The “incredibly dynamic” Islamic finance market in Southeast Asia attracts non-Islamic actors

Even the financial sector of Southeast Asia becomes more halal. Islamic finances in Southeast Asia totaled around $ 859 billion in 2023, compared to $ 754 billion in 2020, according to a study by Islamic Corporation for the development of the private sector and London Stock Exchange Group.

Mambu, a basic composable basic banking platform, software as a service, based in Amsterdam, wants to operate this growing market. “The Southeast Asian market, in particular Malaysia and Indonesia, is incredibly dynamic in terms of how they grew up in Islamic banking space,” explains David Becker, general manager and APAC sales manager in the company.

The company is already working with customers from Southeast Asia such as Bank Islam, the largest supplier of financial products that comply with Sharia law, and Bank Jago, an Indonesian digital bank.

With the kind authorization of Mambu

Becker says that Islamic finance increases just as quickly as the traditional bank, and Mambu therefore hopes to provide tools to support products comply with sharia such as sharing of profits.

Unlike the conventional bank, Islamic financial institutions must avoid companies that deal with harmful products or considered “haram”, such as pork, alcohol or play.

Islamic banks cannot invoice interest either and must therefore generate a return via another mechanism, such as sharing profits or rental.

Becker is optimistic that the younger and more informed population of Southeast Asia will revolve to digital financial solutions – and in particular those which reflect the Islamic principles.

Indonesia, the largest Muslim country in the world, is a clear target market for Islamic finance. Neighboring Malaysia, where two -thirds of the population identify themselves as a Muslim, is another option. There are also important Muslim populations in Singapore, the Philippines and Thailand.

Malaysia, the first country in the region to adopt Islamic finance, has “reached a peak” with regard to growth, explains Cedomir Nestorovic, professor at ESSEC Business School in Singapore who focuses on Islamic affairs. Instead, Indonesia offers more potential for retail banking and “Takaful” insurance, a type that follows Islamic principles.

“There is a lot of room for progress in the country, so many companies want to come to Indonesia,” said Nestorovic.

However, it warns that Southeast Asia has its own risks. On the one hand, unlike the more homogeneous market in the Middle East, Southeast Asia is more heterogeneous, which means that companies will have to adapt their offers to a range of different savings, consumption bases and regulatory diets.

Becker, from Mambu, recognizes the challenges present in Southeast Asia, including the need to follow the regulations. However, the size of the opportunity prevails over risks.

“We see it simply growing and growing, and I think it is a factor for why governments and regulators have been so favorable,” he said.