicity, privacy, or moral rights may limit how you use the material. All queries on rights and licenses should be addressed to: Assoc. Prof. Dr. Baharom Abdul Hamid (baharom@inceif.org). Designed by INCIEF Team & Kode Digital Experts Services To cite the report: Salim, K, Abojeib, M.& Baharom, AH. (2020). Islamic Fintech in Malaysia: Reality & Outlook. Kuala Lumpur: The International Centre for Education in Islamic Finance (INCEIF).
3. The International Centre for Education in Islamic Finance (INCEIF) INCEIF was set up by Bank Negara Malaysia in 2005 and has been mandated to develop and nurture talent and experts in the Islamic financial services industry. As a university, INCEIF offers postgraduate studies in Islamic finance. INCEIF is a knowledge leader in Islamic finance through providing excellent teaching, research and thought leadership. INCEIF aims to bridge both academia and industry, by its academic syllabus which is structured based on the inputs from industry players as well as having faculty members who are globally respected in both Islamic finance academia and Islamic finance industry. The faculty, coupled with continuous support from the regulators and key industry players, provides INCEIF students with strong mentoring relationships and opportunities for professional development. To find out more about INCEIF and its academic and professional programs, please visit www.inceif.org International Shariah Research Academy for Islamic Finance (ISRA) ISRA (International Shariah Research Academy for Islamic Finance) was established in 2008 by the Central Bank of Malaysia as an Islamic finance and Shariah related research institution. ISRA is recognised globally as a leading Global Premier Research Academy in Islamic Finance industry with numerous accolades. Contributions by ISRA includes Shariah applied research, textbooks, journals and research papers that are constantly referred internationally and its I-FIKR Portal which is gaining popularity for its one-stop online Shariah knowledge repository for Islamic Finance. To find out more about ISRA and its research initiatives, please visit www.isra.my Malaysia Digital Economy Corporation (MDEC) Malaysia Digital Economy Corporation (MDEC) is a government agency under the purview of the Ministry of Communications and Multimedia Malaysia entrusted to lead Malaysia's digital economy forward. Incorporated in 1996 to oversee the development of the MSC Malaysia initiative, MDEC's primary mandate today is to accelerate the growth of digitally skilled Malaysians, digitally powered businesses and digital investments in Malaysia. MDEC is focused on creating inclusive, high-quality growth through the nationwide digitalization initiatives that are in line with the Government’s Shared Prosperity Vision 2030, and firmly establishing Malaysia as the Heart of Digital ASEAN. To find out more about MDEC’s Digital Economy initiatives, please visit www.mdec.my
4. OUTLINE Foreword , P i P 96 ,Concluding Remarks Acknowledgement, P ii Preface, P 01-03 The Ecosystem of Fintech in Malaysia P 97-98 ,References P 99-106 ,Authors & Contributors The Purpose and Mechanisms of Islamic Fintech Regulatory Framework, P 04-16 Supporting Institutions, P 17-21 Why Islamic Fintech, P 33-35 Funding, P 22-26 Islamic Fintech Product Development, P 35-37 Human Development, P 27-30 Shariah Governance Framework for Fintech, P 38 Regulatory Steps to Address Shariah Compliance of Islamic Fintech, P 39-44 Case Studies of Malaysia Based Islamic Fintech Companies and Solutions Ethis Malaysia, P 46-52 Escapade by Etiqa, P 53-58 Finterra, P 59-65 IslamicMarkets, P 66-71 microLEAP, P 72-78 SKILIK, P 79-86 Fintech Applications by Zakat Kedah P 87-93
5. Foreword The year 2020 has been a challenging one to say the least . The COVID-19 pandemic not only triggered a global health crisis, but also created a financial emergency which has caused the whole world to suffer severe negative economic impacts. Thousands of small and medium enterprises (SMEs) have shut down, leaving countless numbers of people unemployed with little hope to acquire new jobs. Such a situation urgently calls for inclusive solutions that have potential to address the challenges effectively in order to eliminate the hindrances in the path of citizens striving to fulfill their financial needs. With the adversity created by COVID-19, developing Islamic fintech is now more crucial than ever before, specifically in catering to the financial needs of the SMEs and the B40 community. Fintech holds the potential to provide inclusive and sustainable financial solutions that can uniquely cater to the financial needs of all segments of the society. While the Islamic fintech ecosystem is still in its infancy, it has great potential for rapid growth. However, in order to materialize such potential, and make efficient use of it, there is a need for a conducive ecosystem. And for that, Malaysia has a great advantage as it can leverage on its position as an Islamic finance hub. Malaysia’s robust regulatory environment, comprehensive fintech landscape, supportive Islamic finance community and the government’s commitment to champion the Islamic economy, has already paved the way for Malaysia to be a global Islamic fintech hub. With such vision and advantages, Islamic fintech startups in Malaysia can secure long-term growth prospects by scaling up to serve the global Islamic economy, consisting of almost 1.8 billion people around the world. Therefore, it is high time for the stakeholders to work together and develop a conducive Islamic fintech ecosystem that connects entrepreneurs, investors, and the talented human capital, along with the regulators providing them with a clear direction and roadmap to make Malaysia the global Islamic fintech hub. As part of our role in supporting the ecosystem for Islamic fintech in Malaysia, this report provides all the relevant stakeholders with a comprehensive landscape of the Malaysian fintech ecosystem. It equips them with the necessary information to understand, and then participate in the growing field of Islamic fintech in Malaysia with their own talent and expertise. i
6. Authors Acknowledgment This report is prepared by the International Centre for Education in Islamic Finance (INCEIF), the International Shari’ah Research Academy for Islamic Finance (ISRA) and Malaysia Digital Economy Corporation (MDEC). It is a result of a collaborative work of INCEIF, ISRA and MDEC staff with several Shariah scholars, fintech industry players and experts. INCEIF, ISRA, and MDEC are grateful to acknowledge the support of a number of institutions and individuals for their significant contributions towards the making of this report. Special thanks to our panel of fintech contributors and the supporting team. Dr Kinan Salim Dr Moutaz Abojeib Assoc Prof Dr Baharom Abdul Hamid Contributors: Ahmad Abdur-Raheem Sabree Dr Ahmed Mabrouk Alda Percy Bin Abdul Aziz Amran Bin Hassan Tengku Arief Mubiin bin Tengku Abdul Aziz Dr Azrul Azlan Iskandar Mirza Tunku Danny Nasaifuddin Mudzaffar Ellya Masriq Ahmad Sani Mufti Faraz Adam Hamid Rashid Hassan Azganin Katherine Lim Dr Marjan Muhammad Mehdi Baddou Shah Mohammad Ali Mohd Shehzad Islam Nur Izzani Hafiz Nur Diyana Najwa Mohd Affendi Dr Omar Alaeddin Assoc Prof Dr Said Bouheraoua Shakeeb Saqlain Umar Munshi Victor Chua Prof Dr Younes Soualhi Syeikh Haji Zakaria Bin Othman Dr Ziyaad Mahomed Research Assistants Abubakar Ilyas Chita Ayu Astari Putri Design and Support team Chan Pei Leng Mohd Iftitah Suratmin Mohd Lutfi Mohd Khairuddin Normas Rafie Rohaya Sarijan Adam Harris ii
7. Preface The interest in developing Islamic fintech in Malaysia and the efforts in achieving it are constantly on the rise. Several startups have launched Shariah-compliant fintech solutions. Shariah advisory boards at regulatory and industry levels have discussed various Shariah issues related to fintech. Resolutions and exposure drafts have been issued or modified by regulators to cover a wide range of Islamic fintech activities. Some government agencies have established dedicated departments to support fintech and the Islamic digital economy. Universities and training centres have started offering specialized courses and programmes to provide the requisite human capital, while research centres have invested in substantial efforts to push the industry forward by conducting extensive research and providing consultancy services. This report documents a representative sample of such efforts. T h e r e por t aims t o provide stakeho l d e r s wi th th e nec e s s a r y i n fo r ma ti o n a b o u t t h e f i n t e ch landscap e and ecosystem in Ma l a y s i a . I t g i v e s a g u i d e to l o c a l a n d f o r e i g n f i n t e ch e nt r epreneurs on how to e s ta b l i s h a n d to g r o w th e i r I s l a mi c f i n t e c h s t a rt ups in Malaysia. It provides a n o v e r v i e w o f th e r e g u l a to r y e nv i r o n men t a n d t h e suppor t ing institutions in Mal a y s i a . I t e x p la i n s fu n d i n g o p p o rtu n i ti e s a n d human ca pit al de v elopment initiat i v e s . T h e v a lu e p r o p o s i ti o n o f I s l a mi c fi n t e c h a s a dr ive r f or innovation in Islam ic fi n a n c e i s a ls o p r e s e n te d i n th i s r e p o r t . T he r e por t a lso discu sses the produ c t d e v e l o p me n t p ro c e s s o f I s l a mi c f i n t e c h so l u t ions a nd the necessary S har i a h g o v e r n a n c e fr a mewo r k to e n s u r e S h a r i a h co mplia nce of Isl am ic fintech so luti o n s . Various business models, value propositions, key activities and achievements for selected cases of Islamic fintech startups in Malaysia will be highlighted in this report. The cases have been selected carefully to cover different areas of Islamic fintech within different market segments. It aims to display diverse techniques for innovation in creating Islamic fintech solutions. These case studies will provide investors, as well as talented entrepreneurs who wish to be a part of the Islamic fintech ecosystem, with significant insight into the opportunities that Malaysia's Islamic fintech ecosystem has to offer. In or de r to provide m ore d e p th a nd insight about I s l a mi c fi n t e ch e nt repr ene ur sh ip, first-hand inter v ie ws we r e c o n d uc te d wi th th e fo u n d e rs a n d CEOs of some prom i-nent com pan i e s i n th e I s l a mi c fi n te c h e c o s y s te m. T h e s e ex p er t s w ho h ail from diverse backg r o u n ds, d e mo g r a p h i c s a n d a r e a s o f e x p e r t i s e, pr o vide a different p er-spective to v a r i o u s i s s u e s r e g a r d in g S h a r i a h , u s e o f te c hnology a nd busi ness m od-e llin g . De s p i te th e i r d i ffe r e n c e s , th e y a l l s h a r e o n e common e x perience; they have n a v i g a te d th e u nc h a r te r e d ter r ito r y o f I s lam i c fi n t ech in Ma laysia a nd have ha d th e fi r s t-h a n d e x p e r i e n c e o f p r o v i d i n g I s l a m i c fin t ech solut io ns in this country. T h e s e a r e v a l u a b l e i n s i g h ts to a l l w h o a r e i n t e re st e d in exploring Islam ic finte c h . Dr Kinan Salim Dr Moutaz Abojeib Dr Baharom Abdul Hamid 01
8. The Ecosystem of Fintech in Malaysia
9. Fintech Ecosystem *Fintech Ranking as end of 2019 (Findexable, 2020) 02 Malaysia has shown steady growth in fintech on both the global and regional levels. It has become one of the fastest-growing fintech markets in Southeast Asia with nearly 200 local and foreign fintech companies operating in the country as of September 2020. The majority of Malaysian fintech activity has been concentrated in the wallets and payments space, where mobile and e-commerce have led to real demand from underserved consumers and merchants. This trend has also been supported by Bank Negara Malaysia’s agenda to accelerate the country’s transition to electronic payments (e-payments), and thus, quicken the pace for the country to realize the consequent cost savings and other various benefits. Further innovations that are entering the mainstream include alternative financing platforms, insurtech, blockchain and remittances. A burgeoning subsector has since emerged from the fintech industry, namely the Islamic fintech niche, which focuses on the use of technology to deliver Shariah-compliant financial solutions, products, services and investments. (See Figure 1). Figure 1 Key Fintech Verticals in Malaysia Based on Number of Companies in 2019 Source: Fintech News TNG e-Wallet Fintech Report (2019) This section explains the Malaysian fintech ecosystem which has been set to pave the way for the growing sector. The discussion covers four key pillars that are the regulatory framework, the supporting institutions, funding schemes and human development programs. Figure 2 provides a brief overview, while the details are followed. 02
10. Fintech Ecosystem Figure 2 - Key pillars of the Malaysian Fintech Ecosystem 03 Supporting Institutions Regulatory Framework Funding Pillars of Malaysian fintech Ecosystem Human Capital Development Source : Authors’ Own 03
11. Fintech Ecosystem 1 . Regulatory framework Malaysia has two regulatory authorities that regulate its financial system; the first is Bank Negara Malaysia (BNM) that acts as a regulator for banking institutions, insurance/takaful companies and activities related to payment and money services. The second regulatory institution is the Securities Commission of Malaysia (SC), which is a statutory body established under the Securities Commission Act 1993 that regulates capital market activities in Malaysia. Fintech regulations in Malaysia are based on the nature of financial activities a platform facilitates. If the financial activities only fall under the purview of BNM, only then is BNM responsible to 04 oversee them. The SC is involved with fintech activities concerning capital markets, such as equity crowdfunding and P2P lending. However, some areas are jointly regulated by both BNM and SC. Another area that possibly involves fintech companies, is lending activities that occur without taking deposits from the public. This area will be under the supervision of the Ministry of Housing and Local Government (Malay: Kementerian Perumahan dan Kerajaan Tempatan, abbreviated KPKT). See Figure 3 for details. Figure 3 The Scope of Each Regulator. Source: BNM Fintech Booster Launch Session 2 (2020) 04
12. Fintech Ecosystem While innovation is an exciting journey for the market , regulators strictly uphold their concern to protect the investors and ensure market stability. As such, the various involved regulators regularly revise their guidelines/ regulations following the fast-paced innovation towards achieving their mandates. The following list demonstrates the major currently applied regulations and exposure drafts in the fintech avenues. 05 Banking, investment banking, insurance/takaful, money changing, remittance, operating a payment system or issuing payment instruments. 1 Financial Services Act 2013 (FSA) Islamic Financial Services Act 2013 (IFSA) Digital Assets Capital Markets and Services (Prescription of Securities) (Digital currency and Digital Token) Order 2019 Digital Assets Guidelines Guidelines on Recognized Markets e-KYC 3 Supplementary Document to the Anti-Money Laundering Framework e-KYC Exposure Draft 05 2
13. 4 Licensing Framework for Digital Banks - Exposure Draft Fintech Ecosystem Digital Banking 06 Financial Crime Anti-Money Laundering , Anti-Terrorism Financing and 5 Proceeds of Unlawful Activities Act 2001 (AMLA) Malaysian Anti-Corruption Commission Act 2009 (the MAC Act) Cyber Security 6 Malaysian Communication and Multimedia Content Code (Version 6,published in 2012); Communication and Multimedia Act 1998; Communication and Multimedia Commission Act 1998; Penal Code; Computer Crimes Act 1997; Personal Data Protection Act 2010; Copyright Act 1987; Personal Data Protection Regulations 2013; Consumer Protection Act 1999; Consumer Protection (Electronic Trade Transactions) Regulations 2012; Personal Data Protection Standard 2015; Strategic Trade Act 2010. Digital Signature Act 1997; Electronic Commerce Act 2006; Source: Shearn Delamore & Co. (2020) 06
14. Fintech Ecosystem 07 1 .1 Bank Negara Malaysia In 2016, Bank Negara Malaysia has established the Financial Technology Enabler Group (FTEG), to support innovations that will improve the quality, efficiency and accessibility of financial service in Malaysia. FTEG comprises cross-functional groups within BNM and is responsible for formulating and enhancing regulatory policies to facilitate the adoption of technological innovations in the Malaysian financial services industry. There are three key principles underlying BNM approach to fintech regulation: Parity, Proportionality and Neutrality. Parity means providing a level playing field for both incumbents and new entrants. Proportionality implies balancing between benefits and risk, while neutrality implies prioritizing desirable outcomes over preference to specific technologies. Considering these principles, BNM has outlined five approaches to promote an enabling environment for fintech companies. This includes a regulatory coordination with other regulators in order to pave the way for innovation, a flexible business enabling environment that allow testing new innovative ideas, an outreach educational and guidance agenda to engage the fintech players and explain about the regulatory requirements, an active regulatory setting by recalibrating existing regulations and publishing new polices that covers the new fintech areas, and lastly establishing and enabling shared infrastructure that enhance customers experience. A detailed explanation of these approaches are provided in Figure 4 , followed by further explanation of BNM Sandbox and key fintech policies. 07
15. Fintech Ecosystem Figure 4 Approaches and multi-pronged strategic initiatives in facilitation Innovation 08 Source : Adapted from BNM Fintech Booster Launch Session 2 (2020) BNM issued the Financial Technology Regulatory Sandbox Framework (Sandbox) in 2016 which allows regulatory flexibilities to be granted to applicant fintech companies to experiment with fintech solutions in a live and controlled environment which is accompanied by the appropriate safeguards, for a limited period. The Sandbox focuses on innovations that can improve the accessibility, efficiency, security and quality of financial services; enhance the efficiency and effectiveness of Malaysian financial institutions’ management of risks, and address gaps in or open up new opportunities for financing or investments in the Malaysian economy. 08
16. Fintech Ecosystem As of August 2020 , there have been 90 applications for the Sandbox since 2016. They come from various sectors within the industry, but a large amount came from the payment sector. However, with the passage of time, insurance and takaful participation have become apparent in the Sandbox. Out of the total applications, 6 companies have been approved for live-testing 09 and 7 companies have been approved for technology assessment. There are 10 companies that are still under review and another four have withdrawn due to changes in business partners and business models. 60% of the rejection has no regulatory impediment, as startup companies don't have the resources nor the experience for regulatory consultation before application while 40% showing lack of solution readiness, as the sandbox is seen as a means for testing ideas rather than solutions (See Figure 5). Figure 5 BNM Sandbox BNM Fintech Booster Launch Session 2 (2020) “ We help identify whether or not their activity or business models fall under BNM regulations. We adopt an ‘informal steering’ approach where we guide and advise participants on the modifications that can be made. The sandbox does not preclude licensing eligibility criteria. It may be viewed as a ‘learner’s permit’ but a full license is not necessarily guaranteed. ” Suhaimi Bin Ali, director of the Financial Development and Innovation Department at BNM BNM Fintech Booster Launch Session, August 2020 09
