By using Shariah-compliant services, Muslim consumers are assured that their transactions are halal and in compliance with Islamic principles 

by NURUL SUHAIDI 

ISLAMIC finance is a rapidly growing sector and increasing in popularity, particularly in Muslim-majority countries like Malaysia. 

In line with the rise of Islamic finance, there is a growing need for innovative financial technology (fintech) solutions that adhere to Islamic principles. 

This has led to the emergence Islamic fintech, a sector that combines Islamic finance principles with technology to provide financial services that are compliant with Islamic law. 

Many local companies are using technology to accommodate its financial services from the Islamic banking service, digital and e-wallet payment gateway, merchant acquiring, takaful, crowdfunding and many more others for their business. 

One of the key components of Islamic fintech is the payment system gateway, which serves as a secure and efficient method for processing transactions in accordance with Islamic financial principles. 

PayHalal ED and fintech law specialist Indrawathi Selvarajah said the ecosystem to support the Islamic finance industry in Malaysia is strong, especially when it comes to the scholarly ecosystem and infrastructure. 

She said Malaysia has been at the forefront of the Islamic finance industry for decades, with a well-established legal framework, regulatory environment, robust and a diverse range of Shariah-compliant financial institutions. 

“The country also has a strong start-up ecosystem, with a growing number of fintech companies developing innovative solutions for Islamic finance. 

“Even though Malaysia may not be at the forefront of the Islamic fintech start-up ecosystem compared to the United Arab Emirates, it is quickly catching up,” Indra- wathi told The Malaysian Reserve (TMR) in an interview. 

While noting that the interest in Shariah-compliant fintech solutions is constantly evolving, she noted several successful Islamic fintech companies in the space such as Ethis Ventures, Microleap and PayHalal. 

Assurance To Muslim Consumers

For Muslim consumers, using Shariah-compliant service reassures them that their transactions are halal and in compliant with Islamic principles. 

This is especially important in sectors with high Muslim consumer participation, such as halal food, travel and online retail, where conformity to Shariah law is a major concern for many customers. 

For PayHalal, it has received positive feedback and adoption from merchants and consumers who value their Shariah- compliant payment solutions. 

“Based on our business intelligence data and anecdotal evidence, it appears that the merchants, particularly Muslim consumers and merchants in halal business, are receptive to Islamic payment gateways like PayHalal as an alternative to conventional payment services. 

“Since PayHalal went full blast with merchant acquiring and payment gateway services in February 2022, the adoption of their services has been growing steadily, with over 20% month-on-month,” Indrawathi noted. 

Despite the growing demand, however, it is important to understand the major difference between products that are marketed as “Muslim-friendly” versus being truly Shariah-compliant. 

Muslim-Friendly Versus Shariah-Compliant Products

A halal-focused payment fintech usually differentiates itself from other players in the industry through transparency and ethical business practices, which is appealing to merchants and consumers who prioritise Shariah-compliant values when choosing payment gateway providers.
Apart from being committed to the 

practice, PayHalal also aims to complement the halal industry in Malaysia specifically, in the Malaysia’s Halal Industry Master Plan (HIMP) 2030. 

“The halal industry is expected to grow significantly, with the global halal economy forecasted to increase from approximately US$3.2 trillion (RM14.18 trillion) in 2012 to US$6.4 trillion by 2025. 

“PayHalal aims to work with the government’s HIMP 2030 to capitalise on the growing Muslim population, which is projected to increase from 1.6 billion in 2010 to 2.2 billion by 2030,” Indrawathi added. 

Challenges In Halal Fintech Industry

However, the main challenge for players in the halal fintech industry is accessibility for halal capital to expand business operations in line with the growing demand for payment channels such as e-payments and payment terminals. 

“Without access to Shariah-compliant venture funds, the industry’s adoption can be slowed down,” she said. 

Other challenges may include regulatory compliance, lack of awareness within the venture capital community and government agencies, and trust issues among the start-up founders with the venture capitalists due to poor understanding of the Islamic fintech industry. 

“While there is room for growth, Malaysia has the potential to become a leading global Islamic fintech centre of excellence in the world,” Indrawathi added.
Meanwhile, an Islamic advisory body for 

Islamic fintech, Adl Advisory Sdn Bhd, said while Malaysia is a top player in the Islamic fintech industry and has a robust infrastructure to develop the space, challenges such as awareness, talent, funding and regulatory support can slow its progress. 

According to its founder and CEO Mufti Yousuf Sultan, the role of academia is pivotal in achieving this goal, as it can educate and train students with the skills and knowledge required to succeed in the Islamic fintech sector. 

“By fostering a talent pool of competent and knowledgeable individuals who can comprehend the industry’s needs, academia can significantly contribute to developing the Islamic fintech ecosystem in Malaysia,” he said to TMR. 

Nonetheless, he added that support of Bank Negara Malaysia (BNM) and Securities Commission (SC) Malaysia in driving various segments through regulatory and supervisory roles is commendable. 

“SC has guidelines for crowdfunding, digital wealth management and digital asset exchange, all of which can be provided under Islamic fintech,” he said. 

Yousuf believed that to position Malaysia as the global leader in Islamic fintech, the government and industry players need to provide continuous support, incentives and an environment that promote growth and innovation within the industry. 

In addition, ToyyibPay CEO Rosli Amir similarly noted that the public is now more receptive of this type of platform similar to the conventional one, and emphasised that it is important for players to stay true to Islamic principles and it goes beyond just the capitalisation aspects. 

In doing so, he pointed out that Toyyib- Pay integrates a fully Shariah-compliant process not just in its system but in the whole company culture, and focuses on gaining customer trust as their strategy. 

“Business is always about transactions of buy and sell. That means it is always about payment or finance. 

“As most businesses are going digital, the Islamic payment gateway will complement the financial transaction to become more efficient, accurate and reliable,” Rosli told TMR. 

In terms of challenges, he pointed out that the cost can be the factor to slow down the adoption because the cost of Shariah compliance can be costly while considering the fact that the business players cannot monetise in Shariah compliance and avoid the riba aspects. 

Moreover, it also requires an extra budget to appoint consultants to provide the Shariah-compliant process. 

“We also need to budget resources as well as equipping the team with Shariah understanding and knowledge. 

“Since we cannot monetise and need to avoid riba, the challenge is also to convince the board to invest in Shariah-compliance, hence it is important to have the board and shareholders that have the same belief and faith for Islamic fintech,” he noted. 

Rosli concluded that with wider adoption of Islamic finance and a unique system in place now, Malaysia will need to set more advanced and integrated solutions to cater to halal and Shariah business needs in the future. 

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• This article first appeared in The Malaysian Reserve weekly print edition