The ICD-LSEG Islamic Finance Development Report 2025 indicates that the Islamic finance industry is forecast to touch US$9.7 trillion by 2029. Malaysia’s position within that growth story is well documented, earning the first rank among the Top 10 countries for Islamic finance development, even outpacing Saudi Arabia, Indonesia, and UAE.

Our country also commands an estimated 33.9% share of the global sukuk market: as of end-July 2025, sukuk accounted for RM1.402 trillion or 63.6% of Malaysia’s total bond and sukuk outstanding. Plans are underway to explore the tokenisation of sukuk next, under BNM’s oversight.

A meaningful share of Islamic finance users in Malaysia are non-Muslim, according to studies, suggesting that Shariah-compliant products have begun to resonate beyond religious identity alone.

The headline numbers are compelling. What gets discussed less, though, is the lived experience of using Islamic banks in Malaysia today, and where the real gaps in digital maturity and product innovation still lie.

To explore that question, a cross-section of senior leaders from across Malaysia’s Islamic banking sector sat down for a roundtable in Kuala Lumpur.

The mix of CEOs, CTOs, chief risk officers, retail banking heads, board directors, and platform architects from institutions like AEON Bank, Maybank Islamic, Bank Muamalat, and Bank Islam, as well as FINODYN and Mambu spoke candidly about the state of Islamic banking in Malaysia.

Fintech News Network’s Chief Editor, Vincent Fong, moderated the session. When he asked the leaders to score Malaysian Islamic banking’s digital maturity on a scale of one to ten, the room’s answers were more vibrant and clearer than any analyst report.

Rating Malaysia’s Islamic Banking & Finance Digital Maturity

Every speaker was asked to rate Malaysian Islamic banking’s digital maturity. The scores may have clustered for some, but the reasoning behind every ranking painted a far more interesting story.

Dafinah Ahmed Hilmi, CEO of HLB Islamic, rated Malaysian Islamic banking’s digital maturity at 6.5, but was quick to reframe what the number actually measures.

For her, the more useful question is not how digitally capable Islamic banks are today, but how ready they are to use that capability to capture what comes next. The foundation, she shares, is largely in place. Most banks already offer end-to-end digital journeys, from eKYC through to product disposal, she shares, and Islamic finance now accounts for close to 47% to 48% of total banking assets in Malaysia.

The niche framing no longer applies. Rather, she adds, the gap lies in the data.

Banks and non-banks alike are sitting on customer information that could drive meaningful segmentation, but few are using it with enough precision to understand what different customer segments actually need, and to build products around those needs rather than around product categories.

“Islamic banks today are really playing catch-up to conventional banks by design. But Islamic finance is already mainstream. The question now is: how do we differentiate? By understanding the Shariah nuances, the risk-sharing structures, ethical investments, and really elevating the social status of the community.”

Aizuddin Danian, Chief Personal Banking Officer at AEON Bank, sat at the optimistic end of the range at seven-and-a-half, and for different reasons.

He shared that while the journey from zero to 7.5 had taken the industry more than forty years, the leap from 7.5 to 9 was going to arrive much faster as the platforms, talent, and customer appetite were finally in place.

“For a bank like AEON, we’ve got a timer, and we need to graduate in five years. Otherwise, we risk having the license being taken back. We only have three and a half years left. That means that we have to do so much in the next three years, and our reliance on cloud-based services is going to get us there.”

Chirag Amla, Principal Solutions Architect for APAC at Mambu, put the number closer to four or four and a half, and was direct as to why.

“Banks need to understand how the younger generation is thinking, how they interact with other services, and bring that into banking, rather than taking a product, putting it in a shiny box, calling it digital, and handing it over.”

True digital maturity means building with the next five to ten years in mind, and that requires understanding beyond what customers want today and going towards how the next generation relates to money, faith, and the services woven into their daily lives.

That generational dimension, he suggested, is where the more interesting pressure is building.

Malaysia’s younger Muslims are moving closer to their faith, and they increasingly want that reflected in how they bank, not as a product category, but as something embedded in how they live. The banks that will close the gap are the ones that design around that reality rather than relabelling existing products as Shariah-compliant.

Companies like Mambu, FINODYN, and other companies in the market are helping banks to increase that score from a four to a nine, he shares. He hopes this becomes a reality one day, saying,

“I do believe there is enough push in the market today, from the younger generation, that will actually take us towards that trajectory.”

Islamic Banks Must Design Around the Full Customer Journey

The conversation shifted from scoring digital maturity to something harder to measure: whether Islamic banks are designing for the full arc of a customer’s financial life.

Islamic banks today deliver a plethora of offerings, from basic accounts and deposit financing to global markets and FX.

The product shelf is pretty much complete, Dafinah Ahmed Hilmi, CEO of HLB Islamic, shared. The question now is whether the experience connecting those products reflects anything distinctly Islamic, or whether it mirrors what conventional banks have always done.

