Dr Moutaz Prof Dato’ Dr Azmi Ladies and Gentlemen, Good afternoon. Assalamualaikum Warahmatullahi Wabarakatuh. |
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| 1. | Thank you for inviting me here this afternoon. It is my pleasure to be a part of this Islamic Fintech Leaders Forum. |
| 2. | For many people the word ‘Fintech’ is associated with a revolutionary world of change, of dynamism, excitement, unshackled by regulators like me. |
| 3. | But I must say this, Malaysia’s deliberate and structured policy measures, over the last three decades has played a significantly important role in spurring the growth of our Islamic financial sector into the well-established ecosystem that many of us are familiar with today. |
| 4. | Today, Malaysia’s Islamic capital market (ICM) is a recognised global leader with a strong core comprising Shariah-compliant equity, sukuk and fund management, which offers a wide range of Islamic products and services for both Muslim and non-Muslim investors alike. |
| 5. | I have every confidence that thanks to Malaysia’s strategic approach, our Islamic fintech sector is set to develop into an important enabler for future growth. |
| 6. | As we all know, Islamic fintech can further drive the expansion of Islamic offerings and connectivity, across a wide range of exciting sectors such as the halal industry, sustainable and responsible investments, and Islamic social finance sector. |
| 7. | With global Islamic finance assets projected to be worth US$3.7 trillion in 20241, the application of fintech as an enabler can certainly boost their appeal. In fact, Islamic fintech transactions within Islamic countries are expected to more than double in the next four years2. |
| 8. | Which means, the opportunities that lie ahead are very exciting indeed. |
| ADVANCING ISLAMIC FINTECH | |
| Ladies and gentlemen, | |
| 9. | The challenges brought about by COVID-19 has sent a clear signal for businesses to accelerate their digital agility and adaptability as the new environment transformed their business models, customer and supply-chain interactions as well as their internal operations. |
| 10. | From a capital market perspective, digital advances have the potential to accelerate the upscaling of existing capabilities, open up new market segments, and provide better solutions for fundraising. |
| 11. | The pandemic has adversely affected the MSMEs. They have suffered as a result of lockdown restrictions across the world. Most either have had to close their operations or suffered sharp falls in revenues. However, as restrictions ease, these firms and entrepreneurs will need support to get back on their feet. |
| 12. | The Securities Commission Malaysia, or the SC as we are called in Malaysia, has long recognised the importance of MSMEs to the economy and through dedicated regulatory frameworks, we have facilitated the growth of digital operators such as equity crowdfunding (ECF) and peer-to-peer financing (P2P) platforms. These alternative market-based platforms have enabled businesses and entrepreneurs which includes MSMEs to raise funds through the capital market. |
| 13. | Amounts raised through our registered ECF and P2P platforms actually increased last year, by more than 5.5 times for ECF and 1.2 times for P2P. This means local MSMEs were able to access the much-needed funds to keep their businesses going despite the uncertain environment. As the economy recovers, we anticipate funding amounts as well as Shariah-compliant offerings through these channels to also increase. |
| 14. | More recently, the SC introduced a Shariah Screening Assessment Toolkit for the Unlisted Micro, Small and Medium Enterprises to assist this MSME segment. It provides guidance for screening the Shariah status of these businesses. |
| 15. | We are confident that the introduction of this Toolkit will encourage more Shariah-compliant offerings through ECF and P2P platforms. It can in fact, also lay the foundation for fintech solutions towards building a comprehensive end-to-end Shariah-compliant ecosystem for MSMEs. |
| 16. | Another market segment that has benefitted tremendously from the innovative technological solutions is fund management. The emergence of digital investment management or robo-advisory services has increased the provision of customised investment solutions to the retail market. These were previously available only to institutions and high-net-worth investors. |
| 17. | The SC issued the first Islamic digital investment management licence in 2019 and it is encouraging to note that it has been well received. With the anticipated increase in the demand for Shariah-compliant portfolios, the SC welcomes more of such digital investment management or Robo Advisory Islamic providers as it paves the way towards greater financial inclusion in the capital market. |
| 18. | Additionally, we also believe there are opportunities to increase fintech use in the traditional fund management process, which will enhance efficiencies as well as investors’ experience in this area. |
| 19. | Islamic fintech also offers much promise for digital sukuk issuances. As most of you are aware, the Malaysian government issued its first ever digital sukuk, ‘Sukuk Prihatin’, last year with subscription solely through digital payment facilities. |
| 20. | A number of these digital bonds have relied on blockchain solutions to secure their distribution and delivery process. These blockchain solutions, has the potential to enhance the end-to-end traceability of bonds and sukuk. This will greatly enable green sukuk and bonds improve the reporting and transparency of their “green” credentials. |
| FACILITATING INNOVATION WITHIN THE ISLAMIC FINTECH ECOSYSTEM | |
| Ladies and Gentlemen, | |
| 21. | As we strive to bring to light more innovative market solutions, it is crucial to provide engagement platforms that catalyse and nurture new Islamic digital business models, products and services. |
| 22. | With this objective in mind, the SC launched FIKRA, our Islamic Fintech Accelerator Programme, to enhance the domestic Islamic fintech ecosystem. It is a collaborative initiative with the United Nations Capital Development Fund, to connect with innovative start-ups, to identify and scale up promising Islamic fintech solutions. |
| 23. | In its first year, FIKRA identified three distinct challenge areas to focus on, namely new ICM offerings, ICM accessibility and social finance. Interestingly, the one area ripe for innovation and change is – Islamic social finance. This is a growing segment that can facilitate wider and deeper positive impact to society and communities. |
| 24. | While we understand how Islamic social finance instruments such as waqf, zakat and qard’l hassan function, solutions are required to enhance their structures, accessibility and appeal to investors as well as issuers. |
| 25. | Apart from the areas identified by FIKRA, another segment that can benefit from Islamic fintech innovation is digital assets. The SC believes that, in this instance, regulatory facilitation can engender trust and confidence in this asset class and its related products. |
| 26. | In July 2020, the Shariah Advisory Council of the SC has resolved that digital assets are recognised as assets (mal) from a Shariah perspective. Thus, the trading of digital assets on regulated digital asset exchanges is permissible. Moving forward, this ruling is expected to facilitate greater product innovation in digital assets, and in turn, attract broader participation in this asset class. |
| CONCLUSION | |
| Ladies and gentlemen, | |
| 27. | In conclusion, the SC believes that the next wave of Islamic finance transformation will likely be a digital wave. A lot of work is still required to be done to achieve this objective. As the regulator, we will facilitate this wherever possible and I therefore, urge all stakeholders to work collectively towards the digital advancement of the Islamic economy. |
| 28. | From Malaysia’s perspective, I believe we have the right qualities to undergo a seamless Islamic digital transformation. Thus, it is time for both Islamic finance and the Islamic fintech industry to rise to this challenge together. Our future success rests firmly on your shoulders. |
| 29. | I hope the debates and discussions ahead will spur more innovative solutions for Islamic finance to prosper. |
| 30. | On that note, I would like to express my appreciation to the organiser and hope that everyone present today will have a fruitful discussion ahead. |
| Thank you. | |
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