[KUALA LUMPUR] Malaysia, the world’s largest sukuk issuer, is preparing to shake up Islamic finance by making one of its most traditional products accessible at the tap of a smartphone. Tokenisation will slice these assets into bite-sized units, cheap enough for retail investors to buy.
This means that instead of needing to commit upwards of US$200,000 – the typical entry point for conventional sukuk – an e-hailing driver or a university student could buy a stake in a government-backed sukuk with as little as RM100 (S$30).
The Securities Commission Malaysia, in collaboration with sovereign wealth fund Khazanah Nasional, is set to roll out tokenised bonds and sukuk as early as this year. The move could bring what has long been the preserve of institutions and ultra-wealthy investors within the reach of ordinary Malaysians.
Affendi Rashdi, director-general of the Labuan Financial Services Authority in East Malaysia, said tokenisation enables fractional ownership of syariah-compliant assets. This lowers the barriers to entry for a wider range of investors, from retail savers to global institutions.
“This allows individuals to invest in high-value Islamic financial products such as sukuk or real estate at a lower cost, enhancing liquidity as well as improving transparency and secure transactions through blockchain technology,” he told The Business Times.
Blockchain-based tokens also improve efficiency as they can be bought, sold and traded seamlessly, backed by smart contracts and transparent custodial arrangements.
Henry Chong, chief executive officer of Labuan-based digital exchange Fusang, noted that “Islamic finance globally, and especially here in Malaysia, is not digital – (it is really based on) people and paper”.
“That’s why we think this market is ripe for disruption,” he added.
Fusang has already put this theory into practice. Since 2020, it has tokenised 23 tranches of sukuk worth about US$360 million.
These instruments function much like US Treasuries for Islamic banks, offering an average profit rate of about 5 per cent.
For regulators and investors, tokenisation could enhance transparency and reduce costs, while also making sukuk accessible to a broader investor base across the region. This includes Indonesia, home to the world’s largest Muslim population, and Singapore, where wealth managers are increasingly tailoring financial products to syariah requirements.
Chong emphasised that tokenising sukuk and other Islamic securities is not reinventing Islamic finance; instead, it is about digitising these assets while also addressing some of the structural issues.
Affendi echoed this, noting that tokenisation aligns with the core Islamic finance principles of risk-sharing, asset-backing, transparency and ethical investing – making it a natural extension of Islamic financial innovation.
“This also supports broader financial inclusion with cross-border participation, particularly in the underserved Muslim markets,” he added.
The sukuk is a low-risk benchmark instrument essential for liquidity management, but its market has always been a closed club.
Officially, the minimum investment is US$200,000. In practice, most transactions are closer to US$1 million, with an average deal size of about US$10 million. That exclusivity has locked out smaller institutions, let alone individuals.
Tokenisation can dismantle that hierarchy.
As Chong put it: “The only reason to tokenise something is if it makes it easier for people to buy, chop it up into smaller denominations, and make it easier to transfer or trade. Otherwise, why are you doing this in the first place?”
He noted opportunities for smaller fintech platforms to tap this space, with some of them possibly distributing sukuk to retail clients soon – a direction that conventional banks have yet to take.
Meanwhile, there is rising interest from Islamic financial institutions to integrate tokenised sukuk into their offerings, he said. “It’s an opportunity to finally let everyone participate in what’s effectively the Muslim world’s version of Treasuries.”
However, disruption often meets resistance, especially from established players who benefit from the status quo. Chong said that many financial institutions and banks in Malaysia appear uninterested in tokenisation.
With sukuk investments currently yielding 4.5 to 5 per cent while depositors earn significantly lower returns – sometimes near zero – banks are enjoying substantial profit margins.
By expanding access to sukuk, tokenisation could redirect some of those returns to fintech platforms and retail investors, challenging existing business models, Chong explained. “Individuals are smart and Internet-savvy. If you can get a better rate and risk-free (return) for your money, why wouldn’t you?”
Fintech-enabled brokers and newer Islamic financial institutions in Malaysia and the Middle East are already seizing the opportunity.
“Like it or not, there are lots of new Islamic financial institutions springing up. If you’re willing to update technology, the opportunity is bigger than ever,” said Chong.
Johnny Chen, portfolio manager for emerging market debt at William Blair, noted that blockchain-based finance is still evolving, bringing unique ethical and legal challenges.
He highlighted that the enforceability of smart contracts remains unclear, as different countries may interpret and regulate them differently.
Additionally, the public and transparent nature of blockchain finance raises concerns about data privacy, especially when sensitive financial information is involved.
The Labuan International Business and Financial Centre (IBFC) has been actively positioning itself as a digital gateway with strong Islamic finance capabilities.
In 2022, it unveiled the Islamic Digital Asset Centre (IDAC), with a focus on fundraising and investments aligned with syariah regulations as well as environmental, social and governance standards.
Since then, IDAC has introduced a framework for a syariah-compliant securities token, known as RAMZ, as well as guidelines on Labuan securities token offerings (STOs).
To date, five RAMZ with 27 listings have been issued, collectively valued at US$1.5 billion. Affendi of the Labuan Financial Services Authority estimates that figure could reach US$2 billion by the end of this year.
He said: “With the regulatory groundwork well in place, the shift towards regulating specific digital assets, such as digital currencies and STOs, is both timely and a natural progression towards Labuan IBFC’s vision to be a leading Islamic digital financial hub in Asia.”
He emphasised, however, that cross-border harmonisation is crucial to broader acceptance of tokenised sukuk.
“The Labuan Financial Services Authority is actively collaborating with global regulators and Asean partners to align syariah standards. This is key to building a trusted, universally accepted market for tokenised sukuk,” he said.
Globally, tokenised assets are valued at US$184 billion, and since 2019 have been growing at a compound annual rate of 36 per cent. This is based on a report released in early August by Saison Capital, Kenanga Investment Bank, Helicap Labs and Satori Research.
This underscores the accelerating adoption of blockchain across asset classes such as equities, bonds, real estate and private credit. Various projections place the global tokenised asset market at between US$3.5 trillion and US$16 trillion by 2030.
By that same year, scenario-modelling and industry trend analysis indicate that Malaysia’s tokenised asset market could reach US$43 billion – and this is a conservative estimate.
These tokenised assets could include regulated products such as unit trusts, corporate bonds, private credit funds and digital sukuk – offering significant opportunities for early entrants to shape Malaysia’s market standards, partnerships and infrastructure.
Read more on The Business Times