17. Fintech Ecosystem including e-money , digital banking and open banking. Electronic Money (E-Money) Figure 6 - What is e-money? 10 Source: BNM (n.d.) E-money can be issued in different forms, such as card-based (e.g. prepaid card), and network-based which can be accessed via the internet, mobile phones or other devices. BNM differentiates between two types of e-money schemes: small schemes and large schemes, which is determined by the purse size and the outstanding e-money liabilities. In both cases, e-money issuers are required to adopt the principles and the minimum standards as per the BNM Guideline on Electronic Money (e-Money), taking into consideration the nature, size and complexity of their e-money schemes. While the Guideline is applicable to all e-money issuers in Malaysia, including licensed institutions, the guideline includes additional requirements for issuers of large e-money schemes that are not licensed institutions. Currently, there are 6 banks and 48 non-banking Figure 7 E-Money Transactions in Malaysia (2011 vs 2019) e-money issuers in Malaysia (BNM, 2020a). 2 0 19 Statistics from 2011 to 2019 show that the value 2 0 19 of e-money transactions in Malaysia rapidly increased from RM 2.8 billion in 2011 to RM 18.2 billion in 2019. As far as the number of transactions are concerned, the number sky-rocketed from 803.8 million transactions in 2 0 11 2 B il RM 18 .2 B il 2 0 11 8 0 3 .8 M il RM 2 .8 B il 2011, to two billion transactions in 2019. The on-going pandemic is also expected to cause a further increase in this form of contactless payment, with more and more people showing E- money Transactions in Malaysia (Number of Transaction) interest in e-money. E- money Transactions in Malaysia (Value) Source: BNM (2020b) 10
18. Fintech Ecosystem Digital Banks 11 Digital banks deliver banking services through digital channels such as the internet . They typically target unbanked customer segments such as low-income individuals, early income millennials, startups as well as small and medium enterprises (SMEs). While a first exposure draft of the Licensing Framework for Digital Banks was issued in Dec 2019, an updated version has been made available in March 2020. Based on the simplified regulatory framework proposed by this draft, a licensed digital bank shall be under a “foundational phase” of three to five years of operations, during which they will have an asset limit of RM2 billion. During this period, they must also maintain minimum of capital funds unimpaired by losses of RM100 million, and RM300 million thereafter. In addition, 25% of the digital bank's on-balance sheet liabilities must be held in high quality liquid assets. Figure 8 Licensing Framework for Digital Banks: timeline of regulatory requirement Source: BNM (2020c) It is worth mentioning that Bank Negara emphasized in the press release associated with the announcement of the exposure draft in December 2019 that the licensed digital banks should be able to offer banking products and solutions to the underserved markets in Malaysia. Such banks should also provide meaningful access to and promote responsible usage of suitable and affordable financial solutions to financial consumers as announced in the press release associated with the issuance of the exposure draft. This clearly conveys a message that digital banks in Malaysia are expected to play an important role in financial inclusion. 11
19. banking data through open application programming interfaces (APIs). It enables the interaction between different software applications via specified set of protocols. This allows software applications to communicate with each other to exchange data directly or to access another software application’s functionalities through an automated access. Fintech Ecosystem Open banking is an initiative that allows third-party service providers to access individual 12 Open Banking BNM had issued a recommendation of the standards of open APIs that banks should adopt which came into effect on 2nd January 2019. Financial institutions are encouraged to adopt the Open Data API Specifications recommended by the Open API Implementation Groups for selected open data. To facilitate third party adoption, financial institutions are strongly encouraged to publish a detailed API documentation online to accompany the published Open Data APIs. 12
20. Fintech Ecosystem 1 .2 Securities Commission Malaysia The role of the SC is to promote and maintain fair, efficient, secure and transparent securities and derivatives markets; and facilitate the orderly development of an innovative and competitive capital market in Malaysia. The Digital Agenda for Malaysia’s Capital Market, set in 2016, has clarified the guidance and support of the SC towards the fintech ecosystem (See Figure 9). Figure 9 Digital Agenda for Malaysia Capital Market 13 Source: Chin & Azmil (2017) To facilitate digital investment management activities to be offered in Malaysia, a new category of portfolio management licence has been introduced under the Digital Investment Management (DIM) framework. The framework provides the opportunity for retail investors to access specialist services of investment management. The SC has introduced Equity Crowdfunding (ECF) and Peer-to-Peer (P2P) financing to allow for alternative market-based financing avenues for SMEs to raise funds. The SC also regulates digital assets to promote responsible innovation in the digital asset space, while at the same time managing emerging risks and safeguarding the interests of issuers and investors. “ As part of the SC’s initiatives to catalyse greater interest and visibility towards nurturing the development of digital finance, the SC launched the Alliance of Fintech Community (aFINity) in 2015. It was established not only to provide clarity on policy and regulations only, but it also plays a role as ‘Network Organizer’ to nurture the wider fintech ecosystem through its innovative labs. ” https://www.sc.com.my/development/digital/afinity 13
21. In supporting SMEs that are the backbone of the Malaysian economy , the SC has introduced Equity Crowdfunding (ECF) and Peer-to-Peer (P2P) financing to allow for alternative market-based financing avenues for SMEs to raise funds. In the year 2015, Securities Commission Malaysia introduced the Guidelines on Recognized Markets which include the requirements for the registration of equity crowdfunding (ECF) platforms and provided governance arrangements for the operators Fintech Ecosystem Equity Crowdfunding & Peer-to-Peer Regulatory Framework of such platforms. With that the country became the first in the region to introduce detailed guidelines for crowdfunding platforms in order to expand the fintech landscape in the country. The Guidelines on Recognized Markets have been revised a few times, the latest revision was issued in May 2020. Under this framework, an eligible issuer can raise up to RM10 million. Issuers will be able to tap on investments from retail, sophisticated as well as angel investors, subject to the investment limits as provided in the Guidelines. ECF investors are given a 6-day cooling off period, within which they may withdraw the full amount of their investment. In addition, if there is any material adverse change relating to an issuer, the investors must be notified of such change. The investors will be given the option to withdraw their investment if they choose to do so within 14 days after the said notification. Figure 10 - What is Crowdfunding? Source: Authors’ Own In 2016, the SC introduced the regulatory framework for Peer-to-Peer (P2P) crowdfunding, setting out requirements for the registration and obligations of a P2P operator as provided in the revised Guidelines on Recognized Markets. This framework was established to further support the alternative funding channel after seeing success in ECF. P2P investment opportunities are open to all investors. Retail investors are encouraged to limit their investments exposure on any investment note or Islamic investment note executed or offered on or through a P2P platform to a maximum of RM 50,000 at a time in order to manage their risk exposure. 14 14
22. Fintech Ecosystem “ Total funds raised by ECF & P2P in Malaysia have broken the 1 billion Ringgit mark this year and benefited more than 2,500 MSMEs ” Source: Securities Commission Malaysia (2020) Digital Assets Regulatory Framework 15 Digital assets based on the SC Malaysia description refer collectively to a digital currency and digital tokens. Both are not recognized as legal tender nor as a form of payment instrument that is regulated by Bank Negara Malaysia (BNM). However, both Crypto assets and Cryptocurrencies are subject to SC regulations. Figure 11 - What are Digital assets? Digital Currency - A digital representation of value which is recorded on a distributed digital ledger whether cryptographically-secured or otherwise, that functions as a medium of exchange and is interchangeable with any money, including through the crediting or debiting of an account’. Digital Token - A digital representation which is recorded on a distributed digital ledger whether cryptographically-secured or otherwise. Source: Securities Commission Prescription Order (2019) In January 2019, “The Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019” went into effect. The order sets out the defining characteristics of “digital currency” and “digital tokens” that are prescribed as being securities for the purposes of Malaysia’s securities law. It subsequently issued amendments to its recognized market guidelines, which now include a framework for operators of digital asset platforms to be approved by the SC as recognized market operators. This includes requirements related to an entity’s structure and governance, risk management processes, client asset protection, transparency, and market integrity. Digital currency exchanges have been made subject to Malaysia’s anti-money laundering and counter-financing of terrorism system, which is overseen by the central bank. 15
23. Figure 12 Digital assets in Malaysia June 2019 August 2020 Source : Securities Commission Malaysia (2020) 16 Fintech Ecosystem In March 2019, SC published a consultation paper on its proposed approach to regulating initial coin offerings (ICOs). This approach would include approval of the ICO by the SC based on various criteria and the registration of a disclosure document that meets certain requirements. The Securities Commission Malaysia (SC) has also released the Guidelines on Digital Assets, which has been recently updated on 28 October 2020. The platform operators must seek authorization from the commission and have a minimum paid-up capital of RM 5,000,000 ($1.23 million). The guidelines also set out the requirements for anyone seeking to raise funds through token offerings. The offering must be conducted by incorporated company and have its main business in Malaysia, with a minimum paid-up capital of RM 500,000. Figure 12 shows the development in digital assets in Malaysia. 16
24. Fintech Ecosystem 2 . Supporting Institutions Entrepreneurs are often considered as national assets that need to be cultivated, motivated, and remunerated as their innovations can spur the economic growth and improve standards of living. From this perspective, having supporting institutions such as government agencies, digital labs, business incubators and accelerators is crucial. 17 2.1 Malaysia Digital Economy Corporation The Malaysia Digital Economy Corporation (MDEC) is a government agency under the purview of the Ministry of Communications and Multimedia Malaysia. It is entrusted to lead Malaysia's digital economy forward. Incorporated in 1996 to oversee the development of the MSC Malaysia initiative, MDEC's primary mandate is to accelerate the growth of digitally-skilled Malaysians, digitally-powered businesses and digital investments in Malaysia. MDEC is focused on creating inclusive, high-quality growth through the nationwide digitalization initiatives that are in line Heart of Digital ASEAN. MDEC has pushed forward several initiatives to support and grow the industry, such as developing the Islamic Digital Economy Mi’Yar Guide, establishing the Malaysia Digital Hub initiative, creating Figure 13 MDEC Initiatives Malaysia Digital Hub The eBerkat platform is an intiative by MDEC that aims to increase awareness and access for micro SMEs and B40 household communities via SLIP (Savings, Lending, Investment, Payment) to Digital Financial Services with a focus on Shariah compliant Islamic products and services. The platform is to result in empowering Malaysian communities of B40 and SMEs to have a better financial management, ensuring sustainable future, and be digitally savvy in financial services. Islamic Digital Economy (IDE) Mi’yar Islamic digital economy (IDE) refers to any commercial or social activities undertaken within the digital space that is Shariah compliant and Shariah neutral. Activities that fall within the realm of IDE include but is not limited to any activities related to customary Islamic practices as well as practices that are branded Shariah or Halal certified. MDEC is a proponent of the IDE in line with Malaysia’s status as one of the countries leading the evolution of the Islamic industry landscape. The objective of the IDE is to set out a clear guide for startup companies on the processes involved in obtaining a Shariah Compliant and Halal Certified business and product. The IDE Mi’yar is established to be the comprehensive guide for regulators, venture capitals, startups and other ecosystem players towards the overall components of Islamic digital economy in Malaysia. Source: Authors’ Own The Malaysia Digital Hub is an initiative that supports tech and digital co-working spaces. It offers startups with the opportunity to expand globally, have ready access to high-speed broadband connectivity, funding and facilitation opportunities, and a workforce-ready ecosystem. The initiative focuses on four categories, namely growing startups, global tech companies, accelerators and talent builders or investors. The incentives under the Malaysia Digital Hub initiative include corporate tax exemption for tech startups, access to funding, coaching and mentoring, working passes, and others. Fintech Booster A Fintech capacity building platform developed in collaboration with Bank Negara Malaysia (BNM) providing capacity building resources to Fintech companies through three strategically crafted verticals; i) Legal & Compliance, ii) Business Model, and iii) Technology. The objective of this program is to; i) enhance the due diligence of legal, compliance, and regulation of the companies, ii) provide resource support for fintech solutions with high value propositions to be investment and market ready, as well as to iii) improve lead time and operationalization of the companies. 17
25. 2 .2 Cradle Fund Sdn. Bhd. companies in the ICT industry as well as other high-growth industries, including, but not Cradle Fund Sdn Bhd (CFSB) is Malaysia’s limited to, content and digital media, IOT, e- early stage start-up influencer, incorporated commerce, fintech, etc. through providing under the Ministry of Finance Malaysia (MOF) funds, networks and other kinds of support. in 2003 with a mandate to fund potential and MAVCAP’s involvement in the venture capital high-caliber tech startups through its Cradle space started with direct investment in strategic Investment Program (CIP). Throughout its sectors, before evolving into a fund, or fund with 16-year history, CFSB has helped fund over a 900 Malaysian tech startups and holds the MAVCAP highest international fund managers to co-manage 9 commercialization rate amongst government grants in the country. Having commercial mandate. At partners with this several juncture, local and funds. more than a decade of experience in the nation’s grant funding scene, CFSB further expanded its role from grant provider to investor through the establishment of its 2.4 FinTech Association of Malaysia venture arm, Cradle Seed Ventures in 2015, and followed its portfolio expansion to equity FinTech Association investments in early 2017, CFSB now offers aspires to be a key enabler and a national both funding and investment assistance. platform to support Malaysia to become the Cradle’s product offerings are not only leading restricted to monetary aid, but also include investment in the region. The association was commercial support, coaching, and various registered in 2016 and has members from a other value-added services to cater to the wide range of fintech companies. FAOM diverse needs of today’s entrepreneurs. connects various stakeholders in the industry, Cradle is presently being administered by the engaging them in conversation and fostering Ministry potential collaborations. of Science, Technology and Innovation (MOSTI). 2.3 Malaysia Venture Capital Management Berhad In 2001, the Malaysian government formed ‘MAVCAP’ with the vision to be a leading venture capital company in the technology space, developing the Malaysian venture capital ecosystem via smart partnerships while enabling access to venture capital funding for technology companies. 18 hub for of fintech Fintech Ecosystem MAVCAP aims to support seed to late stage Malaysia (FAOM) innovation and 18
26. Fintech Ecosystem 19 2 .5 Accelerators & Digital Labs: Digital labs serve as congregational points for local and foreign fintech players, allowing them to interact with industry leaders and regulators to ease solution development and early market entry. The Accelerators are programmes designed to support early-stage, growth-driven companies through education, mentorship, and financing. Figure 14 Accelerators & Digital Labs Source: Authors’ Own 19
27. Selangor Accelerator Program (SAP) is a top-tier accelerator that targets high-potential startups by providing an intensive 4 months program of training to become an investor-ready company. Firstly, announced in 2018, the program which is organized by the Selangor Information Technology and E-commerce Council (SITEC), has recruited two cohorts of startups made up of around 60 teams in the past two years. A total of 55 Minimum Fintech Ecosystem Selangor Accelerator Program (SITEC) Viable Products (MVPs), and a gross market value worth RM 26 million has been created. From the past cohort 20 out of 60 startups have secured seed funds and angel investment ranging from RM 300,000 to RM 1.4 million. The program offers startups with guidance and mentorship from experienced mentors, fully sponsored local and overseas trips, valuable networking opportunities, as well as connections to support communities. MaGIC Global Accelerator Program (GAP) The Global Accelerator Programme (GAP) is Malaysia’s leading mid-to-late stage startup growth program that is tailored for startups with an ambition to expand in the ASEAN market. The program has been conducted in 3 cohorts and has accelerated over 100 startups. In 2020, the program was redesigned using virtual means. The Virtual Global Accelerator Program 2020 (Virtual GAP 2020) is an online program to accelerate local & international startups from all over the world, with an interest to expand their business in the ASEAN region, to be investment-ready in 3 months. The program targets startups that have established product-market-fit with a target market and those that have launched a product with some traction, and are highly scalable with a growth-potential business model, which ideally would be less than 3 years old and would be focused on the ASEAN market. Cyberview Living Lab Accelerator The Cyberview Living Lab Accelerator is a program by Cyberview, a government owned company mandated to drive the growth of a holistic Global Tech Hub ecosystem. The Living Lab Accelerator offers mentorship, access to venture capital, free co-working space, prototyping with Cyberjaya City Innovation Council, and value-added services. 20 20
