While Islamic financial institutions (FIs) are adopting technology, most still lag behind conventional or more traditional banking institutions in leveraging on innovations that can strengthen the sector and further enhance consumer experience.

Session moderator Dato’ Badlisyah Abdul Ghani, Executive Chairman, Souqa Fintech acknowledged the need for Islamic financial institutions to have an organisational readiness to support digital transformation. He said, “Islamic financial institutions need to have a changed mindset across all its players within the ecosystem. It’s a critical requirement for them to do so or they will find themselves without any business – being challenged not only by a challenger bank that is already licensed in some countries, but also by newer banks that operate outside the regulated space and by the likes of Amazon and Ali Baba that are already behaving like the largest financial institutions in the world albeit unregulated.” Digital disruption is real, he said, and thus begs the question: how do Islamic financial institutions approach their business?

A clear hurdle and limitation for Islamic financial institutions remains the lack of agility and technological know-how that are the hallmarks of a fintech start-up. Without embracing innovative tools possessed by fintech start-ups, such as efficient use of big data or data analytics, traditional banks are not able to provide a sustainable model that can reach underserved communities – such as micro financing for SMEs that lack traditional access to finance. “Fintech start-ups are able to establish the financial behaviour of micro SMEs, allowing them to look at a company’s characteristics that enable them to issue out micro financing. Traditionally this is not within the banks’ purview but should aspire to as this is what promotes real economy” said Zahrain Aris Bakti Zulkifli, Head of Digital Banking, Bank Islam Malaysia.  With fintechs leveraging on mobile connectivity and digitally connecting peers in P2P lending networks with technology,  Zahrain stressed that it is critical to cultivate an Islamic Fintech Ecosystem with the support of Islamic FIs.

(L – R) Dato’ Badlisyah Abdul Ghani, Datuk Noor Azrin Mohd Noor, Shah Mohammad Ali & Zahrain Aris Bakti Zulkifli

In a report by the Boston Consulting Group, there are 9,000 fintech companies across the world and 200 are involved in payment activities which compete directly with banks. Though fintechs and FIs seem to be in market competition, Shah Mohammad Ali, Head, Islamic Markets & FinTech, Malaysia Digital Economy Corporation (MDEC) is more pragmatic, saying that a collaboration between fintechs and banks is the way forward. “A lot of start-ups have no capital and no users but they have the agility to deploy solutions quickly as opposed to banks. Banks have the capital and users, but they are answerable to Boards that require short-term returns.” By complementing each other instead of competing, they both can fill the gaps within the finance industry to fulfill social and developmental needs.

While digital acceleration can allow Islamic FIs to offer easier, more affordable and need-based financial products, Datuk Noor Azrin Mohd Noor, Managing Director, Sedania Group cautioned against chasing technology disruption for the sake of being disruptive and innovative. Instead, the focus should be on leveraging technology to serve customers. “The fundamental underlying theme is attending to a fast-changing consumer behaviour. Digital disruption becomes a threat if we mimic the behaviour of the generic fintech.”

Malaysia can strengthen its status as an Islamic finance hub and as a digital leader for Industrial Revolution 4.0 (IR4.0) by seizing the opportunity to develop and position Syariah-compliant fintech as a premium service. “If we focus on the behavioural aspects of our primary target market, which is the Muslim consumers, this becomes the basis of how we come up with our services and how we position ourselves.” Products that extend beyond banking, such as Islamic insurance and Islamic microfinancing can help boost the Islamic finance industry and put them in a strong position to lead change with technology as an enabler.

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