The successful applicants will have “ to undergo a period of operational readiness that Bank Negara will validate through an audit before they can commence operations . This process may take between 12 to 24 months ” ( Bank Negara press release , Apr 29 , 2022 ).

As part of the conditions for the licence application , digital banks would have “ to offer banking products and services to the underserved or unserved markets and address the financial inclusion gaps in the country ” (“ Fostering financial inclusion through digital banking in Malaysia ”, The Edge Markets , Aug 8 , 2022 ).

The presence of digital banking is in line with the country ’ s broader digitalisation vision – to transform the economy and industry of which the banking and financial sectors are encompassed .

Digital banking , which is driven by fintech ( financial technology ), is , thus , on the march in Malaysia – propelled by a conducive and supportive regulatory , institutional and policy environment and with an eye on a potentially

BY JASON LOH

AND

JENNIFER LEY HO YING

untapped domestic market .

As Malaysia is a Muslim-majority country , Islamic fintech represents a promising platform to provide financing solutions that are not only cost-effective , convenient , and Shariah-compliant on the one hand ( concerning the lenders ) but are also supportive of financial inclusion and economic empowerment on the other hand ( concerning the borrowers ).

ISSUE OF ACCESSIBILITY BECOMING A PRACTICAL ISSUE

Funding / financial access has been a significant issue for many Malaysians – whether on the retail side ( for the individual and household consumer ) or business side ( MSMEs – micro , small , and medium-sized enterprises ).

Although accessibility ( i . e ., in terms of geographical location-wise ) as such isn ’ t a massive problem for a country like ours , ease and convenience , i . e ., from the viewpoint / perspective and experience of the consumer , is something which fintech , overall , holds the “ trump card ”.

Now , with the ( domestic ) banking industry downsizing and cutting costs by reducing operations ( by transferring staff from frontend to back-end roles and vice-versa ) or completely shutting down operations via branch closures ( including retrenchment ), the issue of accessibility is also rapidly becoming a practical issue – which digital banking can leverage on .

According to Roland Berger , “ there will be

an 18 per cent net reduction of retail bank branches across Southeast Asia by 2030 as lenders increasingly move away from branchbased services ”. Roland Berger also estimated that “… there will be 567 closures in Malaysia within the decade , with the number of physical branches projected to drop by 23 per cent to about 1,900 in 2030 from 2,467 in 2020 ” (“’ Nearly 600 bank branches in Malaysia to close by 2030 ”, The Edge Markets , May 17 , 2021 ).

Foreign-based HSBC – which already lacks a substantial presence in Malaysia – announced in 2021 that it ’ d shut down 13 branches nationwide . And recently , 13 branches under CIMB have closed ( to be merged or relocated ) due to the growth of online banking .

Islamic fintech may be the best contender to harness innovative solutions to address issues of access and accessibility and tap into the overall market ( i . e ., comprising both Muslims and non-Muslims alike ).

Industry findings estimate 55 per cent of the country ’ s adult population is unbanked ( unserved ) or under-banked ( underserved ), and just 39 per cent of Malaysians can get a loan from their banks (“ Tapping into the potential of digital banking ”, The Star , June 6 , 2022 ). Furthermore , 77 per cent of SMEs remain at a primary digitalisation stage (“ Challenges in Digital Adoption ”, SME Corp , Oct 20 , 2021 ).

Similarly , Indonesia has an unbanked population of 51 per cent and has only 30 per cent of MSMEs in the digital market (“ Indone-