28. Fintech Ecosystem 21 UNCDF Finlab The UNCDF Finlab is an initiative by the UN Capital Development Fund (UNCDF) in Fintech Lab Accelerator Program partnership with BNM and MDEC to drive the The Fintech Lab provides tailored educational to find and support solutions to promote inclusive and connected digital economies such as the Gig experienced investment professionals aimed Economy Challenge, Financial Health Scale-up to bridge the gap between technology and Challenge, finance. The courses offered are focused on participants can receive technical assistance, seed Islamic capital, product pilot opportunities, access to Digital training targeting the B40 segment. Finlab runs challenges by and technology agenda of digital financial inclusion especially Economy modules (IDE) primary sectors; namely Technology, Islamic Knowl- and B40 Persona Challenge. Top partnerships, and mentoring sessions. edge, and Business and Entrepreneurship. The Accelerator program offerings consist of the IDE Accelerator, Executive IDE Accelerator, Action Camp, and Boot Camp, depending on Fintech labs established by financial institutions the needs of the SMEs and startups. The examples of fintech labs provided by financial Orbit Fintech Hub institutions include HLB Launch Pad by Heong Orbit is a fintech hub that was established Launch Pad is a mentorship program that aims to with the support from BNM and SC to act as a cultivate more tech-savvy startups that will rethink congregation point for key players of the financial services. While Escape provides an ecosystem facilitating accelerator program that focuses on early stage end-to-end support, networking and knowl- startups with business ideas that could improve edge-sharing to drive innovation in the fintech the insurance industry ranging from artificial industry. Situated in the heart of Bangsar intelligence, remote working productivity tools, South, Orbit also operates as a co-working financial inclusion, customer experience and how space. Spanning over 20,000 square feet, its insurance companies can innovate in the Environ- tenants includes the likes of VISA, United mental Social and Governance (ESG) space. The Nations Capital Development Fund (UNCDF), startups will get access to a group of selected Aeon Credits, and Chaintope. experienced mentors in the fintech and insurtech to flourish Leong Bank, and Escape Lab by Etiqa Lab. HLB by space, such as PwC, Cradle Fund, Malaysian Global Innovation and Creativity Centre, and Malaysia Digital Economy Corporation. 21
29. Fintech Ecosystem 3 . Funding Malaysia has 22 an extensive and developed research and development (R&D) commercialization ecosystem. Apart from the private sector, the main players in the R&D commercialization ecosystem are the Ministry of Science, Technology and Innovation (MOSTI), the Ministry of Higher Education (MOHE) and the Ministry of Communication and Multimedia (KKM). R&D funding is divided into stages based on Technology Readiness Level (TRL) reflected in Figure 15: Figure 15 R&D funding based on technology readiness level Source: Authors’ Own 22 01
30. Fintech Ecosystem 23 3 .1 Ministry of Science, Technology and Innovation (MOSTI) MOSTI’s Fund Division is traditionally known for providing grants to Malaysian Small and Medium Enterprises (SMEs), institutions of higher learning as well as research institutions. To fulfil its developmental role, the area of interest is wide-ranging and includes fintech. MOSTI and its funding agencies namely Malaysian Technology Development Corporation (MTDC), Cradle Fund Sdn Bhd (CFSB), Malaysia Venture Capital Management Berhad (MAVCAP), Kumpulan Modal Perdana (KMP) and Malaysia Debt Venture (MDV) play wide-ranging roles which begin at TRL 2 until TRL 9. Various funding structures are offered comprising grant, equity and debt catering to different needs and risk profiles. Funding from MOSTI is also driven by commercialization, hence less emphasis placed on very early stage science and technology. The funding scope is extensive and is based on MOSTI’s “10 Socio Economic by 10 Science and Technology Matrix” (10 by 10 Matrix). At the moment, MOSTI is offering two schemes as follows: a. MOSTI R&D Fund Grants of up to RM3 million for local SMEs that wish to commercialize R&D products. Projects eligible under this scheme begins at TRL 4. b. International Collaboration Fund Grants of up to RM 500,000 for local institutions of higher learning and research institutions to undertake applied research which is at TRL 3, in collaboration with institutions of higher learning and research institutions from other countries. 23
31. MTDC is a government agency tasked with commercializing technologies in Malaysia and promoting the adoption of technologies by local companies . They provide funding for different types of companies in the form of grants, equity and Convertible Promissory Notes (CPN) as delineated in Figure 16. Fintech Ecosystem Malaysian Technology Development Corporation (MTDC) Figure 16 MTDC Funding 24 Source: Authors’ Own Cradle Fund Sdn Bhd (CFSB) As the national startup ecosystem developer, CFSB’s role is not limited to capacity building programs but also provision of grants to technology startups, mostly in the digital space. However, beginning 2020 CFSB’s focus area has been expanded to include commercialisation of deep technology by universities and research institutions. A summary of CFSB’s grants are as follows: Figure 17 CFSB Grants Source: Authors’ Own 24
32. Fintech Ecosystem Malaysia Venture Capital Management Berhad (MAVCAP) MAVCAP plays its role to develop the venture capital industry mainly as a limited partner of funds. Currently, MAVCAP has jointly established 9 funds for aspiring entrepreneurs. Following are a few examples: Figure 18 MAVCAP Funds for Aspiring Entrepreneurs 25 Source: Authors’ Own Kumpulan Modal Perdana (KMP) Incorporated in 2001, KMP is the only government-backed Venture Capital Company focusing on investing into high growth companies with high visibility. KMP is mandated to invest in Electronics and Electrical (E&E) sectors, however their focus area was expanded to include technology enablers including fintech. Startups at growth stages, and pre-IPO companies compete to obtain equity injection of up to RM15million and to be part in their E&E ecosystem comprising more than 40 portfolio companies. Malaysia Debt Venture (MDV) Established in 2002, MDV is the only institution in Malaysia offering debt venture financing for Malaysian companies to venture into technology-based industries. MDV is offering project and contract financing to Malaysian companies for the purpose of growth, working capital and asset financing. In addition to that, beginning in 2016 MDV has been offering a specialised financing scheme for technology startups called MDV Technology Acceleration. This scheme is intended to promote the development and adoption of new technologies and increase the success rate of commercializing new technologies. MDV is mandated to finance in various focus areas such as Information and Communication Technology, Biotechnology, Green Technology as well as Emerging and Strategic Technology. 25
33. Fintech Ecosystem 3 .2 Ministry of Higher Education (MOHE) As the caretaker of higher learning in Malaysia, MOHE is limited to providing grants for researchers of Institutions of Higher Learning to undertake mainly basic research and applied research activities. MOHE plays an integral role at the early stages by focusing on basic research and some exposure in prototyping of R&D in very diverse focus areas. Grants offered by MOHE include the Grant for Research Universities, Transdisciplinary Research Grant Scheme, Grant for HiCoE, Fundamental Research Grant Scheme (FRGS) and Long-Term Research Grant Scheme (LRGS), and Prototype Research Grant Scheme (PRGS). Although the grants offered are intended for academic purposes, MOHE also highly encourages collaboration with the private sector to ensure the viability of the projects from the commercial perspective. 3.3 Other relevant ministries and bodies KKM, through its agency Malaysia Digital Economy Corporation (MDEC), plays a significant role in the digital industry, which includes commercialization of relevant technology. Other ministries and government agencies such as the Ministry of Entrepreneur Development and Cooperatives and the Ministry of International Trade and Industry (MITI) play their part mainly with corporations to access foreign markets, promote investment and develop strategic industry sectors. Malaysia Business Angel Network (MBAN) was established in 2014 as a trade association and governing body for the accreditation of individual angel investors and angel investor clubs. In addition, MBAN has been actively playing their role in the promotion of angel investors and lobbying incentives, in particular the Angel Tax Incentive as well as Corporate Tax Incentives for corporations to invest in technology companies via venture capital funds. 26 26
34. Fintech Ecosystem 27 4 . Human Capital Development Human capital in fintech should combine the knowledge of finance, technology and business in addition to entrepreneurship skills. New training and academic programs are really needed to cater to the needs of the emerging fintech industry. In addition to entrepreneurial skills, the key knowledge and skills required for fintech entrepreneurship are presented in figure 19. Figure 19 Key knowledge and skills required for fintech entrepreneurship Source: UniKL Business School Survey (2019) In response to the high demand for fintech skills, several private and public training and academic programs are available in the Malaysian market today. In addition, several initiatives have been launched to attract foreign talents, and to prepare Malaysia to be a fintech hub. 27
35. 4 .1 Malaysia Tech Entrepreneur Program(MTEP) Established in 2007, the eXpats Service Centre Malaysia Tech Entrepreneur Program (MTEP) knowledge workers’ applications for MSC is a designated incentive for tech founders Status and ICT companies operating in who want to venture into the ASEAN market Malaysia. The eXpats Service Centre is a from Malaysia via a 1-year stay or a 5-year department within MDEC, providing constant stay. MTEP was introduced in 2017 as one of support the initiatives initiated under the Malaysia innovative services such as expats online Digital Hub. system, helpdesk, emergency hotline as well provides services through to facilitate efficient, foreign effective and as consultancy services. Located in the 4.2 Premier Digital Tech Universities and Preferred Digital Tech Polytechnics (PDTIs) The Premier Digital Tech Universities and bustling global technology hub of Cyberjaya, the center also houses the MSC Facilitation & Services Department (MFS) of MDEC as well as the Expatriate Services Division of the Immigration Department of Malaysia. Preferred Digital Tech Polytechnics (PDTIs) are Malaysia’s leading digital 4.4 Fintech Booster tech-focused tertiary institutions. Borne out of a collabora- Fintech Booster is a collaborative effort tion between MDEC, the Ministry of Education between MDEC and BNM to facilitate fintech Malaysia and industry leaders, the PDTIs companies understanding the legal, compli- deliver end-to-end solutions to ensure that ance, and future graduates are propelled into becoming oughly. There are three verticals introduced in regulatory requirements thor- dynamic members of an innovation-driven and knowledge-powered Malaysia. To ensure 1) Legal and Compliance. that future graduates are able to meet the 2) Business Model. nation’s digital economy demands, the 3) Technology. Ministry of Education and MDEC designated eleven universities and five polytechnics as Six legal and consulting firms have volun- Premier Institutions. These teered to provide their advice in regard to academic institutions are capable of providing their expertise such as company law and students and cyber security. Fintech companies do not have practical training, giving them a head start in to incur any cost or give up their equity to join the digital ecosystem. this programme as it is not intended for profit. Digital Tech with first-class theoretical 28 Fintech Ecosystem 4.3 eXpat Foreign Knowledge Worker program 28
36. Fintech Ecosystem 29 4 .5 Academic programs Globally, education programs in fintech can be classified into two levels, firstly the certificate programs, which are delivered by specialized training institutions for short courses, and distance learning programs that are linked to the industry or online learning platforms such as Coursera, Edx, and Udemy . Secondly, the academic programs including undergraduate and postgraduate. Specifically, fintech education at universities is more comprehensive that covers the area of finance and technology background. Many universities worldwide have already started offering fintech programs. However, these programs have different focuses. A clear standard on the content of this new multi-disciplinary field is yet to be established. A recent market survey shows high acceptance rate of fintech programs by prospective employers in Malaysia (figure 20). In Malaysia, only two universities provides academic programs on financial technology Asia Pacific University (APU) and Malaysian Multimedia University (MMU). * Coursera and Edx platforms provide plenty of courses on fintech from well-known global universities such as Duke University, the Hong Kong university of science and technology, Berkeley (university of California), university of Michigan, and INCEAD. 29
37. to fintech in Malaysia as part of the Bachelor’s Degree in Banking and Finance. These programs are offered in collaboration with Supercharger; the fintech accelerator, with offices in Hong Kong and Kuala Lumpur. The Malaysian Multimedia University (MMU) offers a Bachelor of Financial Engineering (Hons.) Fintech Ecosystem Asia Pacific University (APU) was the first university to offer undergraduate programs related program focused on the key fundamentals of the financial development framework, as well as on developing multimedia and ICT literacy to compete in today's financial industry. 30 On the other side, the Business School of the University of Kuala Lumpur (UniKL) in collaboration with the Malaysian Institute of Information Technology is developing a new Bachelor’s degree in financial technology. The program covers a variety of subjects including finance, technology, and fintech. Comparing these Malaysian universities’ programs from the perspective of course subjects offered, MMU focuses more on the finance-oriented courses, which represent more than 70% of their courses. On the other hand, APU has more specialised modules in financial technology, while UniKL plans to balance between the three disciplines of finance, technology, and fintech. Figure 20 Market survey on the acceptance of the fintech program by the prospective employers and their associates “ ” Source: UniKL Business School Survey (2019) 30
38. 31
39. The Purpose and Mechanisms of Islamic Fintech
40. The Purpose & Mechanisms 32 Source: State of the Global Islamic Economy Report (2020) In recent years, market interest in Islamic fintech has noticeably increased. The number of Islamic fintech companies has reached 150 worldwide by November 2020 (IFNFintech.com, 2020). Malaysia is among the few markets that has the highest number of Islamic fintech startups. Currently, there are at least 20 Islamic fintech companies in Malaysia.* The legacy of Malaysia as a leader in the Islamic finance industry in addition to the supportive regulatory environment and academic institutions of Islamic finance have attracted a variety of Islamic fintech companies to establish themselves in Malaysia at a time when the Islamic fintech ecosystem is still in its infancy stage. There are efforts by regulators, supporting institutions, fund providers and academic and research institutions to support Islamic fintech. Regulators have developed regulations to consider Islamic fintech. Supporting institutions have started to pay attention to Islamic fintech, for example, MDEC established a dedicated department to support the Islamic digital economy and fintech. MOSTI recently established a fund to support Islamic fintech. INCEIF and ISRA have introduced initiatives to support capacity building as well as research and development in Islamic fintech. This section explains the purpose of Islamic fintech as a subsector or driver for innovation in Islamic finance. Then the discussion highlights the necessary mechanism to ensure Shariah compliance of the innovative Islamic fintech products and services, and to what extent Shariah governance has been implemented for Islamic fintech solutions in Malaysia. * Statistics may differ based on criteria of classifications. For example, Fintech News TNG e-Wallet Fintech Report (2019) identified 6 Islamic fintech companies as of December 2019. IFNFintech.com (2020) reported 26 Islamic fintech companies in Malaysia as of November 2020, while the Report team identified 22 local and foreign Islamic fintech companies in Malaysia as of November 2020. 32
41. The Purpose & Mechanisms 33 Why Islamic Fintech? The first formal Islamic bank was established At the industry level, Islamic fintech may 300 years after conventional banking began represent a unique opportunity to inspire (considering Islamic the years between the finance stakeholders including establishment of the oldest conventional bank regulators, Shariah experts, academicians, ‘Banca Monte dei Paschi di Siena in 1624 and the Islamic bankers, Muslim entrepreneurs and establishment of the first Islamic bank, Mit investors, Ghamr Bank in 1963). Although the gap between technology in their respective fields. Indeed, the birth of Islamic and conventional banking is unlike the development of Islamic banking significant, the Islamic finance industry had the and takaful, Islamic fintech is supposed to opportunity to embrace fintech solutions at the grow at the same rate of conventional same time and on similar platforms as the fintech. Yet the Islamic fintech sector is still conventional finance industry. The appeal of too small compared to conventional fintech. technology for Islamic finance practitioners lies Recently, Islamic fintech is receiving an in the possibilities for exponential growth and increasing attention. This can be seen by the unlimited reach that have previously required establishment of organizations, systems, vast amounts of capital to achieve. This has led forums, seminars and conferences on Islamic to increased interest in Islamic fintech, to fintech, especially to cater the needs of consider the options for use cases and expand Shariah and the Muslim clients. However, the Islamic finance footprint. In fact, it may be there is a need for much investment in the first opportunity for Islamic finance, a mere Islamic fintech. 2% of the total finance market, to expand without relying on branch networks or significant human resources. 33 to adopt the facilitation of
42. The Purpose & Mechanisms One of the features of Islamic fintech is its universality. The application of Islamic fintech caters to all, regardless of their religion, race, status etc. Shariah application is not exclusively for Muslims except in the matters of beliefs and rituals. In addition, wealth and financial matters in Islam are among the topics where Islamic rulings cater for the well-being of all humankind. Figure 21 What is Islamic Finance? 34 Source: Authors’ Own The main elements that create injustice in a financial system from a Shariah point of view are Riba (usury), Gharar (uncertainty) and Maysir (gambling) (see figure 21). Shariah aims to promote stability, not only in the wealth and financial system, but it also aims to create balance in the social system by reducing the gap between the rich and the poor. These objectives are pursued via a financial inclusion strategy as well as redistributing wealth through institutions such as zakat and waqf. This ensures wide circulation of wealth throughout the economy by prohibiting hoarding and monopoly. The countries providing Islamic finance products and services have proven that they are a suitable alternative to the conventional financial solutions and have their own competitive advantages. 34
