The challenge facing many fintech players is that the regulators they deal with are not open enough, thus hindering their growth and expansion plans. This was one of the conclusions drawn by major fintech companies’ representatives at the panel “Islamic finance in the digital era” during the SCxSC Fintech Conference 2019.
The conference, which was held in Kuala Lumpur, Malaysia, from 22nd to 23rd October, is an annual Fintech event organized by the Securities Commission Malaysia. It reunited more than 800 participants to discuss topics such as fintech entrepreneurship, artificial intelligence, cybersecurity, digital assets, and others.
KrASIA assisted and collected a summary of ideas regarding the future of the fintech industry in Southeast Asia.
Regulatory compliance is key to fintech growth
Several panelists, such as the chief executive officer of Malaysian fintech startup HelloGold Sdn Bhd, Robin Lee, and Adrian Gunadi, co-founder and CEO of Indonesian peer-to-peer (P2P) lending startup Investree, agreed that regulatory compliance is essential to the growth of any fintech player in the industry.
“Regulatory compliance assures retail investors that a certain standard has been met. The biggest challenge for fintechs is being disruptors. Some regulators are more amenable than others to tweaking existing regulations to accommodate new companies,” said Lee.
Gunadi added that regulatory compliance helps businesses scale and expand. “In Indonesia, the fintech association talks to regulators. That is how we navigate regulatory hurdles; it’s painful but you have to do it,” he pointed out. Gunadi is also chairman of The Indonesian Fintech Lending Association.
Kareem Tabbaa, chief product officer of Shariah-compliant robo-advisor Wahed Inc, noted that regulators need to be a few steps ahead to foster the environment and to not slow down startups. “In the US, the fintech space is really huge, partly because of the regulator. It has clear procedures and a set of rules which makes it easier for the startup,” he said.
Malaysia risks being left behind
The three fintech industry players also weighed in on Islamic fintech, a space they also operate in. Commenting on Malaysia’s position in the Islamic fintech space, HelloGold’s Lee said that while Malaysia is a leader in Islamic finance, the problem of being a leading proponent is the risk of being too complacent.
“Regulators in Indonesia and the Middle East are hungrier. Malaysia risks being left behind because it is so focused on the incumbent players,” he said.
Gunadi, meanwhile commended the Indonesian government’s push for Islamic fintech. “We see many e-commerce and ride-hailing firms looking to partner with Islamic fintech players for Islamic fintech solutions. That becomes an opportunity, where we see Indonesia leveraging on technology and providing the [right] environment.”
Tabbaa said that the infrastructure and financial system in Malaysia have supported his company’s growth. “The overall process here is faster than what we had experienced in the Middle East.”
To a question on whether a framework is needed to grow Islamic fintech in Malaysia, Lee believes there should be one. “Regulators need a push to drive this and also for the different agencies to push for that adoption. For most fintech operators, all they want is a level playing field. You can’t do that if the regulators continue to protect the incumbents,” he said.
Other challenges facing fintech players
Another challenge Lee mentioned is the lack of harmonization in Islamic finance standard practices. “There’s currently very little harmonization. Depending on which country you go to, you have to apply for a new fatwa because that country does not recognize the existing standard you’ve complied to,” he said. According to the Oxford dictionary, a fatwa is “a ruling on a point of Islamic law given by a recognized authority.”
Gunadi said that fintech companies, in general, face the challenge of scale and profitability. “How you address these issues is critical. These are the metrics you need to be aware of, and your strategy as well. Is the market sizeable enough?” he questioned.
Tabbaa advised that if fintech players want to scale to different markets, they have to first localize their products. They also need to adhere to the regulations of the hosting country and also adapt to the local currency. This way, they can scale their businesses more efficiently.
Lessons from Indonesia
Speaking to KrAsia, Gunadi noted that in Southeast Asia, Indonesia is one of the more progressive regulators. One of the reasons is that the country issued a set of P2P lending regulations from 2016, before anyone else.
“Regulators are already issuing regulations on how banks can work with fintech firms. Indonesia is trying to accelerate financial inclusion, and technology is the answer to this. Technology is providing access to financing for many small businesses, individuals and the unbanked population,” he told KrAsia.
“I think that’s where regulators are playing a very important and proactive role. And the fact that we have quite a solid fintech association also helps. We work closely with the regulators through the association and have different working groups,” he said.