Malaysia’s developed Shariah-compliant finance infrastructure and ecosystem draws in Islamic fintech start-ups even though it is not a global technology hub like neighbouring Singapore.
Dr Farrukh Habib, a researcher with Kuala Lumpur’s International Shariah Research Academy for Islamic Finance (ISRA), whose academic interests include fintech, believes Islamic fintech holds some promise for Malaysia, but only if authorities keep their eye on the ball and find ways to coax new entrepreneurs to their jurisdiction. He stresses it is starting from a very low base.
“Although Malaysia has been focusing on being the leader in Islamic finance, in technology terms I haven’t seen much progress from the authorities,” he told Salaam Gateway. “There’s been a lot of talk but we haven’t seen many initiatives on the ground to promote this.”
In this respect, Malaysia may have the Islamic finance part of the equation but not enough of the tech start-up ecosystem.
In the State of Southeast Asian Tech Report 2018, which surveyed more than 100 leading figures in the technology industry in six regional countries, half of respondents said they would choose Singapore if they were to launch a new tech company in the region, with Malaysia coming a distant second. Over a quarter said access to capital and quality of a jurisdiction’s ecosystem would inform their decision on where to locate. Regulatory ease of doing business was a distant second.
SINGAPORE TECH, START-UP SPEED
In the overall tech space, Singapore leads Southeast Asia, doing so by offering start-ups a good supply of funding and incentives, as well as rigorous regulation.
Singapore has a formalised, official approach towards nurturing and developing technology, with government agencies offering a plethora of incentives to position the city-state as a start-up hub.
The Startup SG scheme offers a variety of programmes, such as Startup SG Founder, where the government matches 3 Singapore dollars ($2.17) for every 1 Singapore dollar raised by a first-time entrepreneur, and Startup SG Tech, which provides proof-of-concept and proof-of-value grants.
In the Startup SG Equity scheme, the government co-invests with qualified third-party investors, while Startup SG Accelerator provides funding and other support to incubators and accelerators in Singapore. It even has a talent programme that helps non-residents gain work passes and subsidises certain human capital development costs. Start-ups can also benefit from loans backed by the government.
Moreover, revenue authorities offer tax exemptions to qualifying new start-ups, while a scheme for angel investors offers tax deductions to individuals and groups willing to put money into fledgling technology companies.
Specifically for fintech start-ups, the Monetary Authority of Singapore provides funding support for qualifying costs, subject to certain criteria, under its 225 million Singapore dollar Financial Sector Technology and Innovation Scheme.
In Malaysia, small businesses, including start-ups, are given preferential tax rates as well as some tax incentives. There is also an angel tax incentive granted to investors in technology-based start-ups, while entities in the Malaysian Digital Hub are offered partial corporate tax exemption.
The Malaysia Tech Entrepreneur Programme, under the Malaysia Digital Economy Corporation (MDEC), is designed to attract individuals and help them set up and develop their start-ups by offering accelerated work passes.
To bridge the funding pipeline between the private and public markets, the regulator Securities Commission has developed some initiatives to expand private sector funding for seed capital and growth financing through the venture capital and private equity sector.
It is also addressing gaps in early-stage capital through equity crowdfunding and peer-to-peer financing platforms. This has been complemented with the launch of the Leading Entrepreneur Accelerator Platform market by Bursa Malaysia, the Kuala Lumpur stock exchange.