KUALA LUMPUR -- Malaysia's central bank announced on Wednesday that it has started reviewing the regulatory framework needed to accommodate the growth of companies that use technology to provide financial services and offer an alternative to traditional banking.
"Fintech is challenging the status quo of the financial industry," Gov. Mohammad Ibrahim told a gathering of Islamic-finance practitioners in Kuala Lumpur.
He said the review will consider the impact of fintech on risk management by financial institutions. It will also look at new risks arising from fintech startups as a result of regulatory arbitrage and the impact on consumers.
The presence of online lenders, such as Kabbage of the U.S. and WeLab in China, is shaking up traditional banks. Fintech facilitates loans online, and extends to a wider group of customers more quickly and cheaply.
Fintech has proved particularly popular in rural areas with minimal banking facilities, and is attracting new entrants. Khazanah Nasional, the Malaysian state fund that controls CIMB Group Holdings, invested $160 million in WeLab along with ING Bank and Guandong Financial Technology Group earlier this year.
Launched in 2013, WeLab is valued at around $1 billion. Its loan disbursements increased 10-fold in 2015, by which time it had acquired a customer base of 2.5 million.
Citing a recent McKinsey & Co. report, Mohammad told the Global Islamic Finance Forum that global banking revenue is likely to shrink 10-40% by 2025 due to fintech innovations. He said the central bank is working with these new companies on guidelines to minimize risks to financial assets and consumers.
In Malaysia, the government has also been enhancing e-payment mechanisms to promote online transactions and get away from brick-and-mortar banks.