Malaysia, home of the world’s largest Islamic finance industry, is taking the idea of creating a comprehensive Islamic economy a step further and announced it will launch a debut “Islamic Digital Economy Framework ” by March next year as a growth backbone for its entire halal industry.
The idea of the framework is to provide a digital platform for cooperation in areas such funding and financing of Islamic business endeavours, halal and Shariah compliance, Islamic digital economy regulations and, generally, the incubation of halal business operations, Including Islamic banking and finance. The framework is designed to attract investors and venture capital to fund halal businesses and to conduct their transactions and investments in compliance with Shariah laws and regulations. The initiative is new in the sense that Malaysia currently has only formulated a framework for conventional startup funding and venture capital deals.
The driving force behind the Islamic digital initiative is the Malaysian Digital Economy Corp, or MDEC, a government-backed entity which is seeking to create a growth ecosystem for the Islamic economy in Malaysia in accordance with the government’s national strategy to tap the potential of both the Islamic and the digital economy. MDEC is cooperating with Jabatan Kemajuan Islam Malaysia (the government’s Department of Islamic Development) and Hall Amanie Sdn Bhd, an independent Shariah advisory firm, to set up the framework.
“The development of a strong Islamic digital economy in Malaysia will give the country a global competitive advantage,” Norhizam Abdul Kadir, vice president of Growth Ecosystem Development at MDEC, told media at the presentation of the framework in Kuala Lumpur on December 19.
He added that Malaysia strives for becoming the most relevant regional and global Islamic digital marketplace, given its already large and solid halal economy backed by a strong Islamic finance industry. The framework also aims at attracting startups from all over the world to come to Malaysia and find a fertile ecosystem to develop solutions for the halal industry out of Malaysia to serve the global market.
According to Kadir, the implementation of the Islamic Digital Economy Framework will help increase the GDP share of Malaysia’s digital economy to 20% by 2020 from currently 18.2%. The framework will be supported by Malaysia’s central bank Bank Negara Malaysia, the Securities Commissions of Malaysia and several other government agencies. This should bring confidence for Islamic entrepreneurs and startups in terms of ensuring that the funds they are raising come from Shariah-compliant sources and investors and not from conventional ones, and that venture capitalists are in fact committed to support the halal economy.
An important point is that halal certification will be part of the framework as an element to ensure Shariah compliance and authenticity of halal products and services, which can comprise all segments of the Islamic economy, including Islamic finance, halal food, halal tourism, halal pharmaceuticals and cosmetics, halal clothing and fashion, halal media and recreation, Islamic economy education, Islamic art and design, as well as completely new concepts such as smart mosques and ritual cyberspaces for Muslims.
According to MDEC’s Kadir, three venture capital firms have already registered interest to partake in the framework and look for opportunities to support innovative ideas. The firms are Kuala Lumpur-based Captii Ventures, a multi-stage venture capital investor in online marketplaces, media and digital enterprises across Southeast Asia; Singapore-based Quest Ventures, which invests in Internet-related technology startups, as well as Jakarta-based Ethis Ventures, which invests in and supports Islamic crowd funding platforms.
Analysts, naturally, see huge opportunities in the Islamic digital economy. According to research from Thomson Reuters, Muslim consumers worldwide are expected to contribute $277bn to the global digital economy by 2020 through channels such as websites and mobile platforms, including for online banking, investment advisory, banking and wealth management products, online shopping, media and entertainment, online skills training, travel booking, ride-hailing and other segments of the sharing economy.
Consultancy Deloitte, in a study on the potential of the Islamic digital economy, also stated that with over 1.7bn Muslims around the world, an Islamic economy that is expected to reach $4tn by 2020, as well as technology readiness for potentially 30% to 40% of the Muslim population, there is great potential for the emerging digital Islamic economy. The study added that Islamic finance, Islamic media, halal travel, halal fashion and halal food would stand out as the most attractive industry verticals within the Islamic digital services world and would have the greatest online market potential.
In Islamic finance, micro-financing, co-investment platforms and online investment advisory are currently amongst the most prevalent services, whereas there are still large gaps in online incubation funds and start-up financing, including Islamic crowd funding, the study found, a void that Malaysia’s new Islamic Digital Economy Framework is designed to quickly and sustainably fill for its own economy and give a good example for other governments in Muslim jurisdictions seeking innovative inputs for their economies.