IslamicFinance.de

Customers across the world are quickly taking to new mobile-based payment technologies; contactless and e-wallets taking the lead over cold, hard cash. But not every nation is moving quite as fast. In Indonesia there are some concerns about whether the adoption of digital payments and other fintech services are compliant with Islamic laws. Recently, the top Muslim clerical body in Indonesia has issued an edict deeming virtual money acceptable, as long as it meets specific conditions. GoPay has already partnered with the Indonesian Mosque Council to enable digital donations, including the practice of almsgiving, zakat. Islamic fintech is a good example of the business benefits of fostering inclusivity and acceptance among local markets. Inclusivity is not only the right thing to do, but it makes good business sense as well. Out of Indonesia’s 270 million population, half lack bank accounts but have mobile phones. As cash continues to become obsolete, Islamic fintech members will surely profit.

Winning over conservative Muslims is both a challenge and multi-billion dollar opportunity for fintech firms in Indonesia. Questions about compliance with Islamic law are a significant hurdle for the adoption of digital payments and other fintech services. Indonesia's top Muslim clerical body has issued an edict deeming virtual money acceptable, as long it met specific conditions. To showcase the compliance of their services with Islam, fintech firms are organising forums with Islamic scholars and sponsoring religious festivals. GoPay has partnered with the Indonesian Mosque Council to enable digital donations, including zakat, or compulsory alms giving, in its 800,000 mosques. Some of the startups say they are finding their appeal extends beyond Muslims. One of them is peer-to-peer lender Alami, which has disbursed over $7.5 million in sharia-compliant financing to small and medium enterprises since May.

Indonesian Islamic peer-to-peer lender Ammana Fintek Syariah is keen on entering international markets and is starting its expansion with neighbouring Malaysia. Ammana is also eyeing Brunei and Dubai as part of its international expansion. The Shariah-compliant fintech is in the process of applying to become a member of the international Islamic finance standards body the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Ammana Fintek Syariah was established in July 2017 and disbursed 17.6 billion rupiah ($1.29 million) in financing in 2019.

President Joko Widodo (Jokowi) drew attention to Indonesia's financial inclusion index (FII) having risen from 67.8% to 76.19% in 2019. However, the index is yet below that recorded of neighboring countries in the ASEAN, with Singapore standing at 98%; Malaysia at 85%; and Thailand at 82%. Jokowi has highlighted the importance of prioritizing easy access to formal financial services for all people. He has called to develop internet-based digital financial services, as internet users in Indonesia had reached 170 million, or some 64.8% of its total population. He also called to expand access to formal financial services through non-banking services, such as insurance, stock market, and pension fund, to support funding from domestic investors.

Despite having the world’s largest Muslim population and despite forming a dynamic emerging economy, Indonesia plays a small role only in the global Islamic banking industry. Islamic banking apparently has a hard time taking off in Southeast Asia’s largest economy. Despite the low penetration of Islamic finance in Indonesia, the country now ranks first in the Islamic Finance Country Index. The country has recently launched the Masterplan of Sharia Economy 2019-2024, with ambitious plans for the future.

Prime Minister Dr Mahathir Mohamad brought an idea of a gold dinar as an international reserve currency for Muslim countries in preference to the US dollar as the dollar was sometimes unstable. Nazari Ismail, a professor of economics at Universiti Malaya thinks, that the idea is not reliable, as countries as Saudi Arabia, Qatar, Pakistan and Indonesia would be not interested in the prime ministers proposal.

The International Islamic Liquidity Management Corporation (IILM) has announced on monday that Dr. Umar Aimhanosi Oseni is their new CEO. (IILM) is an international consortium that issues short-term Shariah-compliant financial instruments to facilitate cross-border liquidity management for institutions that offer Islamic financial services.

