The Year 2023: The GCC vs the SEA — Islamic VC funding competition is getting heated

Driven by favourable market dynamics in the GCC, Malaysia and Indonesia, the global Islamic finance industry is poised to finally reach the $3.0 trillion mark this year, growing by around 10 per cent after expanding at a similar pace in 2022 (S&P Global Ratings). 92% of Islamic banking assets were driven by GCC countries, mainly Saudi Arabia and Kuwait. Sukuk grew by 14% and Islamic venture capital had shown a 64% increase.

The global Islamic Fintech market is estimated at $79 billion in transaction volume (2021) — making up 0.83% of global fintech transaction volume. It is expected to grow on average by 18% annually, to reach $179 billion by 2026. The top six OIC Fintech markets by transaction volume for Islamic Fintech are Saudi Arabia, Iran, Malaysia, UAE, Turkey and Indonesia. DinarStandard estimates that there are 375 Islamic Fintech companies in the world.

The rankings of conduciveness for Islamic Fintech (GIFT) demonstrate just how close and competitive countries are. The top 5 GIFT countries and their scores (composites of 19 various indicators grouped under “Talent”, “Regulation”, “Infrastructure”, “Islamic Fintech Market and Ecosystem” and “Capital”) are shown below:

COUNTRY SCORES:

1. Malaysia — 81
2. Saudi Arabia — 80
3. Indonesia — 65
4. UAE — 60
5. UK — 50

Global Islamic Fintech Report by Salaam Gateway

The undisputed champion among Islamic fintechs in raising funds from conventional sources, Alami Sharia peer-to-peer lending company from Indonesia, is looking to raise more funds from existing and new investors. To date, the company already raised over US$ 80 million from mostly non-Islamic investors, including the beauty company ParagonCorp.

Malaysian sovereign wealth fund Khazanah Nasional picked the VC major — Gobi Partners to allocate US$1.3 billion over 5 years as part of “Advancing Malaysia” strategy that will support Malaysian startup ecosystem. Gobi Partners has already invested in over 350 startups in Asia. Among the latest one — Islamic-themed subscription-based streaming service Durioo+.

In the meantime, venture investments in Saudi Arabia are up 284% last year, led by Saudi Venture Capital (SVC). Islamic venture capital investments are up 412% at the same period.

The Vision 2030 is somewhere there…

Military conflict between Russia and Ukraine had an unexpected effect on Islamic VC “stand-off” between South-East Asia and Gulf Cooperation countries. Thousands of highly qualified IT professionals from both countries moved mainly to Dubai and Abu Dhabi where they promote the region’s IT superiority, including in the Islamic finance field.

We believe the main competition for talent, customers and funds among GCC and SEA Shariah compliant companies will take place in the following fields:

· Digital-only banking;

· Artificial intelligence and big data analytics;

· Cross-border trading and financing through P2P lending and trade financing;

· Takaful-tech;

· Open banking architecture

My bet is on the GCC, by the way.