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AEON to go ahead with Islamic digital banking operations in Malaysia with no external partners

Tokyo-listed AEON Financial Service Co (AFS) and its Malaysia-based subsidiary AEON Credit Service (M) will go ahead to undertake the business of a digital Islamic bank in Malaysia with no external partners and an initial investment of RM175 million (US$38.63 million) each.

In a Bursa Malaysia filing, AEON Credit said it has entered into a shareholders’ agreement with its Japanese financial services holding company to establish the necessary framework for its digital Islamic banking operations through ACS Digital (ACSD), which is currently in the process of obtaining a license under the Islamic Financial Services Act 2013.

Note that AFS has a 61.5% interest in AEON Credit.

ACSD was incorporated by AEON Credit on the 19th July 2022 and will start operations within 24 months from the 8th April 2022, or by the 8th April 2024, subject to the fulfillment of the licensing conditions stipulated in the approval letter and Bank Negara Malaysia (BNM)’s satisfaction.

The initial RM175 million investment from both related parties will designate ACSD as an associate company of AEON Credit, with the equity structure evenly divided between AEON Credit and AFS.

The total investment outlay and eventual share capital for ACSD is estimated to be RM550 million (US$121.42 million) over the initial five years when the digital Islamic banking business commences.

To comply with the equity condition set by the Malaysian finance minister, the envisioned ownership structure of ACSD will involve AEON Credit holding a 35% stake, AFS holding another 35% and the remaining 30% being held by Malaysian shareholder(s).

The specific equity interests of each party will be finalized upon meeting the equity condition within a five-year period, by the 7th April 2029.

AEON Credit said that the joint venture will utilize the combined expertise in providing financial services and solutions to customers, especially from the underserved and unserved market segments, adding dynamism to the banking landscape and contributing to the financial inclusion agenda in Malaysia.

To recap, AEON Credit and AFS submitted a joint application to BNM back in June 2021 for a digital banking license. Subsequently, American fintech firm MoneyLion was included in the consortium and the joint application was revised for a digital Islamic banking license.

In April 2022, Malaysia’s finance minister approved the granting of a digital Islamic banking license to the consortium, comprising AEON Credit, AFS and MoneyLion. However, later in September 2022, MoneyLion withdrew itself from the consortium, leaving AEON Credit and AFS as the remaining joint venture partners which continued with the implementation of the operational readiness plan to establish the digital Islamic bank.

ACSD later named Raja Teh Maimunah Raja Abdul Aziz, a well-known Islamic finance figure with over two decades of experience, as its CEO effective the 1st December 2022.

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