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The Future Of Islamic FinTech Is Bright

With the growth of FinTech across the Gulf Cooperation Council (GCC) and generally across the Middle East and North Africa (MENA), it is impressive to see what the regional ecosystem has achieved in the past year.

Dubai has delivered the FinTech Hive accelerator, and the Innovation Testing Licence, a regulatory sandbox.

Abu Dhabi has launched the RegLab, a regulatory sandbox.

Bahrain has launched a Regulatory Sandbox, a FinTech Unit for the central bank, and FinTech Bay, to be launched in February 2018, designed to be the largest FinTech hub in MENA.

Globally, the Islamic FinTech community has also grown.

I first came across Islamic Finance years back working in Malaysia, a global leader in this area, and was struck by the ethical and balanced objectives Sharia compliant products sought to deliver to consumers. Abdul is an Islamic Finance specialist.

Islamic Finance is faith based and complies with Sharia law which prohibits usery fees such as interest, and has prohibitions such as alcohol.

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The 24th World Islamic Banking Conference (WIBC) in Bahrain was held this week and it was great to see the increased focus on FinTech since last year.
FinTech Sector Korea takes roadshow to Malaysia

At the road show today, Fintech Center and Fintech Association of Malaysia (FAOM) has signed MOU for further collaboration in Fintech field.Furthermore, there was an opening for Korea-Malaysia Fintech Forum and Demo Day. Fintech Center from Korea has given presentations about industry trends and success cases, and Malaysia Digital Economy Corporation (MDEC) has given presentations about ‘Malaysia Fintech industry trends and government policies’.Throughout above speeches, it has helped Korean Fintech companies that are wishing to advance further in to South-East Asia region.6 Korean Fintech companies and 5 Malaysian Fintech companies had a time to demonstrate and introduce their technology to each other, and had 1 to 1 business partner consulting and networking session to seek further collaboration between the two Fintech associations. Yu Shin, Jung, Chairman of Fintech Center Korea has quoted “As South-East region is facing new finance innovation, interest of Korean Fintech services is increasing”. He also said, “It would be great if both Korea and Malaysia can come across a win-win situation through this road show conducted in Kuala Lumpur, Malaysia”.

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Fintech Center from Korea has hosted ‘2017 Fintech road Show in Malaysia’ at Intercontinental hotel Kuala Lumpur
WorldRemit raises US$40mil and targets Indonesia expansion

WorldRemit’s mobile-first, digital model allows migrants to send money in a few taps directly from their phones or online instead of going to a bricks and mortar agent.

Its popularity across APAC has grown rapidly and the region now accounts for 25% of WorldRemit’s total revenue.

Within that, Indonesia is a key market with year-on-year growth of WorldRemit’s transfers to the country topping 40%.

Indonesians living overseas send remittances worth billions of dollars back home every year. The Indonesian fintech sector is vibrant and innovative, as businesses and consumers rapidly embrace digital technology.

WorldRemit handles a growing share of the US$600 billion (RM2.4 trillion) remittance market.

Currently sending from over 50 countries to 148 destinations, the new funding will be used to increase WorldRemit’s presence in Indonesia, including appointing its first country manager.

Bryce Currie, global business development director in the region, comments: “Indonesians are rapidly adopting WorldRemit’s digital first money transfer service which is more convenient and lower-cost than traditional operators. This new funding will allow us to expand our network and service in Indonesia. Having a country manager in place will help us drive our growth even faster."

Since its last funding round in 2015, WorldRemit has launched 206 new services across the globe and has grown its transaction volume by 400%.

Last month WorldRemit became Arsenal FC’s first-ever online money transfer partner. Earlier in 2017 it announced a global integration with Android Pay.

The Series C round was led by LeapFrog Investments - a dedicated equity investor in emerging markets, supporting fast-growth firms that deliver social impact alongside commercial returns. The round also had significant participation from existing investors Accel and TCV.

It follows a Series B investment raised from TCV in 2015 and a Series A from Accel and Project A in 2014 - then one of the largest ever Series A rounds in Europe.