Indonesian fintech Akulaku will launch its Shariah-compliant platform in the first half of 2021. The Jakarta-based company is a leading online multifinance provider in Indonesia and now it wants to enter the Islamic sector with Akulaku Syariah to tap into local demand. Akulaku in January raised $100 million from investors including Alibaba’s financial services arm Ant Financial. Akulaku disbursed around 4 trillion rupiah ($285.34 million) in loans during January-October this year and announced on Dec 12 that it wants to raise offshore financing to help it reach its target of 6 trillion rupiah next year. Akulaku started in 2014 with virtual credit cards and moved into providing services for a range of virtual payments, from phone and mobile top-ups to utilities bills. It now also offers P2P lending, financing, and e-commerce in Indonesia, and also has a presence in the Philippines, Vietnam, and Malaysia.

The "green is the new black" sustainability trend has reached the financial world as investors are slowly turning to invest in environment, social and governance (ESG)-compliant assets in Indonesia. Rising awareness of the mounting environmental and social problems has prompted global investors to invest in sustainable assets that comply with ESG standards. Although this type of investment has been gaining popularity in the developed markets for the past several years, Indonesia seems slow in adopting the trend. For BNP Paribas Asset Management Indonesia, sustainable mutual funds only accounted for 4% of its total assets as of September 2019. The fund manager currently offers three ESG-compliant mutual fund products to its clients that adhere to sustainable and responsible investment.

Alami started as an aggregator platform in 2018. The firm later obtained a registration from the Indonesian Financial Services Authority (OJK) in May 2019, and since then, the startup has channeled nearly 70 billion rupiah (US$4.96 million) to more than 50 SMEs. Founder Dima Djani hopes to dispense a total of 80 billion rupiah (US$5.6 million) by the end of this year, and he targets to triple the number next year. From fundraising to business operations, Alami is committed to complying with all sharia principles and values. In the near future, Alami plans to reactivate its aggregator platform, and the firm is also currently exploring opportunities to add individual loan services in collaboration with sharia banks.

Indonesia's sharia financial committee hopes to quadruple the nation's sharia bank assets over the next five years. The comittee's executive director Ventje Rahardjo said that the goal was to reach Rp. 2 quadrillion (US$142.2 billion) in sharia bank assets by 2024. The committee plans to widen its coverage of Islamic finance to the Islamic economy in general. Therefore, the name of the committee will be changed to the National Committee for Sharia Economy (KNES) to better reflect its responsibility to oversee the development of the halal value chain. Ventje added that Indonesia and Malaysia would work together to create a regional halal standard. The committee also plans to digitize sharia financial services, including a digital zakat platform and a sharia-compliant e-wallet.

HeiTech Padu Bhd (HPB) has strengthened its presence in Indonesia with the establishment of PT Desa Tech Nusantara to provide a shariah compliant cooperative Baitulmal Wat Tamwil (BMT) system. HPB executive vice president Salmi Nadia Mohd Hilmey said the project serves all cooperative members and the unbanked across Indonesia with multiple transactional items. A memorandum of understanding (MOU) signing ceremony was held to formalise the collaboration. BMT is a single scalable system in the cooperative ecosystem and has the potential to grow exponentially. Indonesia stands at the top of the Asia Pacific region in terms of unbanked population, as three-quarters of its 250 million people are still outside of conventional financial systems.

For the first time in many years, Indonesia overtook Malaysia in an Islamic finance ranking. According to the Global Islamic Finance Report (GIFR) 2019, Indonesia ranked No 1 in IFCI 2019, overtaking Malaysia that has dominated the index since 2011. Malaysia may have had early mover advantages with a top-down approach in its positioning as a global hub for Islamic finance. Indonesia has shown a great penchant for creativity. Known for being creative and amplified by the market size, Indonesia has the potential to vault ahead in the near future. Indonesia has already unveiled its Islamic Economic Master Plan 2019-2024. Two out of four main strategies are directly benefitting Islamic finance and Islamic fintech. These strategies strengthen the Islamic financial sector and the digital economy.

