Economy·FinanceSoutheast Asia’s ‘incredibly dynamic’ Islamic finance market is drawing in non-Islamic playersBy Lionel LimBy Lionel LimAsia ReporterLionel LimAsia ReporterLionel Lim is a Singapore-based reporter covering the Asia-Pacific region.SEE FULL BIO Muslims purchase food and drinks for the Iftar meal after their fast during the month of Ramadan in Banda Aceh on March 13, 2024.
Over 280 million Southeast Asians, 40% of the region’s population, identify as Muslim. That’s spawned demand for goods and services that cater to a more Islamic lifestyle.
It’s more than just halal food: Muslim consumers also demand more modest fashion or cosmetics that don’t use pig-derived ducts or alcohol. Even Southeast Asia’s finance sector is becoming more halal.
Islamic finance in Southeast Asia totaled roughly $859 billion in 2023, up from $754 billion in 2020, according to a study from the Islamic Corporation for the Development of the Private Sector and the London Stock Exchange Group.
Mambu, a cloud-native, software-as-a-service, composable core banking platform based in Amsterdam, wants to tap this growing market.
“The Southeast Asian market, particularly Malaysia and Indonesia, is incredibly dynamic in terms of how they’ve grown in the Islamic banking space,” says David Becker, managing director and head of APAC sales at the firm.
The company already works with Southeast Asian clients Bank Islam, Malaysia’s largest vider of shariah-compliant financial ducts, and Bank Jago, an Indonesian digital bank.
Courtesy of Mambu Becker says that Islamic finance is growing just as quickly as traditional banking, and so Mambu hopes to vide tools to support shariah-compliant ducts fit sharing.
Un in conventional banking, Islamic financial institutions must avoid companies that deal in ducts that are harmful or considered “haram”, pork, alcohol, or gambling.
Islamic banks also can’t charge interest and so must instead generate a return through some other mechanism, fit-sharing or leasing.
Becker is optimistic that Southeast Asia’s younger and more mobile-savvy population will gravitate towards digital financial solutions—and particularly those that reflect Islamic principles.
Indonesia, the world’s largest Muslim country, is a target market for Islamic finance. Neighboring Malaysia, where two thirds of the population identify as Muslim, is another option.
There are also significant Muslim populations across Singapore, the Philippines, and Thailand.
Malaysia, the first country in the region to adopt Islamic finance, has “reached a peak” when it comes to growth, says Cedomir Nestorovic, a fessor at the ESSEC School in Singapore who focuses on Islamic .
Instead, Indonesia offers more potential for retail banking and “takaful” insurance, a type that s Islamic principles.
“There is plenty of room for gress in the country, so many companies want to come to Indonesia,” Nestorovic says. Yet he cautions that Southeast Asia presents its own risks.
For one, un the Middle East’s more homogenous market, Southeast Asia is more heterogenous, meaning es will need to tailor their offerings to an array of different economies, consumer bases and regulatory regimes.
Becker, from Mambu, acknowledges the challenges present in Southeast Asia, including the need to regulations. Yet the size of the opportunity outweighs the risks.
“We just see it growing and growing, and I think that’s a factor in why governments and regulators have been so supportive,” he says.