WorldRemit was founded in 2010 by Ismail Ahmed, a remittance specialist and former compliance advisor to the United Nations. Personal experience of using money transfer agents convinced Ismail that technology could improve the sending process, enhance compliance and reduce costs to the customer.

WorldRemit's global headquarters are in London, UK with regional offices in the United States, Canada, South Africa, Japan, Singapore, the Philippines, Australia and New Zealand.

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DIGITAL money transfer service WorldRemit has raised US$40 million (RM162.79 million) to drive its next phase of global growth, including an expansion of its Indonesia operation.
Indonesia to Ban Digital Currency Transactions by Fintech Firms

The curbs, effective from Jan. 1, won’t apply to trading of digital currencies, Bank Indonesia Deputy Governor Sugeng told reporters in Jakarta on Thursday. The ban on use of virtual currencies for transactions is part of a new set of rules for fintech companies, which mandates digital payment system providers should seek a central bank license, he said.

“Virtual currency is very volatile, according to our observation and nobody can guarantee its movement because there is no basis for it,” said Iwan Junanto Herdiawan, head of the fintech office at Bank Indonesia. “Nobody can monitor and be responsible for it either. So the risks are high and can be widespread.”

Understanding Bitcoin’s Rise, $0.01 to $14,000: QuickTake Q&A

While the use of cryptocurrencies in Indonesia is relatively small, the move to clamp down on transactions deals another blow to a market that globally has surged to be worth hundreds of billions of dollars. The rule reinforces Bank Indonesia’s position that the rupiah is the only currency that can be used as legal tender in Southeast Asia’s largest economy.

Risk Concerns

Indonesian policy makers are worried about the potential impact of cryptocurrencies on the broader financial system, including ramifications for inflation and monetary policy. Bank Indonesia has also raised concerns about the possible use of cryptocurrencies such as bitcoin to fund terrorism or as a payment system that could be used by drug traffickers.

The surging value of cryptocurrencies such as bitcoin is spurring investor interest in Indonesia, according to Finance Minister Sri Mulyani Indrawati. “We don’t wish to see this turning into a speculation or bubble, which can then lead to losses," she told reporters in Jakarta on Thursday.

Bank Indonesia is also concerned about the potential impact an unregulated currency can have on the economy, including contributing to inflationary pressures, Assistant Governor Dody Budi Waluyo said Wednesday. “Bitcoin use, which is not regulated, may pose a risk and the bank may have to inject liquidity. That will affect the market and stability,” he said.

Exchanges Safe

Bitcoin Indonesia, which operates as an exchange for virtual currencies, is not affected by efforts so far to ban their use, Chief Executive Officer Oscar Darmawan said in a text message. “The business is running as usual because we are more a blockchain company than bitcoin company,” he said.

The digital currency market in Indonesia was relatively small and was about 1 percent of the Japanese market, Darmawan said. Bitcoin Indonesia has about 650,000 registered members, he said.

But not all officials in Indonesia favor a ban. The country’s investment board chief Tom Lembong is “very supportive” of cyptocurrencies, describing their rise as “a 100 percent free-market solution created spontaneously by consumers and private sector innovators.”

Highlights of steps taken by Bank Indonesia to regulate fintech firms:

  • Definition of fintech companies to include payment systems, market support, investment management or risk management, P2P lending, financing providers and other financial services
  • Regulation to ensure fintech firms have tools to monitor and guard monetary policy stability, while also allowing controlled environment to promote innovation
  • Bank to test new fintech products in regulatory sandbox before issuing license
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Indonesia’s central bank will bar financial technology companies from using digital currencies on their platforms as a global frenzy around bitcoin continues to lure more investors.

Fintech Is The New Oil In The Middle East And Africa

In the Middle East and North Africa (MENA), the financial technology sector, or fintech, is coming of age with regulators and governments across the region thinking more deeply about the impact that fintech companies will have on the broader economy.

Over the past decade, fintech startups in the region have raised over $100 million in funding, and investment is predicted to double by 2020, according to the State of Fintech report. Disclosed investment in fintech had jumped 100% to over $35 million by October 2017 — Paytabs ($20million), Souqalmal ($10 million) and Beehive ($5 million) — compared to $18 million last year. 
The number of fintech startups also increased from 46 in 2013 to 105 in 2015. It is estimated that it will more than double again to 250 by 2020, according to the report.

