FIKRA: Malaysia's idea to accelerate Islamic fintech
By Dzof Azmi May 28, 2021
- Applications open, solutions demonstrated at SCxSC conference 2021
- Despite projected US$4 tril Islamic finance assets, only 400 Islamic fintechs
Entrepreneurs looking to make a mark in the Islamic fintech space, will welcome the launch of the FIKRA Islamic Fintech Accelerator Programme, established by the Securities Commission Malaysia (SC) together with the United Nations Capital Development Fund (UNCDF).
FIKRA, which means ideas in Arabic, aims to be a collaborative platform to connect startups with the SC, UNCDF mentors, industry experts and investors.
"The goal is to build a vibrant and well-supported Islamic fintech ecosystem, that nurtures talents, funds innovation, commercializes ideas and solutions, and creates jobs and opportunities," said Syed Zaid Albar, executive chairman, SC Malaysia.
With global islamic finance assets projected to grow close to US$4 trillion by 2024, the thinking is that there will be plenty of opportunities for ambitious startups. FIKRA's first cohort are invited to take on challenges in three areas.
The first is to develop new Islamic capital market offerings. "We hope to encourage the growth of offerings that can deliver the unique value proposition of Islamic finance, and this includes a wider embodiment of wholesomeness," said Syed Zaid, in reference to Halalan Toyyiban.
The second area is to improve accessibility, by addressing the lack of financial literacy, and investors ability to make long-term investments. "Ultimately, the aim is to enhance financial inclusion and address major social concerns, such as old age, poverty, and insufficient funds for retirement.”
The third area is to improve touchpoints of Islamic social finance instruments, such as Qardhul Hassan, or those linked to Islamic structures, such as Zakat and Wakaf.
"It also provides an opportunity to align the capital market towards socially impactful outcomes," he explained.
Aligning to Shariah and SDGs
"(Islamic banking) promises a significant enhancement of conventional finance - to bring in risk sharing, to bring in sustainability - but it wasn't an easy journey."
This was said by Dr Moutaz Abojeib of the International Shariah Research Academy for Islamic Finance (ISRA) during the panel discussion held in conjunction with the launch.
This was because Islamic banking had to work under a conventional banking framework. "This is why we hear critics of Islamic finance saying it hasn't (realised) its promise to bring in the higher Shariah objectives, (like) risk sharing," he said.
This idea that Islamic finance is playing catch-up to its conventional brethren is borne by the numbers. "According to the latest reports, there are (about) 400 Islamic Fintech companies around the world," he pointed out. "On the bright side, most of these startups have been established during the last two years, so the growth is really high."
He also feels that it isn't too complicated for companies to learn how to become Shariah-compliant, especially with institutions such as ISRA there to help. "What is important is to understand what makes your solution Sharia compliant," he stressed, "And the good thing here in Malaysia is that there are Shariah standards available for the public."
Indeed, the Shariah concept of inclusion and sustainability is in line with the Sustainable Development Goals (SDG), making it a natural fit with the work of Jaspreet Singh, UNCDF Global Lead for Financial Health and Innovations.
"This entire program with the SC was designed to achieve the broader objective of sustainable and responsible investments," said Jaspreet. "How do you make capital markets much more accessible to the segments which are completely left out? Or help create that last mile connection which is currently absent, especially from the context of Islamic finance?"
Jaspreet noted that even though Malaysia is well-positioned in terms of overall financial inclusion, there are very low levels of savings at the household level. "You have to realize that in order to achieve SDGs, financing itself is a key component," he explained.
"What you often see in the financial industry is that products created to cater for the upper-income segment are often (just) offered to the low-income segment with the idea that they will start using it as well," he said. "But their needs are absolutely different."
Registrations open until 30 June
The programme is currently open for registration (https://www.uncdf.org/finlab/fikra-islamic-fintech), and applications will be accepted until 30 June. Eventually, ten submissions will be selected, and the cohort will start in July for three months, culminating in a public virtual demo day during the annual SCxSC Fintech Conference 2021 in Oct.
Successful applicants will have the opportunity to work with partners in the program such as Bank Islam Malaysia, Gobi Partners, Kenanga Investment Bank, and Permodalan Nasional Bhd.
The methodologies used for the programme are developed by UNCDF based on their prior experience running innovation challenges through their Financial Innovation Lab (FinLab) and now scaled to address finance related initiatives under the Centre for Financial Health.
"The programme is an incubator and accelerator at the same time," said Dr Kinan Salim, Head of Islamic Digital Economy at the International Centre for Education in Islamic Finance (INCEIF). "We want to incubate new ideas from new entrepreneurs. And at the same time, focus on those innovative ideas that look likely to achieve the objectives of Shariah regarding risk sharing, justice and social needs."
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