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Islamic Fintech Finds Promise in Malaysia’s Flourishing Digital Economy

April 3, 2023
Fintech News Malaysia
5 mins read

The Islamic digital economy is rapidly expanding in Malaysia, presenting a range of opportunities for businesses and entrepreneurs alike. The country has long been at the forefront of Islamic finance, and its well-established infrastructure and regulatory framework make it an ideal location for the development of Islamic digital financial services.

One of the key areas of opportunity within the Islamic digital economy is the creation of innovative financial products and services that cater to the specific needs and requirements of the Muslim community — but also have the potential to attract non-Muslim customers who value ethical and socially responsible investments. These may include shariah-compliant investment funds, mobile banking services, and online trading platforms that adhere to Islamic finance principles.

In the country’s financial technology sector alone, the Islamic fintech market is projected to reach RM603.65 billion (US$128 billion) by 2025, with a higher growth projection by 2025 than conventional fintechs, at 21% CAGR compared to just 15% CAGR. Fitch estimates that Islamic financing has grown to a five-year high of 13% in 2022, raising the share of Islamic financing to 41% of total banking system loans from about 38% the previous year, and “further cementing Malaysia as the world’s third-largest Islamic banking market” as per the ratings agency.

TheNoor, Islamic lifestyle super app to the world

Another area of opportunity in the Islamic digital financial services space is the provision of financial education and literacy. Many Muslims are not well-informed about the principles and practices of Islamic finance, and there is a growing demand for educational resources and tools that can help them to better understand and manage their finances.

This presents an opportunity for businesses to develop innovative and engaging platforms, offering a raft of digitalised features that cater specifically to the needs of the Muslim community. And at the same, providing educational tools to supplement their knowledge of Islam-adherent financial principles.

“To overcome these challenges, TheNoor collaborates with Shariah experts to ensure compliance, works closely with regulators to navigate the legal landscape, and devotes most of its efforts in actively educating our users and the broader community about the benefits of Shariah-compliant financial services,”

affirmed Mohd Izzairi Yamin, the co-founder and chief technology officer TheNoor, Malaysia’s first Islamic lifestyle super app.

TheNoor offers innovative digital features that aim to holistically cater to the lives of everyday Muslims, such as real-time locations of mosques and the Qiblah, learning and reading opportunities of the Al-Quran, weather forecasts, prayer schedules, high-resolution Al-Quran audio translation in five languages (with more languages on the way), and a host of other services that cater to the religious and lifestyle needs of Muslims in the country.

“I believe that, at least in Malaysia, Islamic fintech will be the prime choice of Muslims and non-Muslims in the coming years,”

stated Mohd Izzairi.

“Along with the advancements in technology, we believe that the proliferation of the user purchasing experiences and financial services will evolve significantly in the coming years.”

To further its reach and adoption among Muslims and non-Muslims worldwide, TheNoor secured support from research and innovation accelerator MRANTI along with impact investments from Islamic equity crowdfunding platform Ethis.

To expose the app to global markets and to prepare it for expansion to other countries, TheNoor took part in MRANTI’s Global Market-Fit Programme, a growth accelerator platform to assist high-growth companies break into promising markets. Global Market-Fit attendees could partake of valuable mentorship guidance from foreign market pros, network with an entire range of applicable partners and ecosystem participants, not to mention gain insight on cross-border regulatory hurdles as well as gauge opportunities for expansion into markets like the US and China.

“Throughout the programme, we were exposed to a wealth of valuable insights, tools and strategies on how to effectively position and market our products in the global marketplace. The sessions were interactive, engaging and allowed us to learn from each other’s experiences and perspectives,”

confirmed the co-founder.

“The speakers were exceptional and brought a wealth of knowledge and expertise from their
respective fields. They provided practical and actionable advice on how to identify and target
the right markets, create compelling value propositions, and develop effective marketing and
distribution channels.”

