Adnan Zaylani Mohamad Zahid: Islamic finance, e-payments and
fintech
Opening speech by Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of
Malaysia (Bank Negara Malaysia), at the 3rd Islamic Fintech Dialogue (IFD2020), 1 December
2020.
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It really is a pleasure for me to join you this afternoon to be part of what I am sure will be an
illuminating and stimulating dialogue over the next two days. I would like to record Bank Negara
Malaysia's appreciation to ISRA for organising this, but also more broadly, its continued
contribution to the development of Islamic finance not just in Malaysia but internationally. As a
prestigious research academy, it needs to produce prestigious and breakthrough research, and it
needs to have events like this dialogue to further advance the knowledge and exchange of ideas
and the cause of Islamic Finance.
In 2011, Bank Negara Malaysia issued a 10-year Financial Sector Blueprint. One of the key
agendas we wanted to drive was to promote e-payments; at the time, greater use of payment
cards, internet banking and online fund transfers. Little did we expect that 'fintech', which
according to Google Trends was still a nascent term at the time, would grow at the pace and
scale we are seeing today. It appears that interest in fintech only picked up rapidly from 2015.
Today, many countries, including Malaysia, have adopted it as a key development theme for their
financial sector. Indeed, fintech is to take us beyond payments - faster and cheaper delivery of a
far wider range of financial services. Increasing outreach and inclusion. Injection of new
competition and transformation of the industry.
We see this materialising. There are well over 12,000 start-ups disrupting the financial market
globally with fintech investments reaching a record high of $150.4 billion in 2019. The
International Monetary Fund (IMF) reported that as of April 2019, there were around 200 fintech
start-ups in Malaysia in the areas of payments, blockchain, and lending. CPA Australia apprised
that over 75 per cent of Malaysian businesses have embraced at least one fintech product or
service over the past 12 months, according to a regional survey. While the disruption continues,
traditional financial institutions have been responding. Insights from PWC indicate 77% of
traditional financial institutions are increasing internal efforts to innovate, 56% have put disruption
at the heart of their strategy, and 31% are already purchasing the services of fintech companies.
Many are also partnering with fintech companies.
For Bank Negara Malaysia, we have also embraced the fintech agenda, setting up our internal
Fintech Working Group in 2016, launching our Fintech Sandbox not long after that and finally,
organising our very own industry conference - the MyFintech Week in 2019. To be future ready,
we are highly committed to support the digital transformation of the financial sector. Earlier this
year, we issued the e-KYC policy document to enable digital on-boarding of customers to occur
anytime and anywhere. This is expected to be a catalyst in the provision of end-to-end financial
services, particularly in a 'low touch' environment. The financial industry is taking steps to ensure
safe and secure introduction of e-KYC, with several banks planning to launch e-KYC solutions in
the coming months with more to follow in 2021. We are also currently in the final stages of
developing the licensing framework for digital banking, which we envision can enhance access to
affordable and quality financial solutions, particularly for the underserved and hard-to-reach
market segments. From our sandbox experience, we also observe similar digital alternatives and
solutions being developed in the insurance and takaful sector. Our shift towards e-payments has
also been sustained, with a 47% increase in the volume of transactions made through internet
and mobile banking, and a 260% increase in active e-wallet users between August 2019 and
2020. Furthermore, good progress has been made in enabling the interoperability of e-wallet
services offered by banks and non-bank e-money issuers. Looking ahead, Bank Negara Malaysia
will continue to focus on fostering well-designed regulations to facilitate digitalisation and
innovation in financial services.
All these efforts are intended to support the financial services industry accelerate its transition to
an age of digitalisation and innovation. We have high hopes for Islamic Finance to capitalise on
this. In 2017, we launched the Value-Based Intermediation (VBI) initiative. VBI encapsulates the
industry's vision to be more impact driven, reinforcing the overarching intent of Shariah to
promote good and prevent harm on the people and planet, which closely aligns with the global
shift towards sustainable finance and ESG. Through the VBI initiative, Islamic financial institutions
have also been spearheading the sustainability agenda. Digitalisation can further this cause,
helping Islamic Finance unleash its full potential in striving towards fully embracing and adopting
VBI to contribute meaningfully towards an inclusive, sustainable and impactful growth. There are
two main outcomes for which digitalisation can be deployed to create winning strategies for
Islamic finance.
Firstly, technological advances can reduce operational costs therefore allowing Islamic financial
service providers to reach the underserved and the unbanked with more affordable digital
financial services. High mobile penetration and internet usage, the shift towards e-commerce
and increased usage of e-payments are all important trends that hold great promise to bring
financial inclusion in Malaysia to the next level. Coupled with new technological advances such
as cloud computing, artificial intelligence (AI) and data analytics, financial services providers are
now able to better assess creditworthiness using real time and alternative data, thereby
overcoming the traditional obstacle of making sound credit decisions for customers who lack
collateral and credit history. In the same vein, the deployment of telematics, internet of things
(IoT), affordable usage-based insurance (UBI) and other value added services open up scope for
the takaful industry to create efficiencies whilst addressing customer demand, further closing the
protection gap of the Malaysian population. A well-designed digital takaful solution that not only
offers affordability but also seamless customer experience can go a long way towards elevating
consumer trust and changing perceptions about the value of takaful protection, particularly
among low income groups.
Secondly, technological advances present opportunities for Islamic financial services providers
to further automate their business to bring about greater efficiency and transparency as well as
manage risk effectively in delivering value-driven and impact-focused products and services that
can realise the aspiration of Maqasid Shariah. This is particularly important for products and
services with multiple applications of shariah contracts as well as those instruments such as risk
sharing, waqaf and sadaqah, which demand not only a high degree of transparency and
disclosure but also positive customer service and engagement to engender trust and confidence.
There is scope for the industry to explore the potential of new technologies that can transform
risk management and compliance, remove information asymmetry and integrate the value chain
of financial intermediation seamlessly with the real economy, particularly in trade and the Halal
industry. Ultimately, realising the full benefits of digitalisation to deliver the intrinsic values of
Islamic finance successfully, relies on the foresight to embrace innovation to deliver greater
customer value, openness to change and responsible adoption by the industry.
Right now, digitalisation is riding on the coattails of the Covid-19 crisis. With social distancing
and travel restrictions, anything that can be done online or virtually is being done so. There is no
option for financial institutions but to be able to deliver and ensure the integrity of their services -
banking, payments, insurance or takaful, in dealing with customers - digitally or online during
these times. The road is thus wide open for fintech. In a not so distant future, we can expect that
fintech will be part of the mainstream, perhaps even becoming the primary mode of delivery for
financial services, no longer requiring strategising and planning on how we could fully embrace it
in conferences and dialogues like we will be doing today.
Before I conclude I would like to congratulate ISRA for their development of the I-FIKR App, which
will be launched during the event. The App certainly fits well with the digitalisation of the Islamic
finance knowledge of the Islamic finance industry. We hope to see it as another home-grown
product that will contribute further toward the advancement of the Islamic finance Industry.
Finally, once again I would like to thank and commend ISRA for organising the Islamic Fintech
Dialogue 2020. Events such as this provide us an opportunity to take a step away, allowing us
the space to focus on key issues and challenges which I hope will inspire us to improve on our
vision and strategies for innovative transformation in Islamic finance. Over the course of this
2day event, with the array of speakers and moderators, I am confident this will be achieved. I urge
you to be part of the conversation and engage in the dialogue. I pray that the event will be of great
benefit to all participants.