Introduction

Islamic finance is rapidly evolving, thanks to cutting-edge technology that simplifies financial services and promotes inclusivity. Leveraging on these technological advancements, Labuan International Business and Financial Centre (Labuan IBFC) has conceptualised the Islamic Digital Asset Centre (IDAC). This centre is designed with businesses and investors in mind, especially those seeking to utilise digital finance while following Islamic principles. IDAC provides a strong and clear set of rules to ensure digital financial activities remain Shariah-compliant and secure.

What IDAC Offers?

IDAC in Labuan IBFC provides different types of digital financial services that ensures Shariah compliance. The principal offerings under IDAC are as follows:

Islamic Digital Banking – Allows the creation of Islamic digital banks that follow Shariah principles, using profit-sharing models and Sukuk (Islamic bonds) for financing.

Example of structure: An Islamic digital bank can be established as a Labuan Islamic banking entity offering Murabahah-based (also known as cost-plus financing) and Islamic savings accounts.

Islamic Digital Exchanges – Offers licenses for digital trading platforms that ensure all transactions are ethical and Shariah-compliant.

Example of structure: A Labuan-licensed Islamic digital exchange can facilitate the halal (permissible) trading of digital assets, ensuring all listed assets comply with Shariah principles.

Islamic Tokenisation and Asset Issuance (Initial Coin Offerings (ICOs) & Security Token Offerings (STOs)) – Helps businesses launch digital tokens and investment opportunities in a way that aligns with Islamic financial principles.

Example of structure: A company can issue an Islamic STO backed by Shariah-compliant real estate investments.

Islamic Digital Fund Management – Supports investment funds that follow halal financial guidelines.

Example of structure: A Labuan-based Islamic fund management firm can operate under a Wakalah (agency) or Mudarabah (profit-sharing) model, investing in ethical digital assets.

Islamic Insurtech and Takaful Innovations – Encourages the development of digital Islamic insurance (Takaful) solutions using modern technology such as blockchain for transparency and efficiency.

Example of structure: A Labuan-licensed Takaful operator can offer blockchain-powered family Takaful plans with smart contract-based claims management.

Islamic Digital Payment Infrastructure – Supports digital payment services such as halal e-wallets and international money transfers that follow Islamic financial rules.

Example of structure: A Labuan-based Islamic fintech startup can provide a Shariah-compliant digital wallet that facilitates halal online transactions and remittances.

Why is Labuan IBFC a Great Choice for IDAC?

Labuan IBFC is an excellent location for Islamic digital asset businesses as it offers:

Comprehensive Islamic Finance Regulations – Labuan IBFC is home to omnibus Islamic regulations - the Labuan Islamic Financial Services and Securities (Amendment) Act 2022 (LIFSSA) which helps ensure digital finance follows Islamic principles to ensure Shariah compliance.
Tax Benefits – Businesses involved in qualifying trading activities are entitled for a 3% tax on net audited profits, making it a cost-effective option.
Access to Global Markets – Labuan IBFC is a strategic hub that connects businesses to ASEAN, the Middle East, and Islamic finance centres.
Strong Regulatory Oversight – The regulator, Labuan Financial Services Authority ensures a stable and trusted business environment.
Support for Fintech Innovation – Labuan IBFC encourages advancements in blockchain and decentralised finance (DeFi) within an Islamic framework.
Flexibility for Businesses – The dual regulatory system allows both conventional and Islamic financial companies to operate with ease.

Labuan IBFC’s Achievement: Best International Jurisdiction for Islamic Banking and Finance 2024

Labuan IBFC was recently named the Best International Jurisdiction for Islamic Banking and Finance 2024 at the Global Islamic Finance Awards (GIFA) 2024. This award highlights the jurisdiction’s leadership in providing a supportive and ethical business environment for Islamic digital finance.

Key reasons for this recognition include:

Strong Regulations – A well-respected system that helps Islamic digital businesses grow securely
Commitment to Shariah Compliance – Ensuring all financial activities align with Islamic law and ethics
Leadership in Islamic Fintech – Driving innovation in Islamic banking, digital assets, and blockchain technology

Conclusion

IDAC in Labuan IBFC represents a big step forward in combining Islamic finance with digital innovation. As a recognised hub for Shariah-compliant digital assets, the jurisdiction continues to attract businesses and investors looking for a well-regulated and innovative financial environment.

With its strong regulations and support for modern financial solutions, Labuan IBFC helps businesses grow while staying true to Islamic finance principles. It remains a key player in the global Islamic financial sector, offering exciting opportunities for those who want to engage in ethical digital finance.

For more details, please contact the author at [email protected]

Norazlin Hj Abd Jalil, Marketing Director at Hans Advisory & Trust Co Ltd, has over 29 years of experience in banking, investment, and international business structuring. Recognised in Britishpedia’s Successful People in Malaysia (2023), she specialises in market expansion strategies, corporate structuring, and strategic partnerships across global financial hubs.

Hans Advisory & Trust Co Ltd provides corporate advisory and business structuring services with over 17 years of experience. Licensed by Labuan FSA, Hans specialises in business structuring, international tax planning, regulatory compliance and incorporating businesses in Labuan for global market expansion.

For more information, contact Hans Advisory & Trust Co Ltd at: www.hansworldwide.com