43. feature for any Islamic financial activities, including Islamic fintech. In essence, no equity investment is valid from a Shariah perspective if the investor does not bear risk. Likewise, in exchange contracts like sales and leasing, the investor must own the underlying asset and take possession before being able to sell or lease the asset. The Purpose & Mechanisms The principle of tying risk with return in Islamic finance has also made it a unique The justice and balance between risk and return will always be the distinguishing factor between conventional and Islamic finance. For instance, the concept of the ‘zero sum game’ cannot possibly be a part of the Islamic finance industry as it is totally at odds with the Islamic financial concepts. It is a mechanism which creates extremes in a society and unfavourable outcomes for the masses, ultimately leading to undesirable implications in the whole society. Islamic Fintech Product Development Fintech is an application of disruptive technology to financial services, with aims of achieving savings and optimization of cost, time and system efficiency. Furthermore, fintech has had a significant impact on the user interfaces and user experience of financial products. Islamic fintech is the delivery of Islamic financial services through digital interfaces and smart back-end operations. One of the unique challenges for Islamic fintech is to ensure that the technology-based Islamic financial solutions are structured and provided in compliance with Shariah. For example, robo-advisors are among the fintech companies that used complex algorithms to comprehend, analyse, recommend and even execute investments. It replaces the fund managers or financial analysts in their role of giving advice on investment or banking products. The technological innovations that power roboadvisors save a significant amount of time as they give results within seconds, which is nearly impossible for normal humans to do. In addition, it minimizes the misinterpretation and calculation errors due to its efficiency, which is far better than normal human-interpretation. Obviously, it eliminates the factor of agent fees, which benefits the customers in terms of cost. In addition, it eliminates all the potential human errors found commonly in decision making. But the determination of its compliance with Shariah principles is up to the Shariah scholars to investigate and give their verdicts and recommendations. 35 35
44. The Purpose & Mechanisms Whatever decision is made by the scholars, it must be after considering the contract used (to ensure no breach of Shariah), operational processes (that reflect the real values of Shariah – no manipulation and conflict) and consequences (it has to protect the objectives of Shariah – especially preservation of public wealth) (see figure 22). It is believed that the advantage 36 of Islamic fintech is to integrate ethics and justice within fintech solutions. Figure 22 Islamic Fintech Product Development Process Source: Authors’ Own The main challenge faced by Islamic fintech is to ensure that the micro and macro factors in the transaction do not contradict with the Shariah principles. Micro factors are there to ensure every single transaction fulfils the Shariah requirements, since many fintech transactions could occur within a millisecond. For instance, Islamic financing products shall follow processes and rules which involve many steps in a particular sequence to become Shariah compliant. Islamic fintech solutions must be designed to ensure that such Shariah requirements are fulfilled. 36
45. The Purpose & Mechanisms 37 Islamic fintech must also operate in recognition of the macro factors like ensuring that the solutions are not leading to any unfavourable outcome. For instance, an investment product that complies with Shariah in terms of contract requirements, may still be considered Shariah non-compliant if it qualifies as a Ponzi (scam) scheme from a macro perspective. On the other hand, the Islamic fintech industry has to take measures to ensure that there is no room for manipulation among players. A Shariah governance framework is needed in order to ensure that no one takes advantage of people in the name of Islam. As far as Shariah governance is concerned, Indeed, Shariah governance is a standard the elements of ex-post and ex-ante requirement controls are also needed for Islamic fintech. product and will always inform the As in traditional Islamic finance, Islamic process fintech has to establish control functions to complements and gives a competitive ensure that all operations continue to advantage to Islamic fintech, and at the comply with Shariah principles. Review same time, acts as a means of quality and compliant function, risk management, assurance for the Shariah reliability of the internal and external audit are all important products. of in any product Islamic fintech development. It developments within the Islamic fintech ecosystem. Islamic fintech can be beautifully captured in the spirit of the hadith narrated by Bukhari and Muslim; “ Facilitate things to people (concerning religious matters), and do not make it hard for them and give them good tidings and do not make them run away (from Islam) Sahih Bukhari – Chapter 3, Hadith no.69 & Sahih Muslim – Chapter 32, Hadith no. 6. 37 ”
46. The Purpose & Mechanism Shariah Governance Framework for Fintech The spirit of any Islamic financial product or service lies in its compliance with the principles of Shariah. Islamic fintech solutions must also embody the same spirit so that they truly qualify as ‘Islamic’. As for the traditional Islamic financial institutions (IFIs), they are governed by the Shariah governance frameworks drafted by the financial authorities. Not only do such frameworks provide guidance and direction to the IFIs, they also ensure Shariah compliance, which ultimately results in the general population putting their trust in the products and services offered by the IFIs. For Islamic fintech, there are two models that can be applied. The first model is for fintech to have its own Shariah governance framework that covers the roles and responsibilities of all stakeholders, 38 disclosure, Shariah audit, risk management, and Shariah review. This is currently lacking. The second model is where fintech should be subjected to the same Shariah governance framework of the respective financial authorities, and this seems to be the trend. There is currently no comprehensive Shariah governance framework for fintech anywhere in the world that provides specific guidelines to the Islamic fintech businesses. Instead, every technology-based Islamic financial solution is expected to comply with the same rules as applied to its traditional counterpart. Having said that, it would still be wrong to assume that all Islamic fintech solutions are free from being subject to any kind of Shariah governance framework. Even though there is no all-encompassing comprehensive Shariah governance framework, some Islamic fintech solutions are subject to the traditional Islamic finance Shariah governance rules and regulations. In addition, there are product-focused guidelines available in a few countries including Malaysia. For instance, a few countries have issued some guidelines to ensure Shariah compliance of Islamic equity crowdfunding and Islamic P2P, while most other Islamic fintech areas are yet to be covered. (See Figure 23 below). Figure 23 Efforts by Countries to Regulate Islamic Crowdfunding Source: Authors’ Own 38
47. The Purpose & Mechanisms Regulatory Steps to Address Shariah Compliance of Islamic Fintech In Malaysia, three key fintech areas have received specific considerations from regulators for Shariah compliant solutions: Digital assets, E-Money and Crowdfunding. The available Shariah guidelines are highlighted below. Digital Assets At the start of 2020, there was no official resolution regarding the Shariah compliance of digital assets. According to market observers, this has slowed down the development of Islamic solutions using cryptocurrencies or tokens. However, in July 2020, the Shariah Advisory Council of SC issued its resolution on digital assets. While the resolution allows issuing Shariah compliant tokens with a few conditions, the SC has not yet issued any further details with regard to the Shariah governance requirements. However, the resolution is being seen as a landmark development as it permits the trading and use of digital assets. This is surely expected to enhance the crypto landscape of the country because 60% of Malaysia’s population is comprised of Muslims. Following the resolution, a regulated crypto exchange has announced a plan to offer Shariah compliant services in order to attract a substantial number of Muslims to the crypto landscape. While the complete guidelines are yet to be released by the Securities Commission, the resolution is already making waves across the country as the Malaysian Muslim community awaits the launch of Shariah compliant cryptotrading facilities. “Cryptocurrency is not regarded as legal tender, but it is a legit commodity that can be exchanged. Investors need more time to understand cryptocurrency from the shariah perspective. Crypto has great potential but adoption in the country faced challenges from a lack of understanding about the asset class. The acceptance of digital assets can open up so many interesting areas in Malaysia, in which crypto can be deemed as investment assets where people can buy and hold for trading.” Datuk Dr. Mohd Daud Bakar, Chairman of the Shariah Advisory Council at the Central Bank of Malaysia and the Securities Commission of Malaysia, at SCxSC Fintech Conference in Kuala Lumpur on Oct. 6,2020. 39 39
48. The Purpose & Mechanisms Figure 24 Highlights From The SC Shariah Advisory Council Resolution On Digital Assets Digital currency is recognized as mal (asset) from a Shariah perspective. The SAC views digital currency from two following angles: Digital currency that is based on technology without anything underlying Digital currency is categorized as `urudh (goods) and it is not a currency from the Shariah perspective. Such digital currency is not categorized as a ribawi (usurious) item. Therefore, the trading of such digital currency is not subject to the principle of bai` al-sarf (currency 40 exchange). Digital currency that is backed by ribawi items - Digital currency that is backed by gold, silver and fiat currency If a digital currency is backed by ribawi items such as gold, silver and fiat currency, it is categorized as a currency from Shariah perspective. Hence, the trading of such digital currency is subject to the principle of bai` al-sarf. - Digital currency that is backed by ribawi items other than gold, silver and fiat currency If a digital currency is backed by ribawi items other than gold, silver and fiat currency, it is categorized as amwal ribawiyyah (usurious forms of wealth). Therefore, the trading of such digital currency is subject to the Shariah requirements of ribawi items. Digital Tokens Digital tokens are recognized as mal under the category of `urudh (goods) from a Shariah perspective. In determining the Shariah status of a digital token, the following matters must be fulfilled: (i) The proceeds raised from the issuance of the digital token must be utilized for Shariah-compliant purposes. (ii) The rights and benefits attached to the digital token must be Shariahcompliant. (iii) In the event that the utilization of proceeds under item (i) and the entitlement of rights and benefits under item (ii) above are for mixed activities of Shariah compliant and Shariah non-compliant purposes, the existing SAC resolution on utilization of sukuk proceeds and the business activities benchmark under the Shariah screening methodology for listed companies on Bursa Malaysia are applicable. If a digital token is backed by ribawi items, the trading of such digital token is subject to the Shariah requirements for trading ribawi items. Source: Resolutions of the Securities Commission Shariah Advisory Council (2020) 40
49. The Purpose & Mechanisms Electronic Money (E-Money) After the phenomenal growth rate of e-money usage (see figure 8), the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) at its special meeting on 29th January and 30th January 2020 issued a ruling that e-money is a permissible payment instrument under Shariah. This particular ruling came into effect on 19th of May, 2020 with detailed guidelines for e-money transactions to ensure their Shariah compliance. This is yet another step taken by Malaysia’s regulatory bodies to better regulate its fintech landscape. The already increasing trend in the use of e-money is highly expected to grow at an even more rapid pace following this ruling of the SAC of BNM. However, none of the non-bank e-money issuers in Malaysia have announced any Shariah compliant e-money status. Figure 25 Highlights from SAC of BNM decision on e-money Electronic money (e-money) is a permissible payment instrument under Shariah, provided that the e-money is structured based on appropriate Shariah contract(s) to preserve the rights and obligations of the contracting parties Issue 1 : Underlying Shariah contracts between the contracting parties E-money has to be structured based on appropriate Shariah contract(s) to preserve the rights and obligations of the contracting parties. - SAC is of the view that the contract of agency (wakalah) is one of the most suitable Shariah contracts that appropriately governs the rights and obligations of the contracting parties in an e-money transaction. - For the transaction between the approved issuer and the merchant in the current operating structure, the contract of services with fee (ijarah al-khidmat) or the contract of incentives (ju`alah) may be used. Issue 2 : Fund management by the approved issuer The approved issuer of Shariah compliant e-money must place the funds received from the user in a Shariah compliant trust account or a dedicated deposit account. 41 41
50. The Purpose & Mechanisms Issue 3: Imminent presumption of qard jarra naf`an in the practice of reward offerings The approved issuer may offer rewards for various reasons such as upon subscription to 42 their service, topping up the balance or utilization of e-money to make payments to merchants. Since the funds received from the user may be construed as qard from the user to the approved issuer, it raises the question on whether the practice of offering rewards contravenes the Shariah principle that prohibits any benefits to accrue to the lender (qard jarra naf`an). The SAC ruled that there is no issue of qard jarra naf`an in the practice of rewards offered by the approved issuer based on the following considerations: - the qard contract is only a supplementary contract, - the rewards neither intended nor targeted to reward the amount placed by the user, no inter-conditionality between the funds placed by the user and rewards given the Guideline expressly prohibits approved issuers from issuing e-money at a monetary value that is greater than the amount received; and - the practice (`urf) in respect to utilization of the funds by the approved issuers, creates a differentiation from normal banking business, which renders the qard contract as a supplementary contract. Issue 4: Utilization of e-money to transact with Shariah non-compliant merchants It is the user’s responsibility to ensure e-money is being utilized for Shariah compliant transactions. Source: Resolutions of the Shariah Advisory Council of Bank Negara Malaysia (2020) 42
51. Equity Crowdfunding (ECF) & Peer-to-Peer (P2P) funding are regulated under the ‘Recognized Markets’ guidelines. The guidelines, which are revised periodically, cover digital assets, ECF & P2P platforms whether offering conventional products or Shariah compliant products. The guidelines declare that wherever an Islamic capital market product is offered, the operator must The Purpose & Mechanisms Equity Crowdfunding & P2P appoint a Shariah advisor. In addition, the guideline specifies that a P2P platform operator shall use a Shariah compliant trust account with a licensed Islamic bank for the purpose of holding the Shariah compliant funds being raised. Figure 26 Highlights from Guidelines on Recognized Markets with regard to Islamic ECF & P2P Source: SC Guidelines on Recognized Markets SC-GL/6-2015 (R5-2020) (Securities Commission Malaysia 2020) 43 43
52. The Purpose & Mechanisms 44 Figure 27 Conventional & Islamic P2P & Equity Crowdfunding Platforms Source: Author’s Own 44
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54. Case Studies of Malaysia based Islamic Fintech Companies and Solutions
55. 46 46 Case Studies
56. Case Studies Ethis Malaysia 47 Ethis Malaysia is part of Ethis Global . Starting as an investment club in 2014, Ethis is widely considered as a pioneer brand in Islamic fintech and is known for its Shariah compliant digital platforms. Headquartered in Kuala Lumpur, Malaysia and with a branch office in Jakarta, Indonesia, Ethis currently runs: (i) A regulated equity crowdfunding platform that focuses on funding businesses and projects in the agriculture, property, social enterprise and waqf sectors (Malaysia) (ii) A regulated P2P platform whose main product focuses on financing social housing developments (Indonesia); and (iii) A charity, zakat and waqf platform called Global Sadaqah (Malaysia). Ethis also has a plan to launch another investment platform that focuses on financing property developments in Dubai. This case study focuses on Ethis Malaysia (www.ethis.co/my) Ethis Team 47
57. Case Studies 48 Fact Sheet Key Personnel Key Activities Ethis Global is led by the Group Managing Essentially Ethis Malaysia operates a digital Director and Co-Founder , Umar Munshi. Ethis investment Malaysia is overseen by its CEO, Mohamed capability to onboard SME equity investments. marketplace with end-to-end Shehzad Bin Mohamed Islam, who is supported by its COO and Head of Shariah, Mufti Yousuf Sultan. Three key seed investors were involved in the early stages of Ethis; Conex Cap, Quest Ventures, and Mountain Partners. Ethis Malay- Business Model sia is currently also in a private round of fundraising from selected investors. Value Proposition As an equity crowdfunding platform, Ethis Malaysia matches between issuers (Malaysian companies) and investors. Ethis Malaysia The value proposition of Ethis Malaysia can be summarized in the following points: Skilled in tech deployment and access to top developers and providers of emerging/ cutting-edge technologies. charges Malaysian companies that raise funding on its platform a fee equivalent to 6%-10% of capital raised. Other miscellaneous fees apply for services such as registration, onboarding, and post investment updates. Strong brand goodwill and wide network of brand advocators. Ethis as a group, adopts a financially prudent Shariah compliant products. strategy. While Ethis Malaysia leverages on the Existing base of global investors originating from as many as 59 countries. Experience with social/ethical and impact investments approach and eschews a growth at-all-cost group’s team of experts, the bulk of costs come from HR, technology and online marketing expenses. 48
58. Case Studies Market Segment Legal and Regulatory Framework As a digital investment marketplace , the Ethis Malaysia is approved by Securities platform must manage and grow both Commission Malaysia under the Recognised users (investors) and issuers (companies). Market Operator framework Ethis targets investors that focus on Shariah compliant products and social impact. The spectrum of investors cover retail, angel, sophisticated, corporate and institutional. For issuers, while Ethis is sector agnostic, conditional on issuers meeting the Shariah requirements, the preference is for issuers with demonstrable social impact. Ethis also targets issuers within the agriculture and property sectors as well as those with involvement in Waqf projects. Key Highlights Ethis Malaysia had its soft launch on 30th July 2020, coinciding with 9th Dzul Hijjah 1441. It targets to have a crowdfunding (issuance) value of between RM10 million to RM25 million in the first year of operation and scaling to three times the value by the fourth year. 49 49
59. Case Studies “ Ethis cross-country experience: An interview with Umar Munshi, Founder of Ethis Group. Mr. Umar Munshi has been a social entrepreneur since the age of 18. He has experience in health-tech, Islamic finance and education. His entrepreneurial journey has brought him from Singapore to Saudi ” Arabia, to a long stint in Indonesia in a partner ship with Ronald Wijaya, (Ethis Co-Founder) and now to Kuala Lumpur. Umar is also the CEO of Global Sadaqah, the Chairman of the Islamic Fintech Alliance, and a committee member of Fintech Association Of Malaysia. 50 Why did you establish the property crowdfunding in I ndonesia and equity crowdfunding in Malaysia? Why did you choose Malaysia for headquarters while the main operation is in Indonesia? Ethis is a portmanteau for ethical financing. Malaysia has always been a leader in Islamic Having a positive impact is part of our DNA. Finance and has shown the willingness and In Indonesia, we recognised and acted on the determination to keep that status. SC Malaysia potential to bring global investors into the adopts a forward-looking approach, and this is country evident when Malaysia became one of the investments. One such area of investment earliest countries to regulate the crowdfunding is space. government introduced the Housing Loan As a fintech start-up, we have to find the right Liquidity Facility Programme (FLPP) in 2010 balance between resources, talent and costs. to provide state-subsidised mortgages and Moving forward, physical office location will no mortgage longer be a consideration as remote work is President Widodo officially launched the already a norm; this will allow us to explore One Million Houses (OMH) programme. resources with a more global approach, which Through the OMH, the government plans to suits us very well because Ethis has a global provide adequate housing for low-income ambition. Despite the more global spread of Indonesians. Given the government’s focus in resources, we are confident that Malaysia will this area as well as the added security of continue to offer the right ecosystem for Islamic having finance and fintech, and therein lies its appeal. financing campaigns we had for our global in to the make social housing insurance, real impactful estate and assets ethical program. The in April backing 2015 the investors, most of whom were making their Indonesia, given the state of its economy, its first investments into Indonesia, property large the crowdfunding or rather, crowd financing expansion of its middle class is a natural social housing developments, made sense for market for Ethis. Its regulatory system for Ethis. Muslim population size and fintech has also undergone tremendous improvements not least due to commendable efforts by OJK. 50
