Over 280 million Southeast Asians, about 40% of the region’s population, identify as Muslim. That’s spawned demand for goods and services that cater to a more Islamic lifestyle. It’s more than just halal food: Muslim consumers also demand more modest fashion or cosmetics that don’t use pig-derived products or alcohol.

Even Southeast Asia’s finance sector is becoming more halal. Islamic finance in Southeast Asia totaled roughly $859 billion in 2023, up from $754 billion in 2020, according to a study from the Islamic Corporation for the Development of the Private Sector and the London Stock Exchange Group.

Mambu, a cloud-native, software-as-a-service, composable core banking platform based in Amsterdam, wants to tap this growing market. “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 the firm.

The company already works with Southeast Asian clients like Bank Islam, Malaysia’s largest provider of shariah-compliant financial products, and Bank Jago, an Indonesian digital bank.

Becker says that Islamic finance is growing just as quickly as traditional banking, and so Mambu hopes to provide tools to support shariah-compliant products like profit sharing.

Unlike in conventional banking, Islamic financial institutions must avoid companies that deal in products that are harmful or considered “haram”, like pork, alcohol, or gambling.

Islamic banks also can’t charge interest and so must instead generate a return through some other mechanism, like profit-sharing or leasing.

Becker is optimistic that Southeast Asia’s younger and more mobile-savvy population will gravitate towards digital financial solutions—and particularly those that reflect Islamic principles.

Indonesia, the world’s largest Muslim country, is a clear target market for Islamic finance. Neighboring Malaysia, where two thirds of the population identify as Muslim, is another option. There are also significant Muslim populations across Singapore, the Philippines, and Thailand.

Malaysia, the first country in the region to adopt Islamic finance, has “reached a peak” when it comes to growth, says Cedomir Nestorovic, a professor at the ESSEC Business School in Singapore who focuses on 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,” Nestorovic says.

Yet he cautions that Southeast Asia presents its own risks. For one, unlike the Middle East’s more homogenous market, Southeast Asia is more heterogenous, meaning businesses will need to tailor their offerings to an array of different economies, consumer bases and regulatory regimes.

Becker, from Mambu, acknowledges the challenges present in Southeast Asia, including the need to follow regulations. Yet the size of the opportunity outweighs the risks.

“We just see it growing and growing, and I think that’s a factor in why governments and regulators have been so supportive,” he says.