Fintech could bring great benefits to Islamic finance, according to the governor of Bank Negara Malaysia, but also poses risks which regulators need to guard against.
Speaking at a conference, the bank's new governor Muhammad Ibrahim cited the recently launched Investment Account Platform (IAP) as evidence that fintech can be a "game changer" for Islamic finance.
The IAP is an online sharia-compliant investment platform set up by six Malaysian banks and backed by the government that serves as a central marketplace for financing SMEs and is "the first Islamic banking-intermediated internet-based platform that combines the expertise of Islamic banks and efficiency of technology to channel funds from investors to viable economic ventures," says the governor.
The platform is an example, he says, of how fintech can radically transform operational models through digitisation strategies that will be able to deliver much greater scale or, alternatively, a high degree of specialisation.
However, Ibrahim notes that the adoption of fintech is "clearly not without risks" in areas such as cybersecurity and says that the central bank has begun a review "of the changes and additional guidance needed to ensure that the regulatory framework remains appropriate to manage the risks, while encouraging productive innovation that will drive costs down and improve the quality of service to consumers".
The review will look at the impact of fintech on the management of risk by traditional financial institutions, how startups introduce risks to the broader system as a result of regulatory arbitrage, and the impact on consumers.
Says Ibrahim: "We will be providing more information to the market on our approach to the regulation of fintech developments as our review progresses. In the meantime, our engagements with individual firms will continue, supported by dedicated resources within the Bank to lead the review."