60. collectively contribute about 38 .3% to the national GDP and in 2018 employed over 66% of all workers. While bank funding continues to As a whole, Malaysia’s regulators are forward be the main source meeting the needs of SMEs, looking and responsive to change. I think all alternative sources of funding, such as equity regulators recognise the changing landscape of crowdfunding (ECF) and peer-to-peer (P2P) finance and financial services but in terms of lending are expanding strongly and becoming speed of response, I would say Malaysia has increasingly important in the SME financing done a laudable effort. Case Studies Malaysia has close to a million SMEs that landscape. Based on the OECD publication, “Financing SMEs and Entrepreneurs 2019: An 51 OECD Scoreboard”, SMEs are turning to non-bank financing sources at a faster pace What is your assessment of the Malaysian crowdfunding ecosystem? than in the past. As far as Shariah compliance is concerned, profit and risk sharing based equity financing seems to be the closest to the spirit of Shariah. Having said that, P2P financing can It can be improved. Market outreach within the also be done in a Shariah compliant way and country for example needs more work. In terms we will not rule out entering this space too, of investment participation in crowdfunding subject to getting regulatory approval. SME (both ECF and P2P), Malaysia has probably not funding is one area of focus for us. We also see seen more than 10,000 investors participating a huge market gap in terms of funding in the alternative financing space. This is based agriculture related anecdotally from data shared by a leading projects. Of course, we will remain true to our platform with the largest current market share founding where they reported having 1,256 investors in investments principles and Waqf and funding social enterprises will be a key area of focus too. 2018. Malaysia offers a huge market for these areas It would be also meaningful if Malaysia adopts of focus. a more global approach in terms of the issuances allowed. Malaysia is after all recognised as the leading global centre for Islamic finance. Right now, only Malaysian companies are Based on your experience, what is your assessment of Malaysian crowdfunding regulations? Malaysia is recognized as being among the top jurisdictions for benchmarking regulations for alternative finance at a global level. Malaysia issued the first regulations for allowed to raise funding on Ethis Malaysia. It would be useful to have global (non-Malaysian) companies, subject to the right regulation including proper assessment and due diligence screening, be allowed to use Malaysia to launch their start-up operations or raise funding. equity crowdfunding in the ASEAN region, and its alternative finance industry has steadily grown. 51
61. Case Studies 52 What are the challenges that you faced in operating crosscountries ? What is the impact of COVID-19 on Ethis’ operation? For multinational corporations, geographical COVID-19 has caused a reduction in operating expansion is supported by a set of robust and revenue and with that we have had to well internalised set of systems, processes, “right-size” but the positive outcome of that is policies and procedures. Regulatory context our core team is now more focused, alert, may differ, but the execution of tasks would hungry and nimble towards new opportunities have similar if not the same approaches. Often, whether these opportunities are discovered or these created. systems, processes, policies and procedures would have been developed and refined over a considerable stretch of time. Under Industrial Revolution (IR) 4.0, it is As an entrepreneur, what is your recommendation for those who would like to start their journey in Islamic fintech? commonly argued, and to an extent, already demonstrated that jobs with these three qualities are most likely to be automated; repetitive, based on rules and involving limited or well-defined set One of the main challenges for most fintech processes, systems and procedures are solutions and ideas, is to obtain regulatory necessary approvals to physicality. bring However, predictability and or exemptions. This must be consistency. What I am trying to say, perhaps in seriously considered right at the beginning, an elaborate way, is that as a start-up we need including understanding the likelihood of to develop these systems, processes and obtaining such approvals, the time it may procedures almost from scratch but that is a take, technical and compliance requirements challenge that our team embraces and I believe and the costs involved. Some licenses in we have successfully navigated through. some countries are no longer available, which Of course, the regulatory complexities are means that new startups will have to try to another matter of significance when operating partner with existing licensed cross-countries. Again, operators. The journey in I would like to fintech starting and emphasise that Ethis, despite these challenges, growing an Islamic fintech company is going believes that it can, and in-sha-Allah will have, a to be a challenging one, so my other main global presence. advice is for founders, to be mentally prepared to last the distance Amongst the specific operational challenges we encounter is foreign exchange volatility and cost of payment transfer for our global base of investors. 52
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63. Case Studies Escapade by Etiqa Digital Solutions Etiqa , the Insurance and Takaful arm for Malayan Banking Berhad (Maybank), introduced 54 Etiqa Digital Solution (EDS) as the digital lab for the organization, to enable the capability of capturing new value from digital initiatives. EDS established Escapade program in 2019, an incubator and accelerator for takaful and insurance startups. Located in the heart of Bangsar at Level 16 of Menara Etiqa, the 14,136 square feet space named “Escape” is a new co-working space for tech startups and the physical space for Escapade program; aiming to bring together talents from across the region in order to build a symbiotic ecosystem amongst the startup community. Escape Office, Kuala Lumpur 54
64. Case Studies Fact Sheet 55 Key Personnel Key Activities Etiqa Digital Solution (EDS) is led by its Chief Executive Officer; Amran Workspace: Escape offers startups the flexibility of hot desking or renting a fixed desk as their day-to-day office. Another option would be the cozy private office rooms which target startups that demand privacy. Spacious meeting rooms with high speed internet connectivity, discussion booths, studios for podcasting, and mothers’ rooms are some of the available amenities that are prepared especially for members of the co-working space. Hassan. The company ventures into the realm of fintech operators; focusing on, but not limited to, insurtech and takafultech startups comprising of multidisciplinary teams that are experienced in Design Thinking, Design Sprints, User Interface & User Experience (UI/UX), and Agile methodology; to name a few. The company works hand-in-hand with startups across the region to bring digital An incubator and accelerator for takaful and insurance startups: The Escapade program serves as Etiqa’s platform to collaborate with startups to achieve the goals of either scaling their business, or raising funds capabilities to the organization and also introduce new products and services to the market. 55
65. Case Studies 56 Value Proposition Business Model The unique proposition of the Escapade ’s The business model behind the initiative was a platform is the flexibility of the program. hybrid between ‘Incubator’ and ‘Accelerator’. Through the platform, startups are invited to Incubators typically ‘incubate’ disruptive ideas submit their proposals to Etiqa regarding in hopes that the idea will develop into a viable possible collaboration models. The Escapade business model. Accelerators on the other collaboration to hand ‘accelerate’ the growth of established expand their market reach, not only in startups by scaling their businesses. As both Malaysia but also regionally. Etiqa’s presence incubators and accelerators have similar goals in the region has remained resilient amidst the of helping out startups in growing their uncertain economic climate. With countries businesses. The programs and initiatives were such as Singapore, Indonesia and Philippines modelled to mimic the framework of an already under Etiqa’s belt, the group’s recent incubator and also an accelerator, but not foray into Cambodia’s insurance market has entirely. The assimilation of the two models seen the insurance and takaful company allows Etiqa to tap into the strength of each further expand its wings outside Malaysia, model and at the same time reduce the high allowing the organization’s start-up partners average number of program drop-outs, which the remains one of the pressing issues for chance further to enables explore startups markets beyond incubator and accelerator programs. Malaysia. Market Segment Legal and Regulatory Framework Entrepreneurs in the field of Islamic and As a digital lab, there is no specific regulatory conventional insurance. framework. Key Highlights To date, Escapade has garnered interest from more than 50 startups from all over the South East Asia region applying to be part of the inaugural program, with close to a dozen projects being identified and finalized for deployment in the near future. 56
66. Islamic Fintech Labs : An interview with Mr. Amran Hassan, CEO of EDS: Amran Bin Hassan, CEO of Etiqa Digital Solutions Sdn Bhd, and formerly Head of Maybank Corporate Development & Innovation (CDI). Prior to joining Maybank in 2012, Amran was a Senior Executive PartnerTechnology Consulting (Malaysia) & Infrastructure (Southeast Asia) at Accenture Malaysia. ” What is the motivation behind establishing Escapade? The constant pursuit of wanting to introduce new technologies, products, services, sales channels and markets has been the catalyst for Etiqa to achieve the objectives of: (1) Disrupting the insurance experience (2) Enhancing the insurance ecosystem With these objectives in mind, one of several key initiatives is the introduction of Escapade. What does Escapade offer its participants? In principal, Escapade offers 4 key forms of support: 1) Co-working space: Participants will have access to the Escape co-working Space, 2) One-to-one tailored program: Each startup will have a unique program with Etiqa, based on the ventures identified and would be working closely with the teams, leaders and partners of Etiqa, 3) Product validation: Participants of the program will have access to our customers across the region to help validate any products or ideas, and 4) Raising funds: Participants can leverage on Etiqa’s network to connect with potential investor and funding partners How does Escapade nurture the hosted startups? As each startup that partakes in the program typically has different goals, the platform would bring the startup’s offering and capabilities, and later match them with the objectives of the project sponsors within Etiqa group. This method minimizes program drop-outs as there would be a mutual understanding and expectation from both parties (i.e. the startup and the project sponsors) when projects are being rolled out. The appeal from treating the program similar to a project style is the ability to track success. There is no specific time frame for how long a start-up would be in the program as the approach is treated similar to a project with a pre-agreed timeline. 57 Case Studies “ 57
67. Case Studies 58 What are the key focus areas /verticals of the lab in relation to Islamic fintech and Why? Leading verticals such as payments, wallets and insuretech have been Malaysia’s top three dominant segments in the country’s overall fintech ecosystem. The introduction of Escapade has sparked collaborative interest from several Islamic-based ‘tech-prenuers’ toward the programme. These startups are involved in multiple sub-verticals of Islamic fintech, garnering interest from TakaTech players, Islamic community enablers and also from the Halal industry. As part of Escapade, these Islamic fintech players will have funding access depending on the company’s appetite to scale up the business beyond their current market. Does Escapade target a specific stage in a startup’s lifecycle The Escapade program caters to the different stages in a startup’s lifecycle; ranging from early stage startups, to growth and also matured players in the ecosystem. Startups that collaborate with Etiqa will have access to resources from Etiqa such as coaching and mentorship from the senior management teams, as well as access and support from program partners which comprises of government agencies, private owned entities, and Venture Capitalists (VCs) from countries within the region. The collaborative business model with the startups from different fintech verticals allows Etiqa to penetrate various market segments. 58
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69. Case Studies Finterra 60 A technology company providing blockchain-based Islamic applications . It was established in 2017, and currently has presence in Malaysia, Singapore, Hong Kong and UAE, with plans to further expand to Africa, Saudi Arabia and Oman. Finterra has developed blockchain solutions for Islamic social finance including charity (Sadaqah), endowment (Waqf) and alms (Zakat), integrating crowdfunding technology. With its solutions, Finterra hopes to revitalize Islamic social finance across the globe, with a major focus given to Waqf in order to unravel numerous endowed assets globally that were previously deadlocked due to regulatory restrictions. 60
70. Case Studies Fact Sheet 61 Key Personnel Key Activities Finterra is founded by Hamid Rashid and Though Finterra is established with a focus Satesh Khemlani who is also the Managing on Director . blockchain solutions, it also offers other Finterra’s top management comprises of blockchain based fintech solutions including: Sreecharan Architect), Kunutur Syed Abid Operations), Fathimath Compliance & (Chief Technology Governance), Islamic social finance Gallactic Blockchain (Head-Business Badeeu providing Token Sales System (Head– Mamoun FINVault – Digital Wallet Khanfar (Director – International Sales) and Rajesh Tarasia (Head – Finance & Audit). FINPay – Payment Gateway Finterra also has an advisory board that FINUnion – Invoice Financing consists of Prof. Dr. Syed Khalid Rashid, Prof Dato Dr. Ahamed Kameel Mydin, Dr. Ahcene FINMicro – Micro Finance System Lahsasna, Dr. Umar Oseni, Dato Manap FINEx - Crypto Exchange Wahab and Mohamoud Dualeh. 61
71. Case Studies Value Proposition Business Model With technological advancements in the area As a waqf crowdfunding platform , Finterra’s of crowdfunding business model is based on intermediation. intermediation platforms, Finterra offers a Yet, Finterra’s businesses expand into other breakthrough by using modern technology areas in which there are several revenue that could help to resolve the global dilemma streams including: b l o ck ch a i n and of revitalization Islamic social finance. The 62 Cloud software subscription fees charged to different stakeholder users on the Waqf Blockchain platform, transaction fees applied to the transfer of funds within the blockchain, and success fees applied charged to charitable, waqf, or investment projects for raising funds. aim of Finterra is to deliver innovative solutions that address the bulk of issues faced by Islamic social finance in order to utilize these tools at its highest potential to benefit our communities. White-Labelled software implementation services charged to clients who purchase software licenses Other fees charged for consulting, advisory, and training services. Finterra also makes profits via its investments in projects. Market Segment The main market segment is Islamic social Legal and Regulatory Framework financial institutions including waqf entities and NGOs. Finterra also caters to businesses looking for technology and operational experts by offering blockchain solutions, software and mobile app, consultation and training. It also targets developing financial institutions blockchain-based by products Finterra is mainly a technology provider that caters to the financial industry. However, some of Finterra’s products may fall into regulations of central banks and the purview of capital market regulators. including digital wallets, and payment The company is in the process of acquiring gateways, among others. relevant crowdfunding & P2P licenses from the Securities Commission of Malaysia. Key Highlights Finterra concentrates on acquiring/onboarding reputed large enterprise client accounts. It has secured 12 global enterprise clients including IsDB, Al Rajhi Endowment in Saudi Arabia, Alizz Islamic Bank in Oman, Yayasan Waqf Malaysia and HAL Micro Finance in Kenya. 62
72. Hamid Rashid is the Founder of Finterra and responsible for developing the WAQF Blockchain (WaqfChain). Hamid has over eighteen year s of technology consulting experience in Enterprise Software Business Management and Business Development. He is a specialist in technology IP development, technology commercialization, venture capital investment and property investments with a record of work experience in corporate giants such as Hewlett-Packard (HP), PETRONAS and U&Me Communications. ” Case Studies “ Blockchain for Islamic Social Finance: An Interview with Mr. Hamed Rashid, founder and CEO of Finterra 63 Despite the success of Finterra, what are the reasons behind the limited number of campaigns/contributions on the WaqfChain platform? Finterra utilizes an extensive due diligence process in creating causes and funds within the platform to ensure that all accepted projects are adding value to society. As a result, many causes and funds submitted are rejected due to missing information, misrepresentation, investor safety, Shariah structuring and other such matters. Hence, limited, yet verified and legitimate causes and funds are published on Finterra’s platform. On average, we publish 2 causes per quarter, averaging about RM3 to RM4 million to be raised. That’s about RM12 million to RM16 million per annum. Would you briefly explain about FIN digital asset? FIN is actually a smart contract and not a digital currency. Finterra WAQF platform is in essence a smart contract based, controlled and automated blockchain ecosystem. Projects are listed to be funded based on various Islamic contracts which are defined in the smart contract, each of these smart contracts will be adhering to ERC 777 standards and are named after the project which they represent. Every contribution into these projects will result in acquisition of a token. Finterra will be deploying an exchange ecosystem where the token can be exchanged and traded. The unit of exchange on this platform is FIN token which is an ERC 20 token. The system was designed in this format vowing to the fact that ERC 20 is a more easily exchangeable and well understood standard than the ERC 777 standard. This FIN token will be exchangeable to other stable tokens in the public exchange. This process will easily enable project owners and contributors to create and access a new asset class respectively. 63
