With the progress of new financial technologies and countless innovations in many other segments of the global economy, advanced Muslim countries are increasingly working on establishing an ecosystem for what they define as an “inclusive Islamic digital economy.”
Such a concept aims at combining the core sectors of what today constitutes the digital economy under Shariah compliance, besides Islamic finance and investment products, also e-commerce, food, transportation and logistics, the sharing economy, as well as lifestyle, travel and entertainment. Market data shows that Muslim consumers worldwide contributed over $200bn to the global digital economy of a total of more than $2tn as of 2018, and at a 17% compounded annual growth rate their spending has been growing faster than the rest of the digital economy. Forecasts say that the global Islamic digital economy will reach an estimated value of $277bn as of 2020, according to an outlook by New York-based research and advisory firm DinarStandard, which is specialising in emerging Muslim markets. This data suggest that the Islamic digital economy is going to be a huge opportunity for businesses in the future and cannot be ignored by any market player.
Islamic banking and finance is one of the main pillars of an Islamic digital economy, particularly in connection with retail e-commerce, social commerce such as peer-to-peer sales platforms, crowdfunding sites, group buying platforms or social shopping online groups, online and mobile payment services and innovative halal investment products. From this perspective, Islamic banks’ digital offerings, including online and mobile banking, online bill payment, person-to-person payments and account-to-account transfers, are helping to increasing the digital engagement of clients exponentially.
Given the fact that Islamic finance customers, notably digital-savvy millennials, have become more affluent and are indulging into other sectors of the Islamic digital economy, namely tourism, fashion, health and beauty, the case for an inclusive Islamic digital economy and the role for Islamic banking and finance within has become clear. Meanwhile, a study by business consultancy Deloitte found that, in Islamic finance, micro-financing, co-investment platforms and online investment advisory are currently amongst the most prevalent services. However, there is still accumulated demand for online incubation funds and start-up financing, including Islamic crowd funding.
Malaysia, a country home for one of the largest Islamic finance industry as per assets, is on the forefront of developing such an inclusive Islamic digital economy. In March 2018, the country launched a debut “Islamic digital economy framework” for its entire halal industry.
This framework has been designed to attract investors and venture capital to fund halal businesses by providing a digital platform for co-operation, financing and incubation of Islamic businesses, including Islamic banking and finance. The initiative is seeking to fill the void of Islamic start-up financing and crowd financing determined by Deloitte. The framework has been set up by a government body entirely dedicated to drive the Islamic digital economy in the country, the Malaysian Digital Economy Corp, or MDEC.
“The development of a strong Islamic digital economy in Malaysia will give the country a global competitive advantage,” said Norhizam Abdul Kadir, vice-president of growth ecosystem development at MDEC. That way, Malaysia is striving to become “the most relevant regional and global Islamic digital marketplace,” given its already large halal economy backed by a strong Islamic finance industry, Kadir added.
He noted that the Malaysian government also has freed a budget to drive the Islamic digital economy, acknowledging that it plays a key future role in building the nation’s GDP. The target is to increase the share of Malaysia’s Islamic digital economy in the country’s GDP to 20% by 2020 from currently 18.2% and to become a role model for other Muslim economies worldwide.