Islamic fintech is flourishing in Southeast Asia


The appearance of fintech sectors across Southeast Asia today is an exciting topic to discuss, remembering a surge of new growth potential in a traditional niche business. The dominant Muslim population in Southeast Asia directly influences how the economic sector grows there, creating three Malay clumpsMalaysia-Singapore-Indonesiato become a breeding ground for innovation in the industry.

Islamic fintech firms in these regions are offering digital services with broad appeal. The number one Southeast Asian market in Indonesia. It’s no surprise that this country is the world’s largest Muslim population, with over 230 million population. Some startups are already global, as their online and mobile-first services have two remarkable advantages. The world’s 1.9 billion Muslims easily use the services, especially peer-to-peer financing and crowdfunding. The tech-savvy firms can compete well with conventional Islamic banks.  

Islamic finance in short

We already talked about how Gen-Sy became a new wave that became a game-changer in our economic trends. Islamic finance is guided to Sharia, Islam’s body of religious law. Although such finance has been practiced for centuries, modern sharia-compliant banking shows its teeth only from the mid-20th century onward, driven by the flourishing and growing prosperity of Muslim-majority nations. Financing varies from the standard kinds in several ways. 

Photo courtesy of Erol Ahmed

Muslims admit that sharia disallows charging or paying interest. Passages in the Quran and the hadith equate interest with loan-sharking, so some instrumentations permit the parties to receive money otherwise. For instance, instead of giving you a mortgage loan at a specified rate, a sharia-compliant financial firm would buy the desired property, then lease or sell it to you in installment payments that add up to more than the initial purchase price. Other services are structured on profit and loss-sharing. When making a bank deposit, you’d earn a specified share of the bank’s profits on the money rather than interest. For a business loan, you would pay back the principal plus a share of your profits. Critics say the net result in these cases is just interested in another name, but to observant Muslims, the difference matters. 

Sharia is very clear about what they don’t and what they do. Anything that includes prohibited substances, like alcoholic drinks and gambling, is something we can’t do, we call it a haram thing, and an Islamic financial wouldn’t do that. They also avoid tobacco-related investments as it’s categorized as harmful. They are very cautious about too risky investments. 

Photo courtesy of Arthur Osipyan

Sharia further rules out investing in anything that involves haram (prohibited) substances or activities, such as alcoholic drinks and gambling, which are deemed harmful. Thus, an Islamic financial wouldn’t trade in casino bonds, and many now avoid tobacco-related investments as well. Sharia-compliant finance also frowns upon overly risky investments, fraudulent practices, and the like and prefers to avoid that. 

With many of its restrictions, they don’t have a lot of choice of investment. But if we look at the positive side, Sharia is solidly supporting investing and giving for the good of the community. That’s why the Sharia economy is very welcome in Indonesia because it has the same mission with its national principle, Pancasila, to reach welfare and economic equality for people. 

A strong basis of Islamic fintech in Southeast Asia

Firstly, we would like to talk about how Sharia fintech has a good response in Indonesia. With almost 87% population of this country are Muslim, about its two-thirds have cell phones, maybe one person has two mobile phones. This makes them easily engaged for mobile-based fintech. It answers why Indonesia, with their diversity in ethnicity and religion, but their government is actively promoting a progressive sharia economy? Yes, because they have a massive market there. 

Move to the closest neighborhood, Malaysia, a rapidly expanding nation with more than 20 million Muslims between its 33 million, supports Islam as the official religion and has long been a center of Islamic finance. Malaysia is generally in its third position (after Iran and Saudi Arabia) in regards to sharia-compliant assets. The country is leading financial entities like Bank Islam Malaysia, the Islamic branches of Maybank and CIMB Group, Islamic-savvy law and accounting firms, and the international Islamic Financial Services Board.

Photo courtesy of Tierra Mallorca

Singapore is the smallest only 14% Muslim’s population, yet it is the most highly developed ASEAN state and a new tech industry hub. Now consider some fintech firms in this three-country swath of the world. 

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