The Islamic Financial Services Board (IFSB) Innovation Forum was inaugurated in Jakarta to showcase innovative Islamic finance products and services with a strong impact on financial inclusion, economic growth and sustainable development. The forum took place on 12 November 2019 along with the 14th IFSB Summit at the Jakarta Convention Center, Jakarta, Indonesia. The IFSB Innovation Forum is a new biennial event to enhance knowledge about latest technological developments. It provides a platform for regulators, policy makers, Islamic Financial Institutions, start-ups and FinTechs, academic and research institutions, financial services providers, legal practitioners, Shariah advisors and other stakeholders to cultivate innovative thinking and dialogue.

Indonesia raised 8 trillion rupiah ($561.01 million) in a biweekly Islamic bond auction on Tuesday. According to the financing and risk management office at the finance ministry, the sukuk issuance matched the indicative target. The weighted average yields of project-based sukuk sold on Tuesday were lower compared with yields of comparable sukuk at the previous auction on Aug. 6. Total incoming bids were 21.4 trillion rupiah. ($1 = 14,260.0000 rupiah)

Indonesia is planning further steps to make it easier for foreign banks to invest in local lenders as well as encourage domestic mergers. The Financial Services Authority, known as OJK, expects to amend the so-called single presence policy. The revised rule would relax the requirement that the acquiring banks have to merge all their local operations into one entity. Removing the single presence rule could make it easier for Standard Chartered to hang on to its 45% stake in PT Bank Permata. A large bank acquiring a smaller rival would be allowed to retain it as a separate entity without specifying the threshold for a merger requirement. However, even as the single presence rule is relaxed, foreign banks looking to acquire Indonesian lenders should still appoint Indonesian residents as president director and president commissioner.

Indonesia's Shariah advisory services provider, ZICO Shariah is planning and drafting the Islamic Economic Masterplan for 2019-2024 for the world’s largest Muslim country. Led by a team of economics experts, the masterplan project included 50 Indonesian and Malaysian consultants. It focuses on 14 areas of interest including halal food, tourism, and fashion, Islamic banking and capital markets, small and medium enterprises, digital economy, and social finance. The formal launching of the final masterplan took place at a significant Islamic economy event in Bandung on 26 April 2019 and in Jakarta on 14 May 2019.

Indonesian startup Alami has closed an undisclosed pre-seed round led by fintech investor tryb. The company’s peer-to-peer (P2P) platform recently obtained a P2P registration from the country’s Financial Services Authority and is set to soon expand its business into the Shariah-compliant P2P financing space. The fresh funds will be used for product development and market expansion. Indonesia has the largest Muslim population in the world, but the country's Shariah finance sector has historically lagged behind other markets with large Muslim populations. Alami CEO Dima Djani said tryb’s South-East Asian fintech expertise provides strong validation of its business model and key support for its growth plans.

Indonesian sharia-compliant fintech startup Alami secured funding in a pre-seed round led by Singapore-based VC firm Tryb. Alami, which recently obtained a P2P registration from Indonesia’s Financial Services Authority (OJK), operates a platform for Islamic financing. Tryb principal Herston Powers said the sharia fintech market was a huge and untapped market in Indonesia with significant growth prospects. Both companies look to propel the sharia finance sector in Indonesia, which currently has the largest Muslim population in the world with about 90% of its 260 million people being Muslims.

Indonesia’s Bank Mandiri plans to list its Islamic finance unit Mandiri Syariah in 2020. According to Mandiri’s president Kartika Wirjoatmodjo, the Islamic bank is seeing 16% to 17% growth in savings, triple the pace of conventional banks. Indonesian authorities are nudging commercial banks to widen the pool of Shariah-compliant products for the nation’s more than 260mn people and the government is aiding the efforts by selling sovereign sukuk. With assets of about 93tn rupiah ($6.4bn), Mandiri Syariah is Indonesia’s largest Islamic finance company. Wirjoatmodjo expects the pool to top 100tn rupiah by the end of this year. Total assets at Indonesian Shariah banks were 426tn rupiah at the end of May, compared with 7,673tn rupiah for conventional banks.