Powered by fintech

TheNoor app is rapidly introducing more fintech-oriented features including seamless Zakat payment tracking, an e-wallet within its NoorCommerce marketplace, TheNoor-branded Touch N’ Go privilege card, and TheNoor-branded Visa card which are pending Bank Negara Malaysia (BNM) approval.

“These features, among others, provide users with convenient and seamless payment options that align with their faith, making it easier for them to manage their finances while adhering to Shariah principles,”

explained Mohd Izzairi.

“In addition, it is our belief that the more users rely on TheNoor for their daily transactions, the more likely they are to adopt the various other features and services found in our app.”

“The decision to focus on Shariah-inspired financial services was driven by the understanding that Muslims need access to financial products and services that align with their faith,” the experienced entrepreneur continued. “By integrating these services into the app, TheNoor aims to provide a one-stop solution for its users while ensuring that their financial transactions adhere to Islamic principles.”

Shariah compliant, data-driven digital platform

Mohd Izzairi stressed that his co-founders (which includes superstar entrepreneur and company CEO, Noor Neelofa Mohd Noor) and himself place precedence on the needs of each Muslim in fulfilling their spiritual duties, which is why the app is free yet with premium state-of-the-art Islamic app features, achieving over 6 million downloads from app stores and over 62 million uses of its various faith-based services.

One of the key advantages of the burgeoning Islamic digital economy in Malaysia is that it operates on the principles of Shariah law, which prohibits the payment and receipt of interest. Instead, Islamic finance relies on profit-sharing arrangements, where the lender and the borrower share the risk and reward of a financial transaction. This means that the lender is not guaranteed a fixed return on their investment, but instead receives a share of the profits generated by the borrower’s activities.

When looking to raise RM5 million to refine its app offering further, investors in Malaysia could take part in TheNoor’s equity crowdfunding campaign on Ethis, with an investment block of 20 shares going for RM500. This was advantageous, but TheNoor would have to ensure compliance with Shariah principles while, at the same time, maintaining profitability and growth as a business.

“At TheNoor, we try to address this by working closely with the numerous Shariah experts in our panel of advisors to ensure that our products and services adhere to Islamic guidelines,” Mohd Izzairi said. “We also focus on providing value-added services to our users, such as educational content and lifestyle features, which help drive user engagement and monetisation opportunities.”

The app embraces technology to support its ambitions, especially data analytics.

“TheNoor also uses data-driven insights to understand user behaviour and preferences, allowing it to offer tailored financial services and products that cater to its users’ needs,”

proclaimed Mohd Izzairi.

“The critical tenet within the company is always data and analytics. For instance, even within the app, users can keep track of all their prayers.”

Malaysia a leading voice in the global Islamic digital economy

In Malaysia, the central bank BNM has been a key driver of the growth of the Islamic digital economy. In 2003, BNM established the Islamic Financial Services Board (IFSB) to promote the development of Shariah-compliant financial products and services.

Since then, Malaysia has become one of the world’s leading markets for Islamic finance, with a wide range of products and services available, including Islamic banking, takaful (Islamic insurance), sukuk (Islamic bonds), and Islamic asset management – Malaysia is the global sukuk market leader, accounting for almost 30% of all sukuk issuances, and is among the top three in Islamic asset management with over 22% of total assets under management worldwide.

The Islamic digital economy also presents unique opportunities for businesses to collaborate and form strategic partnerships with other players in the ecosystem. By working together, businesses can leverage their respective strengths and resources to develop new products and services, enter new markets, and reach new customers.

“At TheNoor, we hope to play a significant role in this evolution by continuously innovating and expanding our offerings to cater to the evolving needs of the Muslim community,” co-founder and CTO Izzairi agreed. “Through strategic partnerships, technological advancements, and a focus on user-centric solutions, TheNoor aims to become a leading Islamic super-app and a trusted platform for Muslims worldwide, enabling them to access comprehensive services that align with their faith.”

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