Distinguished guests, ladies and gentlemen, |
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| INTRODUCTION | |
| 1. | First of all, I would like to thank the organiser for giving me the opportunity to deliver the keynote address for the 4th ISRA Islamic Fintech Roundtable or IFD. It is indeed an honour to witness the presence of eminent Islamic finance experts comprising academicians, regulatory agencies and practitioners to discuss and share ideas for the development of Islamic finance and its digitalisation agenda. This platform serves the agenda well since it has become one of the prominent avenues that incite groundbreaking ideas and conversations pertaining to Islamic fintech in Malaysia since 2017. |
| 2. | The recent pandemic has upended growth trajectories of all economies and have adversely affected households and companies across a broad range of economic sectors. In 2020, the global economy contracted by 3.5 percent, which was the steepest peacetime economic contraction since the Great Depression of the 1930s, triggered by a global public health emergency. However, the world is optimistic that the economic downturn will rebound significantly as global economies are projected to expand by 5.6 percent in 2021, suggesting the strongest post-recession pace in the past 80 years1. The same sentiment is reflected in the Malaysian economy which contracted by 5.6% in 2020, but coming back positively with recorded growth of 16.1% in the first half of 20212. |
| 3. | Following the adverse effect of the pandemic, several megatrends have emerged globally, which are expected to shape the recovery and growth of the economies in the near future. This includes, the new wave of climate actions, the rise of stakeholder economy, and the accelerated adoption of technology and digital in various sectors – including the capital markets. The new wave of climate action is expected to reshape the fundamentals of finance, as climate risk is expected to become increasingly intertwined with investment risk and returns. Financial regulators around the world, including Malaysia, have embarked on efforts around sustainable finance standards and guidelines for investment products, taxonomies and disclosures as well as facilitative development policies to catalyse the growth in this space. In addition, the advent of technologies like 5G, cloud computing, artificial intelligence or (AI) and distributed ledger technology (DLT) are transforming how issuers undertake fundraising activities, redefining intermediation, shaping new investor behaviour as well as revamping clearing and settlement infrastructures – making the capital market ecosystem more dynamic than before. |
| 4. | In observing the new megatrends, it is also noteworthy that the Islamic finance industry continued to record consistent growth in the past year, despite the uncertain economic conditions, with global Islamic assets expanding by 10.6% against the growth of 17.3% in 20193. Locally, the capital market grew by 7% to RM3.4 trillion in 2020, as compared to RM3.2 trillion in 2019 – and the Islamic capital market (ICM) grew by 10.85% from RM2.03 trillion to RM2.25 trillion over the same period. ICM remains a key component to Malaysia’s capital market contributing over 60% of the total capital market, proving the resilience of the Islamic finance industry against volatile market conditions. |
| 5. | These developments provide us with great opportunity and value proposition to position Islamic finance-empowered-with-Fintech as a catalyst for sustainability and economic recovery post the COVID-19 pandemic. |
| CMP3 AND FINTECH DEVELOPMENT IN MALAYSIA’S ISLAMIC CAPITAL MARKET | |
| 6. | In September this year, the SC launched the Capital Market Masterplan 3 or (CMP3), in which the key strategic thrusts of CMP3 for the next five years are carved to ensure that the capital market achieves three desired outcomes, namely to be relevant, efficient and diversified. |
| 7. | One of the main highlights in CMP3 is the positioning of technology as the main enabler for its six development and regulatory thrusts. These strategic thrusts focus on catalysing competitive growth, empowering investors for a better future and shaping a stakeholder economy, while simultaneously embedding shared accountability, prioritising efficiency and outcomes, as well as embracing technology. |
| FINTECH AS ENABLER OF FINANCIAL INCLUSION | |
| 8. | Let us now look at significant value propositions of fintech for the financial sectors namely – alternative fundraising options, greater access and improved affordability. The empowerment of micro, small and medium enterprises, or MSMEs, through ECF and P2P financing platforms is one of the many examples of how Fintech, digital and technology advancements can help the underserved and unserved. This segment often faces difficulties to obtain capital and financing due to various reasons, which includes different funding needs, restrictions due to limited financial capabilities, absence of proper credit history, and small ticket sizes. |
| 9. | At the height of the pandemic last year, we witnessed a remarkable growth of 457%4 in the funds raised through ECF and P2P financing platforms in Malaysia. A total of more than RM1.3 billion has been raised since April 2020, and since their inception, ECF and P2P financing have aided close to 4,000 MSMEs5. To date, the SC has licensed 10 ECF platform operators with one offering Islamic services, and 11 P2P financing platforms with 5 offering Islamic services. Collectively, these platforms have raised RM1.95 billion in which RM80 million raised is Shariah-compliant. |
| 10. | The use of digital and technology has also significantly improved accessibility to various financial products and services – with the enablement of solutions delivery by smartphones and online platforms. This is especially beneficial for jurisdictions that possess disparity in financial market participation due to geographical limitations – for example the rural areas. Physical outlets are gradually losing its relevance in many countries worldwide - and we have witnessed financial service providers reducing their physical presence and re-allocating resources. Fintech also opens up more opportunities for lower cost to access financing products and services. The existence of e-wallets, e-payments and transfer services has significantly reduced waiting time and transaction costs. |