73. Case Studies Operating in 5 different countries , what are the key challenges facing blockchain applications in the Islamic social finance sector in your view? Many jurisdictions across the globe are now moving towards adapting blockchain in the finance industry. However, it is noted that most countries are at the research phase of this process in order to identify the best means to integrate this technology within the current legal and regulatory framework as well as established operations. One area that is hindering the development of blockchain for Islamic social finance is that of regulatory 64 compliance. Since the technology is new, regulators have to do extensive research prior to rolling out policies and regulations to ensure that this technology is not taken advantage of for malicious activities. With laws and regulations already existing to govern the financial industry, integration of blockchain into the mix is complex and time consuming. Yet, certain jurisdictions have offered a safe and open environment for financial institutions to delve into this area in order to optimize their operations. Finterra is trying leverage on such opportunities. Based on your experience, what is your assessment of the development of blockchain for Islamic social finance globally? Over the last few years, experts have recognised the benefits which blockchain technology offers in solving pressing challenges including inefficiency, lack of transparency, and the widespread bureaucracy. Additionally, there is a shift in the current generation of youth who are more tech savvy and looking for solutions which are transparent and convenient. Although not yet seen as the perfect solution, with better understanding and greater adoption, there will be more development of Islamic social finance. Furthermore, many jurisdictions are moving more towards blockchain, especially in Islamic social finance. For example, in Indonesia, Badan Waqf, in collaboration with UNDP, launched a Waqf blockchain with the aim to finance UN SDGs. In Malaysia, Zakat payments were accepted in cryptocurrency by NGOs such as Global Sadaqah. Similarly, in Middle Eastern countries such as Oman, Alizz Islamic Bank is working on using blockchain in their operations, specifically in the area of sadaqah contributions. This is seen in Tanzania as well where large Islamic Banks are looking to adopt blockchain platforms to offer a more transparent and traceable avenue for their customers to contribute Sadaqah, Waqf and Zakat. 64
74. The Malaysian fintech ecosystem has come a long way in relation to blockchain Case Studies What is your assessment of the Malaysian fintech ecosystem in relation to blockchain? adoption with 3 licenced crypto exchanges in the year 2019. This shift has brought about a great sense of relief in terms of blockchain usage by the general public in a large way. Regulators have also come a long way with their sand boxes and meetings of the minds in various organized events, adapting to this disruptive technology. In fact, crowdfunding, P2P, ICOs, security tokens & crypto currency have witnessed a major shift in regulations within a short span of two years, which is quite a feat achieved by the regulators in Malaysia. This has enabled a new trend in fintech startups and fintech companies to easily adapt to the new blockchain technology with ease. What is your recommendation to the regulator? While the above-mentioned feats by the regulators are a great leap forward in the right direction, the view of the industry players is slightly different because they benchmark against the speed of the changing technology landscape. They want the regulators to not only be reactive but also conducive in their approach. Considering countries like Estonia who have embraced blockchain not only as a reactive response but also have largely implemented it in many day-to-day activities of the public like healthcare, identity, voting, banking etc. We hope that the regulators in Malaysia will be more conducive in their approach to enable blockchain applications beyond the support of the key financial activities. Blockchain can then change the landscape of the financial ecosystem, like banking on the blockchain, complete accounting and reporting on the blockchain, use of blockchain in Islamic social financial ecosystem. By re-evaluating various limits and allowances of the existing regulations, it can enable the possibility of larger operations in the fintech space and hopefully bring about regulations to recognise smart contracts as de facto financial contracts on the blockchain. 65 65
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76. Case Studies Islamic Markets 67 IslamicMarkets .com is a learning, financial intelligence and collaboration platform for the global Islamic economy that provides tools that help professionals and institutions steer the market, unlocking commercial opportunities. It was founded in 2014 in London with the mission of harmonizing the global Islamic economy. In January 2020, Islamic Markets established its regional hub in Kuala Lumpur, Malaysia as part of its global expansion plan. 67
77. Case Studies Key Activities IslamicMarkets offers a single digital platform for the global Islamic economy with the following core solutions : Fact Sheet IslamicMarkets IQ: A dedicated market intelligence platform providing access to market data from a growing library of over 50k publications and 68 reports. The platform also provides access to a wide range of actionable content and tools from Sukuk markets and companies to industry reports. IslamicMarkets Learning: A dedicat- Key Personnel ed platform of industry-led learning modules, designed around the needs of the Islamic economy while IslamicMarkets is driven by a team of people leveraging IslamicMarkets’ compre- who have deep experience in the industry. hensive learning infrastructure to Shakeeb Saqlain, the founder and CEO, has create customised programmes and worked in the financial services industry for delivering on-demand training. over a decade. Javaid Karim, the CTO, is a veteran fintech developer with wide IslamicMarkets LIVE: An interactive experience in financial institutions. live broadcasting platform to share expertise IslamicMarkets also has an advisory board and deliver events to institutions on topical issues. including Daud Vicary, a former President and CEO of INCEIF, Yasmin Mahmood, former CEO of MDEC, Adam Sadiq, Co-Founder of IM Messenger: A tool that connects New World Capital Advisors, and Khalid more Howladar, Senior Managing Director of R.J. IslamicMarkets platform. Fleming & Co. IslamicMarkets has closed strategic funding with prominent groups of companies in the global Islamic finance industry including DDCAP Group and New World Capital Advisors in 2019. 68 than 250k users on the
78. Case Studies Value Proposition Islamic economy and financial markets are fragmented and not easily accessible. This restricts opportunities for firms to start up and grow, create jobs, and spur innovation, hindering overall economic development. IslamicMarkets.com has been founded to address this gap. It provides tools that help professionals and institutions unlock 69 commercial opportunities. IslamicMarkets’ proprietary technology also provides clear differentiation against direct competitors, especially in terms of product maturity, functionality, and direct integration with the Islamic finance community, user interface and ease-of-use. Business Model Market Segment IslamicMarkets operates on a subscription IslamicMarkets aims to meet the needs of model with two key offerings: numerous institutions and companies in Enterprise offering: Customized solutions to cater to institutional clients’ needs Professional subscription: affordable subscription plans for individuals to learn and participate in the global Islamic economy. the Islamic economy such as central banks and government agencies, Islamic banks, investment firms as well as researchers and academicians, amongst others. Legal and Regulatory Framework Key Highlights As a learning and financial intelligence Having more than 250,000 users, Islamic- platform, there is no specific regulatory Markets.com has become the largest online framework. platform for the Islamic economy. 69
79. Case Studies 70 “ Entrepreneur journey in Islamic fintech: Interview with Mr. Shakeeb Saqlain, the founder and CEO of IslamicMarkets. Shak eeb Saqlain is the founder of IslamicMarkets. He brings over 15 year s of banking and fintech experience to the company, with a track record of working in two of the world’s largest investment banks, Morgan Stanley and Barclays Capital, in Bloomberg, and in the world’s oldest Islamic Bank in the capital markets, Dubai Islamic Bank. Would you please talk to us about your journey? How did it all start? I started in the banking industry at the height of the financial crisis in 2007; realising that the conventional model of banking was broken, I started exploring the Islamic finance market, eventually joining the world’s oldest Islamic bank, at Dubai Islamic Bank (DIB). Immediately, I saw the potential of the Islamic economy, but the market was difficult to scale and was globally disconnected, which eventually led to IslamicMarkets.com Why IslamicMarkets.com and why the Islamic Economy niche? The Islamic economy is worth over US$5 trillion, so it’s a big “niche”. Despite this potential, the market received very little attention, which made it challenging for firms to access and grow. As a result, from day one IslamicMarkets.com aimed to create tools that would allow professionals and firms to steer this market, which has played an important role in unlocking commercial opportunities. In your opinion, what areas in Islamic finance need fintech solutions the most? On the institutional level, Islamic banks are facing strong competition from more tech-enabled conventional fintech firms and banks, and I feel they need better distribution and customer engagement, otherwise they will lose market share in the coming years. On the retail level, I’m very excited by the potential of Islamic social finance, and leveraging fintech can support the growth of this segment. 70 ”
80. Case Studies What are the common mistakes new entrepreneurs in this space need to stay away from ? As an entrepreneur, you’re in a race to identify product-market fit. Listening to your customers, surrounding yourself with a strong team and iterating fast are all vital. Sometimes, new entrepreneurs can take on too much and lose focus on these three areas. Lack of funding is argued to be one of the key obstacles facing Islamic fintech businesses. While there are a lot of Islamic banks ready to finance traditional businesses, there are very limited angel investors, VCs and PEs looking into financing Islamic fintech. Why do you think this is the case for a growing economy worth trillions of dollars? Islamic fintech firms are generally disconnected to the wider ecosystem, which restricts their opportunity to raise funding and grow. There is a strong need to build vibrant tech-clusters in our local economies that bring together entrepreneurs, investors, academia and other stakeholders, creating zones of sustainable development and innovation, thereby attracting VCs and PEs. 71 71
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82. Case Studies microLEAP 73 microLEAP is a Malaysian P2P (Peer-to-Peer) financing platform that focuses on the microfinance sector. It was established in 2018 and given “Go-Live” permission by Securities Commission Malaysia (SC) in October 2019. microLEAP team 73
83. Case Studies Business Model microLEAP allows issuers access to an alternative source of funds : The Peer-to-Peer (P2P) Lending market. The platform allows investors to bypass the intermediary banks and microfinance institutions and directly invest in micro-enterprises. The platform’s source of income is the 74 fees charged to Investors/lenders and to Issuers/borrowers. Market Segment Fact Sheet Key Personnel On the investment side, microLEAP targets worldwide P2P retail investors that are tech savvy with disposable income to invest. On microLEAP is led by Tunku Danny Nasaifuddin the Mudzaffar micro-enterprises (founder and CEO), Matthew issuers side, it targets looking for Malaysian alternative Fernandez (COO), Marzuki Musa (CMO), and financing, for e.g. micro businesses selling Amir Azril (CTO) halal confectionary online or small businesses that sell cookies offline and online. Key Activities Legal and Regulatory Framework Islamic and Conventional P2P microfinancing Regulated by the Securities Commission Value Proposition Malaysia (SC). Key Highlights microLEAP is an online platform that offers both Islamic and conventional alternative financing for micro-enterprises, from as little as RM 1,000 up to as much as RM As of November 2020, 37 projects, (31 Islamic 50,000, which is funded by P2P Investors. and 6 conventional), have been fully funded This segment is not the focus of most of through microLEAP. the financial institutions. 74
84. Case Studies “ A dual fintech-based solution: An interview with founder and CEO Tunku Danny Nasaifuddin Mudzaffar. 75 Tunku Danny Nasaifuddin Mudzaffar is founder & CEO of microLEAP. He is an ex-bank er having held senior positions at 2 international banks in Kuala Lumpur and London. He has 15 year s of financial services experience and brought all the knowledge and skills he learnt from lending into his P2P microfinancing start-up, microLEAP. Tunku Danny holds an MBA from the Nottingham Uni ver sity Business School. ” Why did you decided to open conventional and Islamic P2P at same time? What is P2P? And what is the difference between Islamic and conventional P2P? P2P (Peer-to-Peer) Financing is an alter- We at microLEAP believe that native financing tool that connects P2P alternative financing should be open Investors (lenders) to Issuers (borrow- to everyone. If you are a micro- ers). In Malaysia it is regulated by the enterprise looking for financing, then SC. Financing is only for working capital microLEAP should be your platform of or business expansion as no personal choice. financing is allowed. The difference between Islamic and conventional P2P is that Islamic P2P financing is based on Islamic principles and must be used for Shariah-compliant industries and products. Conventional P2P does not have to adhere to these principles. At microLEAP, for Islamic financing, we use the concept of commodity Murabahah (via Tawarruq arrangement). Tawarruq involves a purchase of assets or commodities on a deferred payment basis by way of Murabahah as the financing mode. For conventional financing, we use interest-based loans. 75
85. Case Studies What are the strengths and weaknesses of having a dual business (i.e. Islamic and conventional)? 76 The strengths are that you do not exclude any P2P investors that are looking for ethical investment assets. We have a good mix of Muslim and non-Muslim investors funding many of our Shariah compliant investment notes and you probably would not get this kind of mix if we were only Shariah compliant. Also, many of our micro-enterprises that we have hosted on our platform may have initially applied for conventional financing, but once we explain to them that there is higher demand for Islamic Investment Notes, that there is also no difference in cost and provided that their business is not on our non-Shariah compliant list, then we have actually managed to convert them to raise Islamic financing. All this helps to grow the Islamic P2P market as a whole. The weakness is that there may be some P2P investors that do not like to see Islamic and conventional assets on the same platform. However, we do tell them that we have segregated Islamic trustee accounts that never co-mingle with our conventional trustee accounts and that they may choose filters so that they may only see our Shariah compliant Investment Notes. Once we explain to them what we are trying to achieve then they generally come around. Are there any special requirements by law for operating Shariah compliant P2P as compared to conventional? Yes, we must have a Shariah Pronouncement signed-off by the Shariah Board of our Shariah advisors and our Islamic Rulebook must be given the green light by Islamic Capital Markets (ICM) of the SC and also the Shariah Advisory Council of the SC. At microLEAP, we don’t have our own Shariah Board, but we have appointed SCregistered Shariah advisors to ensure we adhere to Shariah principles in all of our Islamic issuances. We chose a Shariah Advisor who was business friendly, knew about Islamic fintech and dynamic enough to listen to new ideas. 76
86. Case Studies Comparing with the conventional P2P , what is your assessment of the demand for Shariah complaint P2P? Demand for Islamic Investment Notes from our P2P Investors has been tremendous. We started with conventional Investment Notes first as we were still waiting for the SC to give us the green light for Islamic P2P, but once we launched Islamic P2P in April 2020, we finally started seeing some real traction. My initial target was to be 60% Islamic and 40% conventional. We are now 90% Islamic and 10% conventional. We are now focused on Islamic financing as this is where the demand is. On the Issuer (borrower) side, we still see a 50/50 split on demand for Islamic financing vs conventional financing but that is purely due to lack of understanding of Islamic financing. Many believe that the costs are higher for Islamic financing, but after we explain to them that there are no extra costs compared to conventional, and that microLEAP absorbs the commodity Murabahah brokerage fee, they are more than happy to try and raise in a Shariah-compliant manner. Is there any key difference in the credit rating algorithms used by P2P platforms and the ones used by traditional banks? There will be some differences. P2P may look at alternative credit-scoring methods to enhance traditional credit rating methods. For microLEAP, we use Psychometric Testing, which measures the willingness of a borrower to repay their financing, which is considered alternative credit data. Do you agree that P2P will always be a complementary business as it is only for those who can’t access traditional banking services? P2P financing will always be an alternative financing tool. It captures the businesses that have fallen through the cracks of traditional banking. P2P is truly increasing financial inclusion. The SC estimated in 2018 that there is an RM 80 billion funding gap for SMEs in Malaysia, so we still have a long road ahead of us. 77 77
87. Case Studies Based on your experience , what is your assessment of the Malaysian P2P regulation and ecosystem? The SC has been a fantastic regulator and they have done a great job. By limiting the number of P2P operators to only 11 in Malaysia, we have not fallen into the problems that 78 happened in China where thousands of legal and illegal P2P operators mushroomed and caused many P2P investors to lose billions when they suddenly closed shop and did not have any proper guidelines to follow in terms of origination and collection. What is the impact of COVID-19 on P2P operation? In the long run, do you think post COVID19 will be the same as Pre-COVID19? COVID-19 has hit businesses very hard. Many will not survive. This has caused many P2P operators to be more vigilant with their credit screening. For microLEAP, we are keen to onboard issuers that have some online presence that can weather this pandemic. Once the dust settles, and a vaccine has been found, I expect to see a V-shaped recovery as consumers start to spend again and businesses thrive. microLEAP will be ready and waiting to give these micro-businesses an extra boost when this happens. Snapshots of micorLEAP website – the successfully funded notes 78
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89. Case Studies 80 SKILIK SKILIK is a start-up established in 2019 as a commercial vehicle for marketing SKIL Robo Shariah Advisor (SKIL-RSA) in Malaysia and abroad. SKIL-RSA is an online learning platform that utilises artificial intelligence technology. In addition, it aims to be a decision-support system for Islamic financial institutions. SKIL-RSA capitalizes on a rich portfolio of patents of automated engines for smart processing and presentation of Islamic financial products and processes. 80
