Many experts are scratching their heads, unsure how the Malaysian FinTech market has so far failed to grab a meaningful share of the Islamic finance market. This is a country where Islamic finance assets represent 35.5% of total banking assets - equating to circa $270 billion at the end of 2021. So why is the usually innovative and fast-moving FinTech market struggling to make an impression?


Funding issues


The Malaysian FinTech market appears to be very different from other developed countries. In places such as the UK, FinTech companies target all market areas, placing massive pressure on traditional banks. However, the situation in Malaysia has been turned on its head. The sector is currently focusing on niche markets and those with limited income. Appearing to shy away from the high-end wealthy area of the market has given local banks a clear run.


Consequently, many FinTech companies have struggled to raise the required funds to invest in innovation and market disruptive services. Hopefully, this will change in the short to medium term, with a greater appreciation of the growing Islamic finance sector.


Sharia law services


There are 1.8 billion Muslims worldwide, and growing demand for Islamic finance services. This requires FinTech companies to appreciate the details of Sharia law which outlaws interest charges and investment in specific sectors. Tangible assets must also back investments with no profiting allowed from debt arrangements. 


When you consider that Malaysia is home to 6 of the top 20 Islamic banks in the world, it is even more surprising that FinTech appears so far behind the curve.


Grappling with the big banks


A recent report suggested that the Islamic FinTech sector in Malaysia will show compound annual growth of around 23% up to 2025. This is despite the larger traditional banks continuing to dominate the market. According to a 2018 central bank survey, 92% of the population in Malaysia has a bank account. Consequently, this has allowed leading banks to invest in digital services and mobile banking platforms incorporating the latest technology.


Some observers believe the Malaysian FinTech market is struggling to compete with these high-tech service platforms. But thankfully, the Malaysian government has spotted the potential for the FinTech sector and instigated several investment programs. So even though the big banks will be reluctant to give up market share, fighting for every dollar, there would appear to be competition on the horizon.


No unicorns in Malaysia!


When you consider the size of the Islamic finance market and the high take-up of banking services, surely Malaysia must have produced a least one FinTech unicorn? This is the popular name for start-up companies valued in excess of $1 billion. However, despite the multibillion-dollar market, colossal growth and technological advances, Malaysia have yet to produce one of the mythical unicorns.


As investment in FinTech shows signs of improvement, the Malaysian government is becoming more appreciative of the sector. It must surely only be a matter of time before they begin to chip away at the big banks. Akin to what we saw in the UK, will we now see traditional banks in Malaysia investing directly into FinTech companies, potentially bringing them into their expanded financial groups?

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