The Global Islamic Fintech Report 2024/2025, produced by DinarStandard and Elipses, reveals that OIC countries dominate the top 10, with Saudi Arabia leading for the first time, followed by Malaysia, Indonesia, the United Arab Emirates, the United Kingdom, Bahrain, Kuwait, Qatar, Oman, and Pakistan.
Southeast Asia, especially Malaysia and Indonesia, has long been seen as a key hub for Islamic fintech. However, with OIC countries now dominating the top 10 rankings globally, a question emerges: Is Islamic fintech in Southeast Asia declining, stagnating, or still thriving?
This post explores the trajectory of Islamic fintech, including regulatory efforts, challenges, and emerging opportunities particularly in areas such as digital assets and AI.
Evidence of Islamic fintech’s vitality in the region
Globally, the market size of Islamic fintech transaction volume is projected to reach USD 306 billion by 2028, growing at a 13.6% compound annual growth rate (CAGR) compared to the overall global fintech industry, where the Middle East, especially the Gulf countries, now leads the way with the most Islamic fintech startups.
In the Islamic fintech sector, the report mentions that alternative finance leads in transaction volume globally, followed by payments, wealth management, fundraising, and deposits and lending, according to current industry statistics.
For Malaysia, as a regional leader with a robust regulatory framework, Islamic banks are also well-established in Malaysia, with traditional institutions thriving alongside emerging digital banks like AEON Bank, which offers Sharia-compliant financial services through innovative mobile platforms.
Indonesia, home to the world’s largest Muslim population, continues to emerge as a key market for Islamic fintech and a leading hub, including alternative funding such as Shariah-compliant peer-to-peer lending, mobile banking, and financing tools tailored to underserved segments.
Also Read: How fintech startups are disrupting traditional banking models in Asia
Digital assets and AI are emerging as key growth sectors in Islamic fintech for 2025
As we move toward 2025, the report highlights that Islamic fintech startups involved in digital assets may be well-positioned to grow, driven by favourable regulatory policies due to growing interest and optimism.
From digital sukuk to stablecoins, the tokenization of real world assets can help democratize Islamic finance.
In Malaysia, KLDX, an Initial Exchange Offering (IEO) platform regulated by the SC recently tokenised Shariah-compliant investment structures in the healthcare sector illustrate the growing potential of digital asset innovation within Islamic finance. By leveraging blockchain technology to fractionalise tangible assets into tradable digital tokens, platforms like KLDX aim to broaden market access and enhance inclusivity.
Beyond the private sector, the Securities Commission Malaysia (SC) also announced a collaboration with Khazanah Nasional, the country’s sovereign wealth fund, to explore the issuance of tokenised bonds including tokenised sukuk with the goal of making such asset classes more accessible to retail investors. At present, participation for such instruments is only restricted to sophisticated investors.
However, these efforts may only be truly meaningful if access is extended to retail investors, rather than remaining limited to high-net-worth individuals. Doing so would better reflect the core principles of Islamic finance, particularly those of risk-sharing, equitable access, and financial inclusion.
Another emerging area within Islamic fintech is the integration of AI to enhance compliance and automation. AI-driven models and autonomous agents are being developed to deliver personalised financial solutions, perform preliminary Shariah screening, and generate real-time, data-informed advisory services. These capabilities can reduce compliance costs and support the alignment of Islamic finance principles with digital innovation.
More cross-border cooperation needed to maintain SEA as a leading Islamic fintech hub
Despite its continuous growth, Islamic fintech faces significant challenges.
In addition to ongoing challenges in accessing capital cited in the earlier report, growing ambition of Islamic fintech startups to expand into new jurisdictions is increasingly hindered by regulatory fragmentation and the complexities of cross-border expansion.
Earlier this month, a memorandum of understanding was signed between the Fintech Association of Malaysia (FAOM) and Asosiasi Fintech Syariah Indonesia (AFSI) during the Fikratech Roundtable in Indonesia reflects growing cooperation between Malaysia’s Securities Commission (SC) and Indonesia’s Otoritas Jasa Keuangan (OJK) in facilitating cross-border referrals of fintech businesses.
Also Read: SEA fintech sees 31% funding rebound in H1 2025 amid early-stage decline
I believe that cross-border cooperation among regulators should include regulatory harmonisation to help reduce friction and foster an integrated Islamic financial ecosystem among neighbouring startups. Such initiatives will only be truly meaningful if accompanied by concrete efforts to improve regulatory ease and address market access challenges in both jurisdictions
While regulatory harmonisation across jurisdictions is still a work in progress, ecosystem enablers like the Malaysia Digital Economy Corporation (MDEC) may also consider interim measures such as subsidising these expansion-related costs.
According to a 2023 report on Malaysia’s Islamic Digital Economy landscape by 1337 Ventures and MDEC, it was suggested that the government should consider supporting local Islamic fintech startups expanding into other markets by offsetting costs such as engaging a Shariah advisor, operational setup, and localising offerings to comply with domestic regulations.
Final thoughts
Islamic fintech is not in decline in Southeast Asia. Instead, it is experiencing a new revival driven by innovation, regulatory support, and growing demand across emerging markets.
To sustain the momentum of Islamic fintech in Southeast Asia, particularly in Malaysia and Indonesia, targeted policy support is essential. Regional regulators, such as the SC and OJK should align their policy frameworks so that we can strengthen our position as a leading hub in the Islamic digital economy.
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