Islamic finance has long been one of Malaysia’s crown jewels, a strategic asset nurtured over decades through progressive regulation, institutional strength, and global ambition.
As of 2025, the Islamic banking assets in Malaysia are worth roughly USD $260 billion, and ranked as the top jurisdiction in the Islamic Finance Development Indicator. RAM Ratings also projects the industry to grow by 8% this year, reflecting a robust outlook despite global uncertainties.
Malaysia’s ‘Islamic First’ policy, coupled with supportive regulations and a rising appetite for Shariah-compliant financial solutions, has positioned the country as both a benchmark and a testbed for the next phase of Islamic digital banking.
The country is home to over 16 Islamic banks, including five full-fledged institutions, and leads in areas like sukuk issuance, Islamic capital markets, and takaful penetration.
Yet this leadership is at a crossroads.
As global finance undergoes a digital transformation, Malaysia must decide whether to simply digitise its legacy systems or boldly reimagine them.
Can it lead not just in size, but in innovation, accessibility, and ethical finance?
Top executives from KAF Digital Bank, Bank Islam, AWS, and audax explored this central tension during an incisive panel discussion hosted by Fintech News Network.
Moderated by Vincent Fong, the session tackled fundamental questions revolving around the Islamic banking scene in the hearts of Malaysia.
A Reputation to Defend, But Not to Rely On
The discussion revolves around the familiar assertion, one that still holds weight. Kelvin Tan, the CEO of audax stated that:
“Malaysia is seen as a role model and a leader in Islamic finance.”
@fintechnewsnetwork Islamic Digital Banking: Is Malaysia Doing Enough? Malaysia holds around 12% of the global Islamic finance market — but is that enough? In this snippet, leaders from KAF Bank, AWS, Audax, and Bank Islam discuss why true leadership in Islamic finance demands more than just market share. #IslamicFinance #Malaysia #Fintech #DigitalBanking #BankingInnovation #ASEAN #IslamicBanking #foryou #highlight #fyp @AWS @BANK ISLAM
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It is true that some of you might’ve come across an ICD-LSEG Islamic Finance Development Indicator (IFDI) Report 2023. The report puts Malaysia in the first place for the 11th consecutive year, positioning the country as the global leader in Islamic finance.
But that role is not static.
Several speakers argued that while Malaysia’s status remains globally respected, there is danger in resting on laurels.
Farilla Abdullah, Group Chief Digital Officer at Bank Islam, firmly believes that there is a lot more that can be done with Islamic banking in Malaysia. She even reflected that perhaps Malaysia’s industry is in “stealth mode”.
What Farilla means is that as a country, we are capable, but at the same time, not very vocal. Thus, she believes Malaysia needs more public-facing case studies to reinforce its global position.
Plus, as more digital-first economies embrace Shariah-compliant finance and fintech-native banks disrupt traditional channels, Malaysia’s leadership will increasingly depend not on past achievements but future agility.
Credit-Centric Thinking Is Limiting the Islamic Finance Mandate
One of the boldest critiques came from within the industry itself, targeting Islamic finance’s dependence on credit-based models.
Rafiza Ghazali, CEO of KAF Digital Bank, mentioned that criticism, especially those in the Gulf Cooperation Council (GCC), argue that Malaysian Islamic finance is largely seen as a “copycat” of conventional finance and that we are too credit-centric.
“If you go back to Islamic finance during the Prophet days (Maqasid Al-Syariah)… it’s a lot more on wealth creation,” she added.
Explaining banks’ current focus, Rafiza Ghazali noted that financial institutions heavily market credit products because profit from providing credit primarily motivates them.
She, however, believes that there’s a lot more that Islamic finance can do to help with wealth creation.
These reflections prompted a call to rebalance the financial offering. Far away from debt instruments and toward inclusive capital accumulation tools that align with Maqasid al-Shariah.
Such an approach would involve shifting the focus from short-term financing towards long-term investment opportunities. With a particular focus on communities that are currently underserved.
Rafiza emphasised that the goal must be to uplift the underserved groups like the B40. They are currently lacking the appropriate tools which can help them achieve financial independence, and quoting her:
“So that they don’t rely for their kids to help them… when they retire.”
Technology Alone Won’t Lead This Transformation
Naturally, the role of technology loomed large, especially within the banking sector. Well, as we’ve seen throughout the internet, everyone cannot stop talking about cloud computing, API connectivity, and now, anything about AI. They are now part of the mainstream conversation, if you will.
But rather than glorifying tech as a silver bullet, all four speakers approached it with nuance.
