In the spirit of making people’s lives easier through technology, most developers strive to bring simplicity through uniformity. They tailor their products to suit as many people as they can, across the board.
But despite their best efforts, there is still an enormous market segment that has its own specific and distinct requirements beyond the norm. Muslims account for a quarter of the world’s potential users, all the while their tech needs are still desperately underserved.
“We want to be telling the world that there’s this vertical which we should be spending some time on,” said Taraec Hussein, a vice-president of Gobi Partners, the venture capital firm based in Kuala Lumpur and Shanghai.
A new concept
The Malaysian dealmaker’s job is to find the companies with the most potential within TaqwaTech, a term coined by Gobi that has gone on to define an industry segment whereby startups adhere to shariah law. These might, for example, be Muslim-run or targeting a Muslim user-base.
“As long as no element of a business infringes on Islamic principles—TaqwaTech prohibits activities like online gambling and selling pork, alcohol, and cigarettes—it could come under Gobi’s progressive radar,” Taraec added.
The world’s roughly 2 billion Muslims are just as likely to use secular technology as people of other faiths and those of none. A huge number of them log on to Facebook, message WhatsApp groups, and tweet every day.
On top of this, they also have their own spiritual, financial, cultural, and legal tech needs that are only gradually being met by developers.
Aside from utilities like Muslim Pro—a decade-old app that reminds its almost 90 million users of prayer times—halal verification services, online fashion retailers, and shariah financial startups have been going to market in greater numbers, aiming to tap into Muslims’ singular needs.
Bustling travel space
Muslim travel sites in particular have done well as for funding over the last several years, especially the ones that specialize in Hajj and Umrah tours, or those that vet the halal status of the hotels they list.
Malaysia-based Muslim-centric online travel agency Tripfez caused a buzz in 2016 when it raised USD 750,000, with Gobi leading the bidding.
Two years later Middle Eastern travel startup HolidayMe received USD 16 million in a round again led by Gobi. The two halal travel agencies have since merged.
Highly specialized and the most widespread of TaqwaTech segments, Islamic fintech is ingrained into a USD 3 trillion global shariah-finance market whose double-digit growth has been outpacing conventional finance for the last decade.
Kuala Lumpur is the world’s Islamic finance capital, and consequently the leading center for Islamic fintech, albeit starting from a low baseline.
Malaysia boasts just 26 startups in this space, seven ahead of the second-placed United Kingdom, according to the 2020 Islamic Fintech Report by the Malaysia Digital Economy Corporation.
This is tiny beans compared to the over 450 conventional fintech firms in neighboring Singapore alone. But given the size of the overall shariah finance segment and its pace of growth, there is no doubt it is underserved by startups. Yet it is not being underestimated by institutions that see TaqwaTech as a competitor for their hegemony.
“I think we are at a point where the financial institutions are feeling disrupted. When you feel there’s a thief outside your house, you become a lot more cautious,” said one senior Malaysian official who has been helping build bridges between institutions and startups.
Islamic finance loves the blockchain
Meanwhile, TaqwaTech fundraising sites have been taking off, especially those using blockchain as their foundations.
Blockchain is eminently attuned to Islamic finance, which calls on complex contracts to a considerably greater degree than its conventional counterpart. Blockchain’s smart contracts have greatly helped fuel the rise of Islamic crowdfunding, especially in Indonesia, where social projects financed this way are booming.
A Silicon Valley alumnus and Indonesia resident since 2015, Matthew Martin has called on blockchain to digitize the sale of Islamic bonds, or sukuk, mainly to finance social projects.
“We’re bringing the barrier to entry down so that small- to medium-sized companies can issue sukuks. We do this using smart contracts on the Ethereum blockchain,” said Martin, who is chief executive of Blossom Finance.
“Islamic finance at its core has a principle of no excessive uncertainty. So the idea of using a smart contract—a contract that is systematically enforced and where you don’t need to go to a court to arbitrate it—is very in line with Islamic principles.”
The halal trading app
Back in Malaysia, HelloGold has made a name for itself at the most progressive end of the TaqwaTech scale. As a gold trading app, its business is not intrinsically Islamic, and though one co-founder is Muslim, it could hardly be called a Muslim-run firm.
Nevertheless, it has entered the Islamic digital economy sphere by engaging shariah advisors to certify the app halal.
“I fundamentally believe that ethical financing is how we should set out to serve our target market,” said co-founder Robin Lee, referring to an element of shariah finance that regulates the nature of Islamic investments.
Despite its vast market potential, TaqwaTech trails a long way behind where it might otherwise have been today. The longstanding trend in Asia for imitation over innovation has effectively held the Islamic segment back, said Gobi’s Taraec.
“It’s always the case that the first batch of entrepreneurs in Southeast Asia will copycat and take models that have worked in more developed markets, to build a localized, Islamic proposition for the region,” he said.
“That’s why TaqwaTech has not grown as fast as other verticals. Until recently, entrepreneurs have not tended to run with their own ideas, but that’s changing.”