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According to the latest Cerulli Associates research, Shariah-compliant investments are gaining further ground in Asia. Growth continues to be concentrated in South-East Asia, with Malaysia remaining at the forefront with $28.4bn in Shariah mutual fund assets under management (AUM) in 2017. Last year, Malaysia’s Securities Commission launched a five-year blueprint to grow the sector. Indonesia grew its Shariah mutual fund market by 90% to nearly $2bn in AUM in 2017. Besides allowing Shariah funds to fully invest overseas, market regulator Otoritas Jasa Keuangan (OJK) recently introduced a framework requiring fund managers to carve out dedicated units to manage existing Shariah funds. The Cerulli survey shows that asset managers in the country expect demand for Shariah investments to come mostly from insurers and pensions over the next few years.

Fintech has permeated the Islamic banking industry and this development is particularly evident in Indonesia. In July 2018, the country's deputy finance minister Mardiasmo plugged the term "Shariah fintech" in reference to financial technology that is compliant with Islamic laws and beliefs. The market share of Islamic finance remains at less than 5% of the total finance and banking market. There is tremendous potential, but there are some impediments blocking its growth. One is the presumption that certain fintech tools might not be compliant with Shariah law. Cryptocurrency was initially deemed as a violation of Shariah principles. However, in April 2018, Muslim scholar Muhammad Abu-Bakar, released a study exploring the functionalities of Bitcoin, concluding that it did indeed meet the requirements. Indonesia’s OJK (Financial Services Authority) is releasing a new set of regulations to govern the country’s fintech scene, set to come into effect in August 2018. These rules will extend to Shariah-compliant fintech tools as well.

According to the Jakarta Interbank Spot Dollar Rate, the rupiah dropped to a new low of 14,418 against the US dollar on July 3. In the last few weeks, all emerging markets showed an increase in foreign currency volatility. Since April 2018, there has been capital outflow from the Indonesian bond market amounting to almost US$1.9 billion. Solving this problem can be done in two steps. First, sensitivity to capital outflow must be reduced by reducing dependency toward it. Second, capital inflow is needed that is less sensitive to global externalities. Islamic finance may contribute to financial stability, as all transactions must be asset-backed. The principle of risk-sharing between counterparties will help prevent excessive risk-taking. Islamic finance can also help create rupiah stability through its various sharia-compliant instruments, which could attract global investors.

#Indonesia’s Deputy Finance Minister Mardiasmo said at the third Annual Islamic Finance Conference that fintech will play an important role in Islamic finance. Shariah fintech is a new buzzword to describe the venture of financial technology into Islamic finance. The status quo is that few Islamic banks have been open to adapt new technologies, but many scholars in Shariah boards are challenged in this particular case of progress meeting tradition. The result is that not Islamic banks are the drivers for Shariah fintech, but startups, entrepreneurs and inventive enterprises. In Indonesia online microfinance services are part of this new wave of Shariah fintech. Some Shariah fintech startups are focusing on agri-finance platforms, Islamic crowdfunding, peer-to-peer lending and mobile payment applications, while others are developing blockchain solutions for Islamic finance services, automated halal investment, trading platforms and robo-advisers.

Indonesia, one of the world’s biggest greenhouse gas emitters, is turning to green finance markets to fund new development projects. In February, the Indonesian government issued $1.25 billion as the first sovereign green sukuk in the world. The first corporate green sukuk was issued by a Malaysian company in July last year. The Indonesian Tropical Landscapes Finance Facility (TLFF) issued a $95 million sustainability bond to finance rubber plantations in Sumatra and Indonesian Borneo. However, Indonesia did not provide investors with a specific list of projects it was seeking to fund through the green sukuk. The opacity in implementing sustainable criteria is not uncommon in the global green bond market.

Islamic microfinance start-up Blossom Finance has started accepting zakat payments in cryptocurrencies for zakat-eligible cryptocurrency assets in response to user demand. Blossom Finance has designated a wallet for zakat payments at a cryptocurrency exchange in Indonesia. Blossom will channel the zakat to the Indonesian financial cooperative Baitul Maal Wat Tamwil (BMT) that will distribute the funds to any of the 87 microfinance institutions that the start-up has agreed to partner with. The crypto zakat payment on crypto assets is completed once deposited in the Blossom-designated wallet. CEO Matthew Joseph Martin said Blossom Finance would not take a fee for providing the zakat payment facility. The company’s aim is to provide a working model for zakat collection and management organizations.