90. Case Studies Fact Sheet Key Personnel Key Activities SKILIK has been founded in May 2019 . Since SKILIK develops product-based modules for its inception, SKILIK has been managed by SKIL-RSA Banker Modules focus on the its founder Dr. Ahmed Mabrouk. Shariah aspects of product development and compliance. Value Proposition SKIL-RSA Customer Modules uncover the product, and provide users with an automat- SKILIK is a response to the shortage of based tools for Islamic Financial Institutes (IFIs), which are available to their conventional peers. The lack of such tools curtails the productivity of IFIs. With the provision of Expert Systems for educational, regulatory, data analytics, and decisionSKILIK hopes to contribute to the 56 81 81
91. Case Studies Business Model 82 Market Segment Legal and Regulatory Framework SKIL-RSA modules are designed for Islamic SKILIK represents the counter part of Oracle banks and takaful operators . They can also and SAP in providing financial services on the be used by standard setters, chartered Islamic front. SKIL-RSA modules naturally organizations, and academic institutes that follow the regulatory scheme adopted by our provide educational modules of Islamic customers, e.g. BNM resolutions in Malaysia, Finance. and AAOIFI standards. Key Highlights SKILIK is a new startup. Yet, it has recently secured its first customer that is the Malaysia Building Society Berhad (MBSB). The project with MBSB focused on its first stage on developing banker modules to facilitate handling Shariah- related issues through utilizing a practical and simplified educational system. 82
92. Case Studies “ AI Applications in Islamic Finance: Interview with Dr Ahmed Mabrouk, founder and CEO of SKILIK Dr. Ahmed Mabrouk is a professor of artificial intelligence and an author in Islamic finance and Islamic philosophy of science. He received his PhD degree in Electrical and Computer Engineering from Boston Univer sity, USA, in 1998. Over the past thirty years, Dr. Mabrouk has worked for industry and academia in US, Canada, and Malaysia. ” Is SKIL-RSA already adopted by any of the IFIs? Yes. In Malaysia, MBSB Bank has already adopted SKIL-RSA modules for their Tawarruq-based products. Both the Banker and Customer Modules have been launched and ported on MBSB Bank’s website. The Banker module is used by Shariah officers and internal staff who are looking for an automated tool to configure new products and conduct compliance checks and audit reporting. And the Customer module is used by the clients who are looking for better understanding of offered products, as well as a smart financial planning tool. Additionally, discussions are underway with a local bank and an international university in the Middle East for regulatory and machine learning applications respectively. Could you highlight the key features of SKIL-RSA, with some examples? SKIL-RSA provides an integrated online platform for studying selective topics of Islamic finance in a user-friendly manner. Additionally, users can ask questions, conduct comparative analysis of contracts and financial products, and explore legal maxims and their related cases. For example, users can ask about the type of losses the customers would be liable for under a formal promise, as per the central bank policy for instance. They also can ask about the difference between applicable Shariah contracts in terms of the rendered service. 83 83
93. Case Studies How is SKIL-RSA is different from traditional search engines and databases ? Traditional search engines use keywords to extract the desired paragraphs from databases, leading to substantial redundancy. Google search engine, for example, generates many pages of results, which require significant time and effort to locate the 84 desired data. On the other hand, SKIL-RSA addresses concepts and themes, which can be explored through semantically-related topics and across various schools and related sciences. It is also important to note that Semantic Web3, which represents the latest technological trend in web development, enables machine-to-machine communication, in addition to the machine-to-human communication, enabled by Web2. Web3, requires knowledge to be in a machine-processable format, which is achieved in SKIL-RSA through the use of a Usul-based ontology, specifically designed for Islamic Finance applications. Moreover, SKIL-RSA distinguishes itself with a powerful navigation system for easy transition between related topics. Such navigation systems shorten the turnaround time of researchers and product developers by integrating all required resources in a single platform. Accordingly, users of SKIL-RSA can selectively browse the entire knowledge base, eliminating the serial notion of flipping the pages of a book. You have mentioned that SKIL-RSA enables consulting an automated Legal Advisor. Would you elaborate on this, please? The Legal Advisor handles the complex financial scenarios where outcomes vary based on the combination of several parameters. To determine the correct answer, the user is prompted with a set of questions for a full description of the situation under question. An example of a complex scenario could be; “When does the fund manager of a Mudharabah become liable for covering the incurred business losses?” 84
94. We have to remember that all AI solutions add an extra layer of computation to enable Case Studies Despite the promising features of AI , the cost of developing seems to be high. Do you think AI is a feasible option at this juncture? intelligent services, which are not originally offered by digital computers. This unavoidably imposes computational overhead, as well as higher development costs. However, the good news is that the recent increment of the speed of computational devices has made the CPU time of AI tasks reasonable. To reduce the deployment cost of an AI solution, users need to simplify the problems to be solved. Additionally, managers have to ensure that the AI solution under consideration indeed addresses their needs and that most of the features of the AI solution will be in use. Does an advanced level of AI mean that machines are able to develop an opinion that is not explicitly stated by any authorities or Shariah scholars? I am more inclined to the notion of “Mufti-Companion,” or “Mujtahid-Assistant,” which keeps the final say in the hands of the human scholar, while providing him/her with all required resources. Development of a Shariah view is a highly complex process, and thus a high-risk one, even when conducted by outstanding scholars. To reduce the inherent risk of this process, human confirmation is needed, not only at the level of an individual scholar, but preferably on a collective basis. However, as our AI algorithms get smarter and smarter, the likelihood of offering acceptable automated advice will surely increase. How do you asses the acceptance of Shariah scholars and bankers to the idea of Shari-ah robo-advisory? Shariah Robo Advisory belongs to the bigger theme of automation and smart services. The degree of acceptance of this theme is largely tied to the culture of the society. Notwithstanding the cultural impact, I strongly feel that the increasingly expanding role of AI has become a one-way road and already reached the point of no-return. The only point of caution is that the potential of AI should be objectively assessed and correctly positioned. Unfortunately, the marketing campaigns associated with AI solutions exaggerate their capabilities and create unrealistic expectations in the minds of customers. 85 85
95. Case Studies Despite the global success of many fintech startups , they still face challenges in penetrating the traditional market. Do you think that IFIs are ready to work with fintech start-ups? Or do they prefer to work with bigger, more established tech companies? The difficulty of market penetration is not unique to fintech. The same challenge exists in all areas of production and services. Corporates are more at ease in dealing with a high-profile vendor. Startups can capitalize on lower cost, customized products, and 86 more personalized customer service. The good thing about fintech for startups is that the market is still evolving, and many new applications are being unfolded. I do not see fintech approaching saturation in the near future. 86
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97. Case Studies FinTech Applications by Zakat Kedah (LEMBAGA ZAKAT NEGERI KEDAH DARUL AMAN) 88 Lembaga Zakat Negeri Kedah Darul Aman (Zakat Kedah) started using “Sistem Maklumat Zakat” (SMZ) in the year 2003 to manage zakat collection, while the Workplace System Portal (WSP) which manages zakat distribution and other operations was put in place in 2005. WSP includes an accounting system, local order system, human resource management system, security management system, distribution system, scholarship system, and employee training management system. Believing in the ability of technology in maintaining efficacy, Zakat Kedah took a futuristic and strategic step toward ‘technology transformation’ in 2017 by employing more software developers to develop in-house systems. As a result, Zakat Kedah succeeded in launching its first in-house developed application in 2018, which is called “JomZakat System” for managing zakat collections. Zakat Kedah Technology Transformation Journey Snapshots of applications developed by Zakat Kedah: JomZakat, Asnaf Care, Zakat on Touch (ZOT) 88
98. Case Studies Fact Sheet Key Personnel Under the management of a tech and innovation savvy CEO , Syeikh Zakaria Bin Othman, Zakat Kedah has a strong team of 15 people under the Information Technology department which is headed by Mr. Zulkefli bin Abu Bakar. The team consists of 8 app developers with diverse skills, supported by 7 administrative and technical support officers. 89 Key Activities Value Proposition Zakat Kedah IT department is developing a While face-to-face zakat collections will be comprehensive system that covers the entire restricted to a limited number of working operation, collections, hours, Zakat Apps and online systems can management, and distributions. The system be operative 24/7. In addition, face-to-face also serves multiple other functions including collections incur high operational costs, finance. This is reflected by several apps and while online systems are much more cost online portals such as Jom Zakat App that efficient in the long-run with great outreach serves as a zakat collection app while it also ability and scalability. Furthermore, online includes e-Wakaf and Jom Sedekah. Zakat on systems can provide the management, Touch (ZOT) is another example. Through this zakat payers and all stakeholders with real app, people have access to view real-time data time destitution data and reports at any about how much zakat has been distributed time with almost no additional cost. Over- and what kind of assistance is channelled by all, Zakat Kedah believes that technology Zakat Kedah. Earlier this year, Zakat Kedah can bring higher efficiency and better out- also launched, Asnaf Care online system to reach and hence increase zakat collection provide financial aid to those directly affected and its impact. including zakat by the Covid-19 outbreak. Business Model Zakat Kedah leverages on its long-term experience in zakat management and its internal IT department in the development of the required apps and system. By leveraging technology, more savings in the distribution process are expected as less agents will be required to collect zakat. This seems to be reflected already in 2019 data which shows that the amount distributed to Amil (zakat collectors) was reported to be 13% of zakat collections as compared to 16% in 2018. 89
99. Case Studies 90 Market Segment Legal and Regulatory Framework For Zakat Kedah , Zakat on corporates Zakat Kedah is supervised by the board of represents zakat Lembaga Zakat Negeri Kedah, which is income chaired by Kedah State Secretary and its collections, only 20% while of zakat total on total members including State Mufti of Kedah, collections. The rest of collections include Kedah Syarie Chief Judge and others. It is zakat on savings, EPF and others. Thus, the governed new systems and apps target individuals. Lembaga Zakat Negeri Kedah 2015’ and represents more than 60% of by the State law ‘Enakmen supporting bylaws together with a state fatwa. Key Highlights The annual budget allocated to the IT department was around RM 1.5 Million for 2018 and 2019, just a little up from the RM 1.3 Million in 2017. Yet the output of the department was the development of several systems and apps that helped Zakat Kedah to increase zakat collections from RM 183 million in 2018 to RM 207 million in 2019. Zakat Kedah’s new apps are receiving increasing demand. Initial assessments of ‘Zakat on Touch (ZOT) Mobile Application’ for instance shows a rating of 4.88/5 in Google Play Store (Android) and 4+ in Apple App Store (iOS) with more than 10,000 users. 90
100. Case Studies FinTech Trends in Zakat : Interview with Syeikh Haji Zakaria Bin Othman, CEO of LEMBAGA Zakat Kedah Syeikh Haji Zakaria Bin Othman has been the CEO of LEMBAGA Zakat Kedah since 2017. He was also approved by His Royal Highness Tuanku Sultan of Kedah to be appointed as a Board Member of the Kedah Islamic Religious Council (MAIK) as well as a Board Member of the Kedah Islamic Foundation Using the newly developed apps and systems, Zakat 91 The real time Zakat monitoring system was among the well-known projects of Zakat Kedah. Would you provide us with some insight about this project, please? Kedah equipped the public transparent zakat real time data with regarding zakat collection and distribution. Making zakat payment accessible anytime and anywhere with user friendly mobile apps. This system is now offered not only to the management team internally but also to the public In adopting new technologies, one of the key challenges is the cost, does this apply to through ‘Zakat on Touch’ (ZOT) which includes two types of data modelling covering collecavailable through the ZOT platform includes Zakat Kedah? Is it developed internally or externally by a third party? location of District Zakat Office, mosques & Our zakat management systems and apps are agencies all around Kedah, Amil Collection developed internally Agents / Assistants, Total Current Zakat Collec- scalability, cost tion, protection/security (inaccessible by third-party tions and distribution. The information made Current Zakat Distribution Amount, to achieve effectiveness system and data Mosque Zakat District / Headquarters Collec- personnel/vendor). tions & Distribution Information, Food Bank upgrade its IT infrastructure & hardware Inventory Information, Information about ‘Jom including the network, servers, and devices. Cari Asnaf’, ‘Jom Zakat’, ‘kira dan bayar Zakat’, This also required us to upgrade the knowledge ‘LZNK Cari Asnaf’, ‘Qadha Zakat Fitrah’, ‘Asnaf of the staff with high impact courses and to hire Care’, ‘Sahabat Zakat’, ‘Usahawan Asnaf’ and more developers. The cost was still acceptable ‘Pekeliling Arahan Wajib as it is limited to the hardware installation and When and why did Zakat Kedah decide to develop Zakat apps? salaries technical in Zakat addition training to develop several applications to manage the operation of collection and distribution of zakat funds. 91 had professional programs significantly well overall. In the year 2017 Zakat Kedah decided to Kedah which to and yield
101. Early feedback on our apps is quite positive and we can sense the success by looking into the data in the below table . Case Studies What is your assessment of the Zakat App performance so far? What is the impact of Zakat App on cost and collection? 92 Considering the culture, do you think Muslims in Malaysia prefer traditional methods of paying Zakat as compared to new fintech solutions, such as the app? I believe the Muslim community today is already accepting toward the use of online systems; though there may still be some old folks that prefer the traditional methods of paying zakat. At Zakat Kedah we welcome technology. We are not only offering more online systems/apps to the public, but we are also using many online platforms in our daily operations. We hold meetings and conduct conferences using Zoom, and we use Facebook live for collection promotion among many other applications and technology software. Has COVID-19 positively contributed to the usage of the Zakat App? Do you think COVID-19 will accelerate the adoption of fintech? Yes, surely. People would appreciate technology more as it solves real problems. At zakat Kedah, we have introduced the Aasnaf Care System for donation during the pandemic of COVID-19 and received a good response from the public. The public is also using the online system ‘JomZakat’ to pay Zakat Fitrah during the pandemic. 92
102. Case Studies What is your view on blockchain ? Do you think it could help in strengthening governance and transparency in managing zakat? Is there any plan to adopt/develop a blockchain solution? Blockchain technology enables distributed public ledgers that hold immutable data in a secure and encrypted way and ensures that transactions can never be altered. Thus, by implementing the blockchain technology, it will allow Zakat Institutions to track transactions and ensure transparency, integrity, and traceability of data. In theory, this will strengthen governance and transparency in managing zakat. However, Zakat Kedah has yet to develop/adopt blockchain technology at this moment. Nevertheless, we are looking into the adaptation of blockchain solutions in developing our system operations. 93 This, at the end of the day, will allow the muzakki to track the data footprint of their zakat contribution up to the information of asnaf (or wakalah project) that received the zakat funding. Does Zakat Kedah have any plan to venture more into e-wallets? Yes. In fact, Zakat Kedah is in the process of developing a prototype e-wallet platform/module to systematically handle zakat distribution. We want to ensure the zakat money received by the asnaf is used in line with Maqasid Shariah. For example, it shouldn’t be used to buy cigarettes or illegitimate items. Thus, the e-wallet needs to be able to trace the use of Zakat funds. What is your view regarding collaborating with fintech companies? What are the challenges prevent successful partnership between traditional Zakat institutions/authorities and fintech companies? We are looking at to have partnerships with fintech companies. Indeed, a few fintech companies (Islamic and conventional) already offered their solutions and willingness to collaborate with Zakat Kedah. Some solutions need to be customised for our requirements. One of the main challenges is the limited coverage of internet in the rural areas where a lot of asnaf live. For example, it will be difficult for them to use an e-wallet. Therefore, fintech companies need to provide innovative and customized solutions. What is the main challenge in digitalization? Normally the cost. If you want to have good technology you generally need to spend more, therefore, you need to have a strong justification to convince the internal and external stakeholders for each investment. 93
103. 94
104. Fintech Ecosystem “ Venture Capital Insights: Interview with Victor Chua, President of Malaysia Venture Capital and Private Equity Association (MVCA) Victor is also the Founding & Managing Partner of Vynn Capital. He was formally the Vice President of Investments for Gobi Partners and managed two 95 Southeast Asia focused early stage funds. Some of his notable investments ” include Carsome (Malaysia), Triip.me (Vietnam) and Travelio (Indonesia). Is Malaysian Fintech and Islamic Fintech primed for Venture Capital and Private Equity investment? I feel that the demand for fintech, including Islamic fintech in general will continue to grow especially with the need for companies to provide digital services and having online presence. In the hindsight, a pandemic like COVID-19 has become a huge reason for more consumers to use digital services and thus, has accelerated its uptake. As such, fund managers are always on the lookout to invest in fintech startups in Malaysia, especially in Islamic fintech due to the fact that it is still at a nascent stage and with promising potential of growth. The nature of Islamic fintech being an enabler rather than an industry vertical has opened up the possibility of discovering exciting deals in various sectors, and not limited to only the financial sector. However, founders of Islamic fintech startups have to overcome challenges to attract investment from fund managers. Amongst the key factors that need the attention of founders includes the ability to demonstrate value proposition, backing from strategic partners, especially from the corporate sector, and the flexibility to work with other investees in the same portfolio. Noting that most Islamic fintech startups are still at an early stage, it is most likely that the investment may come from a venture capital fund, rather than a private equity fund. In the end, founders of Islamic fintech should not limit their growth exclusively to the vertical they begin with, but rather they should be open to convergence of different verticals. Founders should strive to communicate more of their story to win the heart of not only consumers, but also potential investors. 95
