Southeast Asia’s Islamic finance market drawing in non-Islamic players
From halal food and modest fashion to alcohol-free cosmetics, this surge in demand is now transforming Southeast Asia’s financial sector
MNTV Web Desk – Over 280 million Southeast Asians—around 40% of the region’s population—identify as Muslim, and their demand for products and services aligned with Islamic principles is reshaping entire industries.
From halal food and modest fashion to alcohol-free cosmetics, this surge in demand is now transforming Southeast Asia’s financial sector, reports Fortune.
Islamic finance in the region totaled roughly $859 billion in 2023, up from $754 billion in 2020, according to a joint study by the Islamic Corporation for the Development of the Private Sector and the London Stock Exchange Group.
Unlike conventional banking, Islamic financial institutions must avoid interest-based transactions and prohibit dealings in sectors deemed haram (forbidden), such as pork, alcohol, and gambling. Instead, they rely on profit-sharing, leasing, and other Shariah-compliant mechanisms.
One company betting big on this growth is Mambu, a cloud-native core banking platform headquartered in Amsterdam.
“The Southeast Asian market, particularly Malaysia and Indonesia, is incredibly dynamic in terms of how they’ve grown in the Islamic banking space,” says David Becker, managing director and head of APAC sales at Mambu.
Already working with regional leaders like Bank Islam—Malaysia’s largest provider of Shariah-compliant financial products—and Bank Jago, an Indonesian digital bank, Mambu aims to support Islamic finance through flexible digital solutions.
These tools enable offerings such as profit-sharing accounts, micro-financing, and digital onboarding—all within Islamic law.
Becker believes Islamic finance is growing “just as quickly as traditional banking,” noting that the region’s young, mobile-first population is fueling demand for digital solutions rooted in faith-based values.
“We just see it growing and growing,” he says. “That’s why governments and regulators have been so supportive.”
With Indonesia, the world’s largest Muslim-majority nation, at its core, the market potential is vast. Neighboring Malaysia—a pioneer in Islamic banking—remains a stronghold, though analysts believe its growth has plateaued. “Malaysia has reached a peak,” says Cedomir Nestorovic, professor at ESSEC Business School in Singapore, who specializes in Islamic business.
“Instead, Indonesia offers more potential for retail banking and takaful insurance, a type that follows Islamic principles. There is plenty of room for progress in the country, so many companies want to come to Indonesia.”
Other nations, including Singapore, the Philippines, and Thailand, also have significant Muslim populations, creating additional opportunities for expansion.
Challenges in a diverse region
Despite its potential, Southeast Asia’s Islamic finance market poses challenges. Unlike the Middle East’s relatively homogenous consumer base, Southeast Asia is far more diverse, spanning multiple economies, cultures, and regulatory environments. This requires financial institutions and fintech players to customize products for different markets.
Regulatory compliance is another hurdle. “The need to follow local regulations is critical,” acknowledges Becker. However, he argues the payoff justifies the effort: “The size of the opportunity outweighs the risks.”
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