It’s easy, however, to get bogged down in statistics and overlook the market forces driving these figures. Aside from the fact that the sector encompasses every tech startup active within the financial services industry, beyond the ones that specialize in online payments or money transfers, e-commerce in the region is set to quadruple until the end of this decade. Additionally, despite the ubiquity of smartphones and internet connectivity, 86% of the adult population in the region is unbanked, while three in four GCC bank customers are ready to switch banks for a better digital experience.

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Provide cheaper services

Boosting financial inclusion is crucial for economic diversity and growth across the region. Moussa Beidas, co-founder of Dubai-based startup Bridg, which allows smartphone-to-smartphone payments using bluetooth, says fintech has become an innovative way to bridge the divide and provide cheaper services to the unbanked.

"Although it is challenging to provide financial services in a cash reliant ecosystem because legacy financial institutions require all customers to be ‘banked’ in order to legally offer financial services, fintech is paving the way for a less black and white reality," says Beidas. "Instead of forcing customers to be banking clients, fintech focuses on the customer experience by solving challenges one step at a time, thereby breaking down the 'cocktail' approach banks tend to follow. It has the ability to run lean customer-driven businesses and still leverage a bank’s processing, issuing and acceptance systems,”

Put simply, fintech is a huge sector that is ripe for disruption, and could become as great a force in the Middle East as oil, according to Abdulaziz Fahad Al Jouf, founder and CEO of PayTabs, a Saudi-based payment processing startup.

“In the Middle East, fintech will emerge as one of the strongest sectors of the economy," says Al Jouf. "Saudi Arabia’s 2030 vision, which aims to reduce the dependency on oil revenues and diversify the economy by empowering small and medium enterprises, has opened up more opportunities for.”

<img src="https://specials-images.forbesimg.com/dam/imageserve/4fc16a30bc764678ad329591e8c2db51/960x0.jpg?fit=scale" data-height="1186" data-width="960">

In May, Prince Mohammed bin Salman announced the Vision 2030 plan, and called on Saudis to work together ensure its success. (Photo credit AP).

More on Forbes: The MENA Startup Scene Lags Behind Europe And The US, But It's Growing Fast

Thanks to this belief, new fintech startups are popping up every month, with some embracing emerging technologies such as blockchain. Newly-launched Dubai-based Verify is one such startup. “There’s a unanimous agreement that blockchain is going to have a massive impact on the fintech space. The technology is trustworthy and allows transactions without any risk to either party,” says Yazin Alirhayim, co-founder of Verify.

Home to the largest fintech sector in the region, Dubai, the world’s 18th-largest financial center, has seen a surge of interest from fintech startups and banking assets because of its location, private investment and innovation. In November, Dubai International Financial Centre (DIFC) launched a $100 million fintech-focused fund and signed an agreement with the Monetary Authority of Singapore to undertake joint fintech projects. In August, Hong Kong’s Securities and Futures Commission entered into a cooperation agreement with the Dubai Financial Services Authority (DFSA) to establish a framework for the two regulators to help each other develop the fintech industry.

Other cities in the region are catching up fast as well. Last year, Cairo launched two accelerators schools to nurture startups and Abu Dhabi Global Market created the region’s first “regulatory sandbox”, allowing new products to be tested without full regulatory compliance. Bahrain and Qatar also launched its own regulatory sandbox programme and held fintech conferences.

Stifling fintech growth

Not surprising, then, over 80% of large financial institutions fear their business is at risk from new fintech players, according to a PwC survey. Therefore, it's critical, Beidas says, for companies to co-operate and create a supportive ecosystem. “Banks in the Middle East are notorious for stifling fintech growth due to lack of understanding. Now that regulators such as DIFC and DFSA and governments across the region are taking a more active role in nurturing fintech infrastructure, banks must respond better and invest in the ecosystem, which will ultimately benefit them in the long run.”