105. Concluding Remarks
106. The nature of fintech existing outside of the highly regulated financial system realm allows space for the creation of new financing structures and innovative financial intermediary functions that reflect the essence of Islamic finance . Malaysia has succeeded in building a supportive fintech ecosystem that includes building a balanced regulatory framework that allows innovation while ensuring financial stability, establishing institutions that incentivize fintech companies, enabling various public and private funding schemes, and more recently, devising a number of academic and professional human capital development programs. While this ecosystem tends to cover both conventional and Islamic fintech, the latter may require further developments. The number of Islamic fintech companies is still small compared to the number of its conventional counterparts. Regulations for Islamic fintech are limited to areas of crowdfunding, digital assets, and very recently, e-money. There is much room for human development programs focusing on Islamic fintech. There is a need for innovation labs and accelerators dedicated to Islamic fintech. Though some Islamic fintech startups have succeeded to secure funds from general funding schemes, there is also a need for specialized funds dedicated for Shariah complaint fintech solutions. Additionally, fintech supporting institutions should give more attention to Islamic fintech by having dedicated departments and programs. Malaysia has firmly established itself as a world leader and global hub for Islamic finance, therefore, it has the potential to play the same role for Islamic fintech. For many observers, the success of Islamic finance in Malaysia is attributed to the regulatory support through a top-down approach. The approach for Islamic finance covers setting up a regulatory framework for a dual financial system, as well as a legal and Shariah framework, providing incentives for the financial institutions to develop Shariah compliant products, encouraging market competition, and establishing institutions to build knowledge and expertise. In a similar fashion, Malaysia can adopt a top-down approach to nurture and expand the horizons of Islamic fintech. Providing supportive regulations with clear Shariah resolutions from the relevant authorities and establishing dedicated funds for Islamic fintech companies will certainly attract local and foreign startups to establish themselves and grow in Malaysia. Lastly, while tailored academic and professional Islamic fintech programmes will provide the required human capital for the industry, establishing innovation labs with incubator and accelerator programs committed to Islamic fintech will ensure a conducive environment to conceive, construct and champion Islamic fintech solutions. 96
107. Appendices
108. Bibliography BNM 2020a . List of E-money issuers. Retrieved November 10, 2020:
     https://www.bnm.gov.my/index.php?ch=ps&pg=ps_nonbank_emoney BNM 2019b. Payment Statistics of Bank Negara Malaysia. Retrieved November 10, 2020: https://www.bnm.gov.my/index.php?ch=ps&pg=ps_stats&lang=en. BNM 2020c. Licensing Framework for Digital Banks-Exposure Draft. Retrieved November 10, 2020: https://www.bnm.gov.my/index.php?ch=57&pg=137&ac=924&bb=file BNM Fintech Booster Launch Session 2 2020. Presented at Launch of Fintech Booster by MDEC in Collaboration with Bank Negara Malaysia. Retrieved November 9, 2020: https://www.youtube.com/watch?v=2ywNHr0MCAk. BNM (n.d.) Summary November 10, 2020: of Operationalisation Structure of E-Money Retrieved
     https://www.bnm.gov.my/documents/SAC/03_SAC201_State- ment_eMoney_en.pdf Chin, W. M., & Azmil, A. (2017). Developing a Facilitative Ecosystem for Digital Innovation in the Malaysian Capital Market. Nomura Journal of Asian Capital Markets, 2(1). DDACP Group. 2019. Islamic Finance Country Index –IFCI 2019. Retrieved November 9, 2020: http://www.gifr.net/publications/gifr2019/ifci.pdf Fintech News Network & Touch ’N Go EWallet. 2019. Malaysia Fintech Report. Retrieved November 9, 2020: https://fintechnews.my/wp-content/up-loads/2019/12/Touch-N-Go- eWallet-Malaysia-Fintech-Report-2019_compressed-final.pdf *'/'JOUFDIDPN
     
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     IUUQT JGOGJOUFDIDPNMBOETDBQF MDEC. 2019. MDEC Islamic Fintech Report. Retrieved November 9, 2020:
     https://mdec.my/wp-content/uploads/FinTech-Report.pdf Resolutions of the Securities Commission Shariah Advisory Council (2020), the 233rd and 234th Shariah Advisory Council of The Securities Commission Malaysia Meetings, 29 June 2020 and 20 July 2020. Retrieved November 9, 2020: https://www.sc.com.my/development/islamic-capital-market/resolutions-of-the-sc-shariah-advisory-council 97
109. Securities Commission Malaysia . 2019. SC Prescription Order. Retrieved November 10, 2020: https://www.sc.com.my/development/digital/digitalassets 4FDVSJUJFT
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     Shariah Advisory Council of Bank Negara Malaysia (2020), Ruling on E-Money as a Shari-ah Compliant Payment Instrument SAC’s 201st Meeting and 26th Special Meeting on 29 and 30 January 2020. Retrieved November 10, 2020: https://www.bnm.gov.my/ docu-ments/SAC/03_SAC201_Statement_eMoney_en.pdf Shearn Delamore & Co. 2020. Fintech 2020 Laws and Regulations - Malaysia ICLG. Retrieved November 10, 2020: https://iclg.com/practice-areas/fintech-laws-and-regulations/malaysia. State of the Global Islamic Economy Report (2020) Dubai: Dinar Standard. UniKL Business School. 2019. Unpublished Fintech Survey. 98
110. Authors Dr . Kinan Salim The Global University of Islamic Finance (INCEIF) Dr. Kinan is an Assistant Professor and Head of Islamic Digital Economy at INCEIF. He serves as an consultant on Islamic fintech and sustainable finance and provides services to leading financial institutions and fintech startups in South East Asia and Middle East. Early in his career, he served as Head of Corporate Finance in Cham Islamic Bank. With a strong Economics background and industry experience, Dr Kinan converges theory with best practices in his research and consultancy projects that are focusing mostly on designing frameworks and providing capacity building for innovative policies and products for Islamic fintech, sustainable finance and financial inclusion. He can be contacted at: kinan@inceif.org https://www.linkedin.com/in/dr-kinan-salim-a5630a18/ Dr. Moutaz Abojeib International Shariah Research Academy for Islamic Finance (ISRA) Dr Moutaz is a researcher at Research Development & Innovation Department at ISRA. He is currently taking a leading position in ISRA Blockchain project to strengthen the Shariah compliance of Islamic social finance institutions. He is also participating in several Islamic fintech projects. He has published several papers on Islamic fintech and participated as a speaker in several relevant events including AAOIFI Annual Shariah Boards conference. Dr Moutaz has clocked up 15 years of work experience in finance, research, training and consultancy, in which he has conducted more than 50 capacity building programs in different jurisdictions and delivered several consultancy projects. This includes his service at several European Investment Bank projects in the MENA region, and his work in the area of internal audit and Islamic microfinance. He can be contacted at: moutaz@isra.my https://www.linkedin.com/in/dr-moutaz-abojeib/ Dr. Baharom Abdul Hamid The Global University of Islamic Finance (INCEIF) Dr. Baharom is an Associate Professor and Director of the Research Management Centre (RMC) at INCEIF. He is an active researcher focusing on applied macro studies on non-niche economic areas and new horizons of research in applied economics with strong interest in the Economics of Crime, Natural Disasters and Military Expenditure. Dr. Baharom has published more than 100 journal articles in well-recognized journals, received numerous best paper awards, and has led many high impact consultancy projects. He is a renowned speaker and influencer. He is a strong advocate of Islamic fintech through his support of young entrepreneurs. In fact, Dr. Baharom was the key person behind InnoFest, one of the first Islamic fintech pitching events. He can be contacted at: baharom@inceif.org https://www.linkedin.com/in/baharom-abdul-hamid-88b956100 99
111. Contributors Ahmad Abdur-Raheem Sabree Shariyah Review Bureau Ahmad Sabree is a Shariah auditor for Islamic fintech and asset management at Shariyah Review Bureau , Bahrain. He is also an Islamic fintech expert with experience dealing with Islamic fintech companies in the Middle East and Asia. He has nearly 5 years experience in Islamic fintech and was part of the initial core team of EthisCrowd Malaysia. Dr. Ahmed Mabrouk SKILIK Robo Advisory Dr. Ahmed Mabrouk is a professor of artificial intelligence and an author in Islamic finance and Islamic philosophy of science. He holds a PhD degree in Electrical and Computer Engineering and thirty years work experience in industry and academia in US, Canada, and Malaysia. Alda Percy Bin Abdul Aziz Etiqa Digital Solutions Alda is the Head of Finance at Etiqa Digital Solutions. He has work experience in the financial services and insurance/takaful industry leading projects in the areas of digitalization and innovation. Amran Bin Hassan Etiqa Digital Solution Amran Bin Hassan is CEO of Etiqa Digital Solutions Sdn Bhd and formerly Head of Maybank Corporate Development & Innovation (CDI). Prior to joining Maybank in 2012, Amran was a Partner at Technology Consulting (Malaysia) & Infrastructure (Southeast Asia) at Accenture Malaysia. 99 100
112. Tengku Arief Mubiin bin Tengku Abdul Aziz Malaysia Digital Economy Corporation (MDEC) Tengku Arief Mubiin is currently a Senior Executive from the Fintech & Islamic Digital Economy division at MDEC, tasked to lead the growth and development of the fintech ecosystem in Malaysia. He is a recipient of the Vice Chancellor’s Award for bachelor’s degree in International Business from Universiti Te knologi MARA. Dr. Azrul Azlan Iskandar Mirza Universiti Sains Islam Malaysia (USIM) Dr. Azrul is a Shariah advisor for various Islamic financial institutions including Islamic banks, takaful operators, asset management companies and government agencies. Dr. Azrul is also a senior lecturer at the Faculty of Economy & Muamalat, USIM. He is also actively involved in technical committees, research, publication and consultation related to Islamic finance and Islamic fintech. Tunku Danny Nasaifuddin Mudzaffar microLEAP PLT Tunku Danny is a founder and CEO of microLEAP. He is an ex-banker having held senior positions at two international banks in Kuala Lumpur and London. He has 15 years of financial services experience and brought all the knowledge and skills he learnt from lending into his P2P micro financing start-up, microLEAP. Tunku Danny holds an MBA from the Nottingham University Business School. Ellya Masriq Ahmad Sani Independent Expert in Technopreneurship Finance Policy Ellya Masriq is an expert in technopreneurship finance policy. He is also a PhD scholar in Islamic Finance. He has previous work experience at the Fund Division, Ministry of Science, Technology and Innovation, Malaysia (MOSTI) with extensive involvement in R&D commercialization and funding policy. 99 101
113. Mufti Faraz Adam Amanah Advisors Faraz is the Executive Director of Amanah Advisors . He is a Sharia advisor at various Islamic financial institutions and fintech institutions across the world. He has a keen interest in Islamic fintech and has recently published a book on the subject matter titled; ‘Introduction to Islamic Fintech’. He has an undergraduate in Islamic Studies and a Master’s degree in Islamic Finance and Banking. Hamid Rashid Finterra Technologies Hamid is the Founder of Finterra and responsible for developing the WAQF Blockchain (WaqfChain). Hamid has over eighteen years of technology consulting experience in Enterprise Software Business Management and Business Development. He is a specialist in technology IP development, technology commercialization, venture capital investment and property investments with a record of extensive work experience. Hassan Azganin Islamic Fintech Advisor Hassan is a trainer and advisor for different global waqf and fintech institutions in the Middle East and Africa. He has work experience in several Islamic fintech startups including Ethis and Finterra. Currently, Hassan is currently pursuing his PhD on Waqf agriculture & fintech. Katherine Lim World Wide Fund (WWF) Katherine is the Manager for Sustainable Finance Engagement at WWF-Malaysia. She formerly led digitalization projects in Allianz Life Malaysia. She previously led an internal audit team in Lonpac Insurance Berhad. Katherine holds a MSc. in Islamic Finance. 99 102
114. Dr . Marjan Muhammad International Shariah Research Academy for Islamic Finance (ISRA) Dr. Marjan is the Head of the Research Quality Assurance Office and Senior Researcher at the International Shari’ah Research Academy for Islamic Finance (ISRA). She was the Director of Research at ISRA from 2013-2017. She is currently a member of Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) effective from 1 November 2019. Previously, she was a member of Shariah Committee of Maybank Islamic Berhad, SME Bank Berhad, MBSB Berhad and RHB Islamic Berhad. Mehdi Baddou IslamicMarkets Mehdi is a Senior Analyst in IslamicMarkets. He is a PhD Scholar, who is extremely passionate about Islamic fintech and responsible investing. He is a vigorous advocate of ESG integration in Islamic investments. He also has previous work experience in Islamic fintech startups. Shah Mohammad Ali Privasia Technologies Berhad (PTB) Shah heads innovation initiatives at PTB, where he is predominantly working towards sustainability and digital transformation, as well as ecosystem development. He is also an Industry Fellow and Member of the Steering committee at Universiti Utara Malaysia, Centre of Urban Studies for the national affordable housing development agenda. Shah has been involved in several high impact social financing and fintech projects. Mohamed Shehzad Islam Ethis Malaysia Mohamed is the designated Chief Executive Officer of Ethis Malaysia. He started his career in aviation, then pursued a Masters in Mechatronics after which he worked as a management consultant. He was primarily engaged in advising high net worth clients. He was also involved in merger and acquisition deals and became an investor in startups. 103
115. Nur Diyana Najwa Mohd Affendi Malaysia Digital Economy Corporation (MDEC) Nur Diyana Najwa is an Islamic finance expert in the fintech and Islamic Digital Economy Division of the Malaysia Digital Economy Corporation (MDEC). Recently, she has completed her Masters in Islamic Finance from the Global University of Islamic Finance (INCEIF). Nur Izzani Hafiz Global University of Islamic Finance (INCEIF) Izzani holds MSc in Islamic Finance from INCEIF. She was an active research assistant in projects related to Takaful, social financing and fintech. She demonstrated strong entrepreneurial skills in her recent participation in startup pitching during ‘My Fintech Week’, an event organized by BNM with an idea to institutionalize Masjid's funds via takaful concept. Dr Omar Alaeddin UniKL Dr. Omar is a Senior Lecturer at University Kuala Lumpur, Business School. He is leading the UniKL project to offer a bachelor’s degree in Fintech. Dr. Alaeddin holds a PhD in Islamic finance from INCEIF, Malaysia, and a master’s degree from Arab Academy for Banking and Financial Sciences, Syria. Dr Said Bouheraoua International Shariah Research Academy for Islamic Finance (ISRA) Associate Professor Dr. Said is a renowned Shariah Scholar in Islamic Finance. He is the Director of Research Development and Innovation Department at ISRA, a member of the of Affin Islamic Bank Board of Directors, Chairman of Affin Islamic Shariah Committee, Shariah member of MNRB Retakaful and Shariah member of the Central Bank of Oman. 104
116. Shakeeb Saqlain IslamicMarkets Shakeeb Saqlain is Founder and CEO of IslamicMarket .com. He has more than 15 years of banking and fintech experience, with a track record of working in Morgan Stanley and Barclays Capital, Bloomberg, and Dubai Islamic Bank. Shakeeb is passionate about startup communities and building the infrastructure for the global Islamic economy. Umar Munshi Ethis Umar is the co-founder of Ethis and the Managing Director of Ethis group, the Chairman of the Islamic Fintech Alliance, and a committee member of Fintech Association Malaysia. He has been a social entrepreneur since the age of 18. His entrepreneurship journey includes stints in Singapore, Jakarta, Jeddah and Kuala Lumpur, spanning various sectors including healthcare, education, Islamic finance and real estate. Victor Chua Vynn Capital Victor is the President of Malaysia Venture Capital and Private Equity Association (MVCA). He is also the Founding & Managing Partner of Vynn Capital. He was formally the Vice President of Investments for Gobi Partners and managed two Southeast Asia focused early stage funds. Some of his notable investments include Carsome (Malaysia), Triip.me (Vietnam) and Travelio (Indonesia). Prof. Dr. Younes Soualhi International Shariah Research Academy for Islamic Finance (ISRA) Professor Younes is the Head of the Islamic Banking Unit at ISRA and a professor at the Global University of Islamic Finance (INCEIF). He is also sitting on many Shariah boards/committees including Bursa Malaysia, Munich Re Retakaful, Kuwait Retakaful, HSBC Amanah Malaysia, Adengreen (Dubai) and Salam Takaful (Nigeria). 105
117. Syeikh Haji Zakaria Bin Othman Lembaga Zakat Negeri Kedah Syeikh Haji Zakaria Bin Othman is the Chief Executive Officer of Lembaga Zakat Negeri Kedah since 2017 . He was also approved by His Royal Highness Tuanku Sultan of Kedah to be appointed as a Board Member of the Kedah Islamic Religious Council (MAIK) as well as a Board Member of the Kedah Islamic Foundation. He is also the recipient of the Kedah State Order of Merit Award as Kedah Crown Member (AMK) in 2009. Dr Ziyaad Mahomed The Global University of Islamic Finance (INCEIF) Assistant Professor Dr. Ziyaad Mahomed is the Associate Dean and Director of e-Learning & Executive Education at INCEIF. He is the recipient of numerous Islamic Finance global awards. He is presently the Chairman of the Shariah Committee of HSBC Amanah (Malaysia), He also serves as advisor/consultant to government organizations in the United Kingdom, Kazakhstan, the Philippines and Nigeria amongst others. Research Assistants Abubakar Ilyas Global University of Islamic Finance (INCEIF) Abubakar Ilyas is a Shariah scholar holding a master’s degree in Islamic finance. He is currently pursuing his PhD in Islamic Finance at INCEIF where he also serves as a Research Assistant. Chita Ayu Astari Putri Global University of Islamic Finance (INCEIF) Chita is currently pursuing her master’s degree at INCEIF and works as Research Assistant at the Research Management Center of INCEIF. She has a work experience as an accountant in Indonesia. 106
118. 2020 /21 Islamic Fintech in Malaysia Reality & Outlook Contact us Dr Kinan Salim kinan@inceif.org Dr Moutaz Abojeib moutaz@isra.my Assoc. Prof. Dr. Baharom Abdul Hamid baharom@inceif.org www. inceif.org • www.isra.my • www.mdec.my ©Dec 2020. All Rights Reserved. The International Centre for Education in Islamic Finance (INCEIF), the International Shariah Research Academy for Islamic Finance (ISRA), and Malaysia Digital Economy Corporation (MDEC)