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FinTech and Islamic Finance – Malaysia’s New Initiatives

Securities Commission Boosts Malaysia’s FinTech and Islamic Finance Credentials With New Initiatives in ECF, P2P, Property Crowdfunding Framework and Digital Asset Exchanges

The connectivity between Islamic finance and FinTech took a major formal step forward in May 2019 when the Securities Commission Malaysia (SC) announced several new initiatives related to equity crowdfunding (ECF), P2P Funding Operators and a Property Crowdfunding Framework.

The SC announced eight new Recognized Market Operators (RMOs), comprising three equity crowdfunding (ECF) and five peer-to-peer (P2P) financing platforms.

 ‘‘The SC will continue to facilitate development of innovative digital solutions which democratise access to investments while broadening financing options available for all Malaysians. The introduction of ECF and P2P financing provides an alternative source of capital for MSMEs to fund business expansion, finance working capital and meet other financial requirements,” said Syed Zaid Albar, SC Chairman, as he handed the letters of registration to the RMOs in the presence of Malaysian Minister of Finance Lim Guan Eng at the FinTech Roundtable organised by the SC at its headquarters in Kuala Lumpur in May.

 According to the SC, with the addition of the new ECF and P2P financing players, which will be operational by the end of the year, there are now 21 market-based financing platform operators registered in Malaysia. As at end-March 2019, the ECF and P2P financing market has provided close to RM350 million of alternative financing for nearly 900 Malaysian MSMEs.

 The SC also released a new property crowdfunding framework following amendments made to its Guidelines on Recognized Markets. This is pursuant to an initiative announced in Budget 2019 to provide an alternative financing avenue for first-time homebuyers.

 “Property crowdfunding offers the same potential as that of ECF and P2P financing platforms in providing an alternative source of financing but is specifically tailored for first-time homebuyers. At the same time, it will provide investors access to a new investment option. To support the integrity of the scheme and protect investors’ interest, the revised guidelines list out the requirements and obligations of a property crowdfunding platform operator. These include minimum shareholders’ funds of RM10 million; obligation to provide fair, clear and timely information to both homebuyers and investors prior to participating in a property crowdfunding campaign; and exit certainty at the end of the agreed tenor,” said the SC in a statement.   

 The property crowdfunding framework was issued after taking into consideration, among others, feedback and input from members of the public including industry players during a recent public consultation by the SC.

 In a further development the SC also registered three RMOs to establish and operate digital asset exchanges (DAX) in Malaysia: Luno Malaysia Sdn Bhd, SINEGY Technologies (M) Sdn Bhd and Tokenize Technology (M) Sdn Bhd. The SC has given the new RMOs up to nine months to fully comply with all regulatory requirements.

 The announcement follows the coming into force of the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 on 15 January 2019, and the subsequent issuance of the revised Guidelines on Recognized Markets on 31 January 2019 to introduce new requirements for DAX operators.

 In yet another development, the SC has also registered Ethis Ventures, a Singapore-based crowdfunding platform, which exclusively develops and operates Islamic crowdfunding platforms, as a RMO, making it the first such Sharia’a compliant service in Malaysia. The platform hopes to start operating in Malaysia in Q1 2020.

 The Ethis Ventures Group comprises Ethis Crowd, which the group says is the world’s first Sharia’a compliant real estate crowdfunding platform; Global Sadaqah, an “impactful Charitable giving” Platform including Zakat and CSR donations; Kapital Boost, an Islamic P2P crowdfunding for SMEs; and Skola Fund, a Higher Education Crowd Funding. 

 Ethis Crowd, according to the company, has 27,092 investors from 65 countries with US$7,200,696 in crowd investments to date, financing a total project value of US$52,798,091, resulting in the building of 6,360 affordable houses providing accommodation for 25,440 people.

 In an interview with Reuters, Umar Munshi, Founder and MD of Ethis Ventures, confirmed that the group has “a lot of plans in Malaysia. The first thing is to serve the Sharia’a market for equity crowdfunding, for SMEs and start-ups that are locally based. Before this there was no Sharia’a-compliant option available. Now we have this licence, we will give SMEs the opportunity to raise funds that are Sharia’a-compliant through crowdfunding and, of course, people will be able to invest in these SMEs in Malaysia.”  Malaysian Finance Minister Lim Guan Eng in his first budget last year, announced FinTech would be a priority for the new government under Prime Minister Tun Mahathir Mohamed. To encourage more start-ups, the government announced a RM50 million co-investment fund to help support them.

 “The digital economy plays a crucial role in Malaysia’s growth. It grew on average 9 % annually from 2010-16, making this growth faster than Malaysia’s overall GDP growth. The government is committed to drive Malaysia’s digital economy agenda in an inclusive and sustainable manner to get the benefits from it. We are seeing more digital innovations making inroads into the capital markets,” he told the Roundtable.

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