Although it’s hard to draw a conclusion if banks are collaborators or competitors to fintech startups, Alirhayim says, “Some banks realize there’s potential as well as risk to their fundamental business model, but those that fail to collaborate and adapt will perish with the tides of the change."

Interestingly, Islamic banks are enthusiastic about the prospects and are investing in digital initiatives, according to a recent EY report, a consultancy. “Fintech’s penetration into Islamic finance is still in its nascent stage, however, it could help Islamic banks become more efficient and scale up their operations,” says Al Jouf.

“Traditional banking as it is known today will disappear in few years’ time,” he adds.

In this environment, the region’s financial institutions are compelled to transform and keep pace with the rapidly evolving fintech industry -- a sector that is talent-rich,  has plenty of funding, while businesses and consumers are hungry for innovative products.

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In the Middle East and North Africa (MENA), the financial technology sector, or fintech, is coming of age with regulators and governments across the region thinking more deeply about the impact that fintech companies will have on the broader economy.

Thailand lags in fintech development in Asia

Thailand ranks seventh out of 10 Asian countries in terms of regulatory advancement and financial attractiveness on a Taiwanese consulting firm’s FinTech Competitiveness Index.

“Among 10 developed and emerging economies surveyed, Thailand ranked second in the emerging economy group, behind only Malaysia,” said Joy Lin, co-founder of Ceresus, a data-driven customer experience research firm.

Singapore, Hong Kong, Japan, South Korea and Taiwan top the index, followed by Malaysia, Thailand, Indonesia, Vietnam and the Philippines. The index excludes China.

The survey, conducted in October, judges countries on eight aspects: political environment, funding potential, financial attractiveness, talent, regulatory advancement, customer and market constructs like smartphone penetration, innovation ecosystem and business environment.

The Thailand 4.0 policy lays out a solid foundation for the country’s financial technology (fintech) development. Thailand has the potential to leapfrog its early-stage digital banking services and move into integrated digital commerce or value-added fintech services, said Mr Lin, such as fast and convenient cross-border transfers and real-time consumer purchases.

Digital banking penetration in Thailand is close to 19 per cent — far from Taiwan’s 92 per cent and Singapore’s 94 per cent. Credit card usage in Thailand stands at 3.7 per cent, compared with 51 per cent for Taiwan and 31 per cent for Singapore.

But Thailand scores high in terms of regulatory advancement, behind only Singapore, South Korea and Hong Kong. Thai regulators offer a regulatory sandbox for testing and learning about new services, and have forged international collaboration along with the Bank of Thailand and the Monetary Authority of Singapore on fintech cooperation.

In addition, the government has also encouraged the use of ePayment and QR code payment. However, it still has to consider cybersecurity and privacy issues.

Regulators have also kicked off the open application programming interface (API) initiative for the open use of data. “If the Fintech Act is endorsed in 2018, Thailand will be the third country in Asean to have such specialised regulations,” said Mr Lin.

Thailand also has a great variety of innovative fintech startups willing to collaborate with traditional banking systems, rather than work against the industry. At the same time, banks are working with fintechs to bring new services to the market.

Banks needs to increase their data capability, particularly in regard to small and medium-sized enterprises’ (SMEs) credit scoring, whereby transaction data is analysed from their SME customers including turnover, customer profile, inventory and delivery, he said.

There are potential challenges for traditional banks. Global online retail players like Alibaba have strong data capabilities and analytics to understand their customer behaviour and extend loans to suppliers and buyers. Banks still lack this capability.

By making integration of cross border transfer and payment more convenient, Asean banks can more effectively compete with their giant China rivals WeChat and Alipay. Thailand’s PromptPay and PayNow in Singapore are a step in the right direction.

Mr Lin said Thailand can be a regional fintech hub if it can enlist enough talent to work in financial programming, data analytics and data science, areas crucial for fintech development.

Thailand already operates innovative fintech solutions in several areas including payment, alternative financing (such as person-to-person lending), insurance, robot advising, blockchain, personal finance management, and technical services (business-to-business digitised workflow management).

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But researchers hail the Thai government’s push for innovation
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