She stated that the wealth management conversation in Islamic finance demands something broader: financial inclusion, with no segment left behind.

HLB’s partnership with WeBank to explore alternative credit scoring models using cash flows is one example of how that gap is beginning to close.

The deeper opportunity, she suggested, lies in financial and digital literacy. Without it, customers cannot navigate the journey. And without that foundation, the rise in investment scams targeting new account holders will only continue.

Akram Mackeen, EVP and Director of Banking-as-a-Service, Strategic Programme at Maybank Islamic Berhad (MIB), added a unique layer to the discussion. Four years ago, MIB set up a customer behaviour lab to understand the psychological model of Islamic customers.

Akram took it a step further, developing the model in collaboration with Shariah scholars.

“How does a Muslim think in a day of his life? How does he relate that to the actions that he takes when he engages with a touchpoint like us?”

The exercise mapped a day in the life of a Muslim customer, from Subuh to Isyak, tracking how his faith triggers any commitments to his Islamic foundations.

What surprised the team was the response from non-Muslim customers. Nearly half of Maybank Islamic’s base identifies as non-Muslim, and when the bank tested its Shariah-grounded product design with that group, the reaction was positive.

The presence of Shariah scholars reviewing products regularly gave non-Muslim customers confidence in oversight that they valued on its own terms.

“That became a strong trigger for us. We should start designing our products from the CX journey with all these qual-quant results embedded into product design. We should design our products with that Islamic design intent upfront, not as an afterthought.”

From Shariah-Compliant to Shariah Invisible

If the digital maturity scores revealed how differently people read the same market, the conversation on innovation showed how differently they imagine its future.

Aizuddin Danian, Chief Personal Banking Officer at AEON Bank, set the frame early. He tells his product design teams not to limit themselves to Shariah compliance.

“Can we start thinking about Shariah superior? What are the things that we can do with ethical banking, Shariah-compliant banking?

It should be what he called Shariah superior, and beyond that, Shariah invisible.

The concept is deceptively simple. Shariah invisible means designing products where customers are already living in accordance with Shariah values without having to think about it, without being taught, without being marketed to.

The conventional equivalent, he noted, is embedded finance. The Islamic banking version is something the industry has yet to fully build.

His example was AEON Bank’s round-up feature: every card or QR transaction is rounded up to the nearest ringgit, with the difference swept automatically into a savings pot, whether for Umrah, investments, or any other goal.

“That’s an example of Shariah invisible, because people are able to save, and that leads to investment without even consciously thinking. And you’re able to achieve your goals as a Muslim without even thinking twice.”

Hazrizal Hassan, Head of Digital Banking, Bank Muamalat, brought a different angle, grounding the innovation conversation in data and the realities of incumbency.

Established banks, he pointed out, hold something digital challengers do not: decades of customer data. Bank Muamalat’s own experiment with ATLAS did not have that advantage. ATLAS was “a small experiment” to see how Islamic faith features work.

“We know it solves one particular issue for customers. They do not need to download multiple apps for solat prayer times, halal food locators, zakat calculators and all that. It’s mixing lifestyle and banking. But there is a small group of customers that might not want to jumble up banking products and lifestyle, especially when it comes to the faith part.”

Not every customer wants that blend, he acknowledged, and the bank continues to watch sentiment carefully. But the experiment points toward a broader question that every player in the room was circling: what does the product actually deliver to the customer’s life, and does it convert?

“At the end of the day, whether conventional or Islamic, it goes back to the bottom line. Survival still means that you need your top line and bottom line. You have to balance that.”

Small Steps Into Uncharted Waters

Yuzaidi Yusoff, Chairman of FINODYN, shared from the board perspective. The challenge some of the leaders pointed out today is this: how do you balance between staying on the path and answering shareholders?

“Every single one of us needs to play our own pockets of influence to make this little change with the intention or goal that if we actually work together, it will create something for the benefit of the ummah.”

He drives his point home, saying that the opportunity is huge. But how does one move forward with what we have?

“Someone mentioned about culture behaviour of the customers. Have you ever done the cultural behaviour of the board?

Every person in the room, he said, holds a pocket of influence. The challenge is to think about whether it is set up to accommodate trailblazers or whether it defaults to factors like liquidity and capital.

“Let’s go to uncharted waters. Let’s figure out with Mambu, for example, how can it actually be bigger than what it’s supposed to be now? How do we manage our appetite? How much can we lose?”

He stresses that that’s the type of convincing that needs to be done. It’s not easy, he shares. But it is the kind of small, deliberate step that compounds.

“Each one of us makes a little contribution to move Islamic finance into uncharted waters via digital. Small steps. Insyallah, as we move forward, it can actually be done.”

The roundtable discussion dived deeper into other aspects, including financial literacy gaps, Islamic social finance, and the regulatory work still needed. Watch the full discussion for more insights on Islamic banking in Malaysia here.