Taruni Ramamurthi, Head of FSI for Indonesia, Malaysia & Philippines at AWS, mentioned that the customers in the region are 100% digitally ready, because that is what they want. But when Kelvin took over, he reminded the whole room that it’s not just about what you build but rather about how and why you build it.
He noted that while Malaysia has a strong digital infrastructure, success depends on applying tech to the right problems.
Then there’s the problem of the skills gap. Kelvin highlighted that only about 20% to 30% of practitioners within the Islamic banking landscape possess the deep technical expertise required to develop truly innovative digital platforms.
He proposed that the industry must quickly address this issue on the need to upskill talent across the ecosystem.
Kelvin believes that “the player with the right skill set would change the space.”
Malaysia Islamic Finance Must Think Big
Vincent then tossed around the idea at the table on what kind of opportunities lie for Islamic banking out there, beyond Malaysia.
He mentioned that there was news of the Philippines opening up their digital banking licence to 10. So when the Bangko Sentral ng Pilipinas came to Malaysia in one of their roadshows, two Malaysian banks actually showed interest in becoming the first digital Islamic bank in the Philippines.
You see, in the Philippines, demand for Islamic financial products remains largely unmet. At present, there remain very few Islamic products in the market, with limited funding sources.
Rafiza agreed that there is something that can be explored by Malaysian Islamic banks in the Philippines. She recalled her experience about two years ago, when she was invited to be one of the panellists at a conference in Manila.
At first, she was puzzled as to why they were insistent on getting her to share her thoughts. Apparently the central bank requested that an Islamic bank give a speech. The CEO of KAF Digital Bank believes that it has something to do with how the banks in both countries work.
In Malaysia, for instance, we have both Islamic banks and conventional banks that offer some sort of Islamic products. In the Philippines, however, there are none. For context, the Philippines, although not that much, is home to a roughly 6.9 million Muslim population.
Hence, Malaysia can uniquely help solve these social challenges, which are not just commercial opportunities.
And not just that. Indonesia also emerged as a prime opportunity.
As Kelvin puts, “It is the world’s most populous Muslim country.”
He also mentioned that more than half of the +-240 million Muslims are either unbanked or underbanked (which is still more than the entirety of the Malaysian population). This gives the opportunity for Malaysia’s Islamic bank to tap into.
“It is so big that if you find a way to crack Indonesia, you’ve basically got a mammoth out there,” Kelvin joked.
However, it is best to note that scaling regionally will require technical, cultural, and regulatory fluency across diverse contexts. And not to forget, a willingness to collaborate rather than simply export.
Issues On Startups Leaving Home to Scale
Then comes one of the more sobering parts of the discussion, centred on why many Islamic fintechs born in Malaysia end up leaving.
The panel highlighted a disconnect between Malaysia’s supportive policy environment and its underdeveloped risk capital ecosystem. As a result, promising startups often look elsewhere for growth capital, ecosystem density, and talent networks.
Rafiza jokingly said that “If you go to Singapore, by the time you land at Subang, you will get the term sheet,” highlighting the fast nature of how Singaporeans work.
While in Malaysia, after several pitches, you might just get ghosted.
Islamic Finance Needs a Rebranding
Perhaps the most visionary idea came in the form of a challenge to the industry’s brand and positioning.
For Rafiza, what she really wants to see is the change of the branding of Islamic finance (not just in Malaysia) away from the religious concept.
“Because if you really really understand, it is not just about religion. Islamic finance is about equitable justice, transparency… those are the main principles,” the CEO of KAF Digital Bank pointed out.
@fintechnewsnetwork Is Islamic Banking Only for Muslims? 🤔 Islamic banking isn’t just about religion. It’s about fairness, transparency, and ethical finance – values that everyone can get behind. But are we doing enough to make it accessible for all? #IslamicFinance #EthicalBanking #FinancialInclusion #Islamicbanking #fintech #fyp #foryou
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By shifting the narrative from strictly religious framing to universal ethics, the panellists suggested that Islamic finance could widen its appeal, not just to Muslims but to a global audience.
The panel closed on a note of urgency.
Islamic finance can no longer afford to be reactive. As more and more technology is redefining the landscape, Malaysia must evolve from a leader in Shariah compliance to a pioneer in ethical, inclusive digital finance.
This is not achievable if we keep on copying conventional models or clinging to historical strengths. It will require bold experimentation, regional ambition, and a principled embrace of technology as a tool for empowerment.
The mandate is clear.
Islamic banking and finance in Malaysia must move fast, think differently, and lead with values that transcend boundaries.
Watch the full discussion in Charting the Path to Malaysia’s Digital Islamic Banking Breakthrough.