| 11. | Reflective of the agenda of economic recovery and sustainability, the SC’s mission is to empower investors through various strategies, one of which is to widen investment options through accessible and quality investment advice. This can be addressed through the use of robo-advisers or digital investment manager (DIM). Since the SC introduced the DIM framework in 2017, and issuances of the first Islamic DIM licence in 2019 - DIM entrants have contributed significantly to the growth of assets under management. There are currently eight licensed DIMs with one offering dedicated Islamic fund management services, and collectively managing an estimated RM16billion of funds. Compared to last year, our eight licensed DIM holders have opened 90%6 more DIM accounts this year. |
| 12. | In addition to these developments, the SC has also undertaken other initiatives to facilitate digital transformation of the industry. This include:
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FINANCIAL INCLUSION FOR SUSTAINABLE DEVELOPMENT GOALS Distinguished guests, |
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| 13. | Fintech is an efficient tool to promote financial inclusion. Financial inclusion centers on the concept of delivering economically reasonable and effective financial services for everyone. Digital financial inclusion, when provided responsibly and sustainably in a well-regulated environment, not only drives growth, but also enables faster progress towards the achievement of sustainable development goals (SDGs), especially that concerning the economic growth and socio-economic well-being. |
| 14. | Recognizing the potential of Islamic finance which aligns well with Maqasid al-Shariah as well as the SDGs, the movement towards sustainability is in line with the teachings of Al- Quran and hadith, which contain numerous textual evidences in support of environmental stewardship as well as equitable society. The title Khalifah (Steward) which is bestowed on humans are mentioned several times in the Al-Quran, and this gives great prominence on the importance of the role of Khalifah on earth which is to mainly manage resources and protect public interest while serving The Almighty. Such Amanah which is entrusted to Humans is also stressed by the Prophet (Peace be upon Him) where he says “The world is beautiful and verdant, and verily God, the exalted, has made you His stewards in it, and He sees how you acquit yourselves” (Saheeh Muslim)”. |
| 15. | The United Nations has continuously positioned financial inclusion as an effective enabler of sustainable development7. Among others, financial inclusion is able to help address SDG 8 through the creation of more jobs and overall economic growth. For low income households, enhanced financial literacy coupled with access to digital financial services will open up more opportunities to improve their income level. The increasing participation in gig economy activities are obvious examples of how technology has helped to create new avenues to generate income. |
| 16. | Fintech and financial inclusion also helps to address SDG 9 on supporting industry, innovation, and infrastructure to reach new levels of advancements and growth. By raising capital through digital financial inclusion tools, start-ups and small businesses are able to transform new business models incorporating various innovation |
| Distinguished guests, | |
| 17. | The question for us from hereon is, how do we ensure that the application of Fintech in Islamic financial sectors can be maximised to support SDGs development in our jurisdictions? |
| 18. | As an extension to what has been mentioned previously in relation to the SC’s digital initiatives for financial inclusion in CMP3, the SC will continue to leverage the synergies between ICM and Sustainable and Responsible Investment or (SRI) to scale up sustainable finance in Malaysia given the similarities in the values espoused by ICM, SRI and Maqasid Al-Shariah. In this regard, a pioneering initiative was the development of the SRI Sukuk Framework, which facilitated the issuance of the world’s first green sukuk as well as Malaysia’s first social related Sukuk. To date, there are 18 SRI Sukuk issued amounting to RM 7.3 billion under the said framework. |
| 19. | In addition, under the sustainability umbrella, in 2020, the SC introduced Waqf-Featured Fund Framework with the aim to broaden the range of innovative ICM products and provided the public with access to Islamic funds that allocate the whole or part of the funds’ returns to Waqf projects, while enabling the combination of societal good and commercial objective. Following the introduction of the Framework, the SC has registered four Waqf funds, in which one of the funds also qualifies as an SRI fund. In total, Malaysia is currently home to 30 SRI funds, of which 13 of them are Shariah-compliant. |
| 20. | Other strategic priorities in the CMP3 includes facilitation for industries and businesses to transition to low carbon activities, which will enhance their relevance and competitiveness in a globalised market that is increasingly emphasising, and requiring greater adoption of sustainable practices. The enabling of transition financing is therefore an opportunity to further broaden the range of capital market instruments. |
| CLOSING: | |
| 21. | In conclusion, the SC will continue to put financial inclusion and sustainable development as part of its agenda in driving, developing and regulating the capital market. I encourage all industry players in our respective capacities – to place this as a top priority while developing business plans, strategies, roadmap and blueprints for our journey ahead. |
| 22. | Insha’Allah with this in mind, we are able to enhance the overall value proposition of Islamic Finance with the achievement of the 17 SDG goals approaching 2030, which is also aligned to the sustainability agenda of the nation. |
| 23. | With that, thank you all and I wish everyone a productive discussion ahead. |
| Ends. | |
