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Growing Interest In Islamic Fintech, Shariah Compliant Trading Systems And Funding Are The Way Forward

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Retrieved on: 20th February 2017

Pic: Alamy

As Islamic finance continues to be one of the fastest growing financial sectors globally, technology is becoming a key enabler for international financial institutions.

Shariah-compliant financial products need a dedicated end-to-end Islamic banking system that facilitates and automates shariah-compliant banking operations.

In December last year, Bank Negara Malaysia Governor Datuk Muhammad Ibrahim had stressed the urgency for the country to put in place a regulatory framework to enable the adoption of fintech into Islamic finance as the technology is rapidly revolutionising the global financial market, Bernama reports.


Malaysia has also recently launched an Investment Account Platform (IAP) which is envisaged to become a cross-border multicurrency channel linking into regional and global economies. The IAP is Malaysia’s first bank-intermediated fintech platform that could shift the role of Islamic lenders to investment intermediaries.

The term fintech has become the catchphrase of the new digital financial ecosystem worldwide. As fintech is a service provided by Internet companies to streamline financial systems and make funding of the supply chain more efficient, the race to make fintech shariah compliant is on.

Malaysian Digest spoke to Sedania AsSalam Covering CEO Ahmad Fehmi Mohammad, a pioneering company in Islamic fintech, and Zikay Factoring Chairman Abd Rani Lebai Jaafar, a company that is adapting Islamic fintech in their business, to take a closer look at the implications this new approach brings to the business arena.

AsSidq Is Still Malaysia’s First And Only Shariah Compliant Platform For Personal Islamic Banking

Despite the recent growth of fintech in Malaysia, Sedania Corporation Sdn. Bhd. (Sedania Corp.) had noticed the global fintech trend that was relatively unheard of in this region. In 2009, the company introduced AsSidq, an Islamic financial product based on tawarruq (Islamic fund-raising) concept, under Sedania AsSalam Capital Sdn. Bhd. (Sedania AsSalam), a wholly-owned subsidiary of Sedania Corp.

AsSidq, a truly halal banking and fully automated online fintech platform, allows financial institutions to provide liquidity (cash) to their clients on a deferred payment basis guaranteed by a saleable product without breaking Muslim bans on interest payments.

Since its introduction, AsSidq is still Malaysia’s first and only shariah compliant platform for personal Islamic banking that has received the approval of BNM and in compliance with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) international standards.

During its early days, RHB Islamic Bank Bhd. (RHB Islamic) was AsSidq’s early adopter and the platform was recognised internationally as an outstanding technological product. This led to AsSidq winning several awards including winner of the Most Innovative Islamic Finance Transaction during 2010 SUKUK Summit, winner of KLIFF Islamic Finance Awards 2010 and Frost and Sullivan’s Most Innovative Product / Application of the Year 2010.

Now, AsSidq is currently being adopted by 20 financial institutions in Malaysia and they aim to always be on top in Islamic fintech in Malaysia by forming partnerships and collaborations with key players in the industry.

“The beauty of collaboration with partners is that you would not know where to go if you are on your own.

“When you do collaborations and partnerships, you get to know the clients’ main points, and at the same time you get to speak to the end user and understand what they need as well. So this allows us to continue to be at the forefront of Islamic fintech in Malaysia,” Fehmi Ahmad, Covering CEO of Sedania AsSalam, said.

They have also fully moved to a cloud-based platform from a hardware platform last year; making it more dynamic, secure, accessible and with more features for a better tawarruq experience.

While the company has been working on major improvements and updates to AsSidq in its efforts to grow the business, it has also planned to penetrate different segments as well instead of just focusing on retail financing.

“Since late 2015, we have planned to venture into corporate financing business/ corporate factoring business.

“We saw the opportunity to grow so we penetrated into microfinancing last year and at the same time we saw an opportunity to penetrate into factoring houses. So it was a good platform to move forward because there was a gap that Zikay Factoring needed to fill and we saw the opportunity to fill that gap,” Fehmi said.

Left-Right: Ahmad Fehmi Mohammad, Datuk Azrin Mohd Noor, Datuk Mohd Khay Ibrahim, Abdul Rani Lebai Jaafar

Recently, Sedania AsSalam has signed a partnership agreement with Zikay Factoring, which has been in the making for over a year. This partnership allows them to penetrate the factoring industry.

However, factoring requires a different set of services in order to be more efficient.

Factoring Helps SMEs To Perform Their Job Without The Worry Of Financing

Since factoring is a lot different from banking, so Sedania AsSalam customised the services they provided by taking into account the needs of their client and it resulted in Al-Wariq, a platform tailored for factoring, in comparison to AsSidq, which was tailored for banking.

Their hands-on approach allows Sedania AsSalam to understand their potential clients’ main points instead of forcing them to adopt their services as it is.

“We don’t only provide a trading portion of it, we also collaborate with Zikay to provide a customisation of the platform where we sit down and try to understand their requirements.

“Focus is on how we can make it more efficient for them, and this is the differentiator between us and other providers,” Fehmi said.

“This pioneer partnership is a mutual beneficial arrangement because it gives us the opportunity to penetrate the factoring business, and Zikay gets someone to sit down and do a proper system that they cannot get off the shelf for the factoring business.

“With our experience, we bring in-depth knowledge and Zikay will be the one that will say what they need and what they can take etc.” Fehmi elaborated.

Factoring, in short, is not a loan but post-financing where clients, who have completed a job, go to factoring companies when they are in need of cash since their paymaster is not able to give it to them immediately.

Through factoring companies, clients will be able to receive payment within a week so that they would be able to continue their jobs and services.

The factoring companies will then collect the payment due by the paymaster to reimburse the amount that they have advanced to their clients.

“You have performed the job and you have billed the government (paymaster). The government will take between 90 to 180 days to pay you but meanwhile, you need to perform your job.

“That is where you can ease your cash flow by coming in and bringing your invoice to the factoring company, receive payment and the factoring company will then collect the payment from the paymaster based on your invoice,” Abd Rani Lebai Jaafar, Chairman of Zikay Factoring, explained.

So factoring essentially helps small and medium-sized enterprises (SME) to ease the cash flow to ensure that they would be able to perform their job without the worry of financing.

As a company registered under Malaysia Factoring Association (MFA), Zikay understands the needs of factoring companies. The customisation offered by Sedania AsSalam as well as its Islamic system, structure and process that ensures it will be accepted globally, will allow other members of MFA to come forward and opt to use the system.

“We have been working with Sedania and their shariah advisors to make the system more efficient and applicable so that every member of the MFA can later on use the system as well,”

“We needed a system that is up to date and has a shariah principle that is acceptable to give the opportunity to members to move higher up.

“Now that we are on the same platform and principle like banks, hopefully Bank Negara Malaysia (BNM) and MoF will understand more about them (factoring companies),” Abd Rani Lebai Jaafar, Chairman of Zikay Factoring, said.

Islamic Fintech Platform Equips Malaysian Companies To Go Regional Or Global

While factoring might sound foreign to many of us Malaysians, it is actually a popular concept globally such as in China, Japan, Europe, Hong Kong and the Middle East.

Despite its popularity outside of Malaysia, factoring has yet to be embraced fully in Malaysia and as such it does not receive grants and only with minimal support from BNM or the government, which hinders their potential to help more SMEs with their businesses.

“If we can get all the association together, definitely we can do something.

“If we can get support and understanding from the public that we are shariah compliant then definitely we can take this further.

“If the government can give better support to this industry by giving some grant then it would be great,” Abd Rani said.

In saying so, Zikay has taken this lead initiative to move forward by not only working with Sedania AsSalam but also working with Islamic Banking and Finance Institute of Malaysia (IBFIM) to help the SME community, which is a huge market, utilise their services.

Although not many people are aware of this platform, the volume that Zikay clocked in was almost RM150 million last year, and for the last six years the volume has been increasing consistently.

Zikay’s clientele consists of contractors, service providers, suppliers and other SMEs that are registered with the Ministry of Finance (MoF) who have been awarded contracts by the government, government-linked companies (GLCs) and certain public listed companies.

Since they are the pioneers in using Islamic fintech for their business, Zikay hopes to encourage other MFA members to adopt the Al-Wariq system so that they would be able to move higher or they would be left behind.

Abd Rani summed up the importance of this landmark project by saying that it will “help the SMEs, particularly the government SMEs, to ease their cash flow and this platform (Al-Wariq) will help to achieve the efficiency and reduce cost.”

Now that the partnership is underway, Fehmi said that the growth of tawarruq usage in factoring houses will definitely increase and he believes that because of Zikay’s initiative to collaborate with Sedania AsSalam, other factoring houses will also benefit from it.

“Whatever effort that Zikay has put in in collaborating with us, it will also benefit the rest of the MFA members easily,” Fehmi said.

As Zikay sees this collaboration as their preparation to go regionally or globally, Fehmi also said that Sedania AsSalam would also have to continue developing to grow together with Zikay Factoring.

Meanwhile, Zikay will continue to work towards creating more awareness on factoring and the benefits that SMEs can gain from it, and to get all factoring houses to collaborate together so that the industry can grow.

“If Zikay is able to get all factoring associations to use this platform, the concept will become more in line with the bank and is more acceptable in terms of local and global market. And as we customise and provide a niche, it becomes more affordable to SMEs,” Abd Rani concluded.

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