US-based Blossom Finance recently launched a fund that will lend local-currency on the Indonesian island of Java via Permodalan BMT (PBMT) Ventura. Baitul Maal wat Tamwil (BMTs) are financial institutions that follow Shariah law. They provide savings and loan services primarily to people who do not use traditional banks. The new fund is Blossom’s first microfinance fund that is open to investment from the public. The minimum investment is USD 1,000, although US-based investors must be accredited before participation. Blossom is accepting investments into the fund in US dollars as well as the cryptocurrencies Bitcoin, Bitcoin Cash and Ethereum. In testing its platform since 2015, Blossom has generally returned investors annualized profits around 7% with terms of 6 to 12 months.

Malaysian property developer Matrix Concepts is teaming up with an Indonesian consortium to jointly develop an Islamic financial district in Jakarta. Matrix entered into a memorandum of understanding (MoU) with Bangun Kosambi Sukses (BKS) and Nikko Sekuritas Indonesia (NSI) for the joint development dubbed PIK 2 Sedayu Indo City. Matrix said the proposed development was initiated by the Indonesian government in its quest to position itself as an Islamic financial hub. PIK 2 Sedayu Indo City will encompass 1,000ha of land complete with residential houses, apartments, shopping centres, a light rail transit system, and a stadium.

Indonesia has seen a rapid growth of sharia fintech. In fact, the country’s Sharia Fintech Association already has 28 members, although it was established only in February. The interest is understandable given the size of the market for Islamic fintech. According to a 2017 Sharia Fintech Business Study published by Telkom Indonesia, the market size for sharia lending is worth up to Rp 7.3 trillion ($525 million). However, venture capital firms still seem hesitant about pouring capital into the sector. Mandiri Capital Indonesia investment head Aldi Adrian Hartanto believes that sharia fintech startups would need a more convincing business model and market approach in order to attract investment. Focusing on sharia market alone is not seen as a strong differentiator amid tight competition in the country. Malaysia, however, seems to see it differently. The country has made various efforts to provide funding for Muslim-focused tech. Thus, Malaysia was ranked first for Islamic fintech by Bloomberg Intelligence, followed by the UK and UAE.

Blossom Finance announced the open enrollment for an Islamic microfinance fund that will accept multiple cryptocurrencies. Investors will focus on socially responsible opportunities and receive profit sharing from Blossom’s network of microfinance partners in the province of Central Java, Indonesia. Blossom has partnered with PBMT Ventura, an Indonesian Islamic microfinance firm. The funds raised will be utilized to bolster micro-businesses and traditional market sellers to meet the increased demand during the upcoming Ramadan holiday. In order to participate, investors will have the option to invest with Bitcoin Core (BTC), Bitcoin Cash (BCH), Ethereum (ETH) or USD.

Sharia-compliant investments have flourished in recent years, which could help strengthen the domestic market’s resistance to global influences. Data from the Indonesia Stock Exchange (IDX) shows that the number of sharia-compliant investors in March grew 18%, or by 4,245 investors year-to-date (ytd), with transactions totaling Rp 476 billion.

Indonesia issued a 5-year US$1.25 billion green Wakala Sukuk as the first issuance under its recently established Green Bond and Green Sukuk Framework. Norton Rose Fulbright has advised Abu Dhabi Islamic Bank, Citigroup, CIMB, Dubai Islamic Bank and HSBC, acting as joint lead managers and joint bookrunners. The Republic intends to use the proceeds exclusively to finance green projects, including renewable energy, sustainable transport, waste management, climate-related projects and green buildings. Alongside the 5-year green Sukuk, Norton Rose Fulbright also acted for the joint lead managers and joint bookrunners in the Republic’s 10-year US$1.75 billion Wakala Sukuk issuance.

The Indonesian government sold 8.44 trillion rupiah ($613.19 million) of sukuk bonds to local retail investors. The sales were slightly higher than the initially-allotted 8.11 trillion rupiah. The tradeable sukuk carry a fixed annual rate of 5.9%, similar to the average rate offered by Islamic banks for 12-month and longer time deposits. The sukuk was sold to a total of 17,922 Indonesians this year. Since the retail sukuk was first launched in 2009, the government has sold a total of 144.78 trillion rupiah of the debt to nearly 250,000 people.

Religion-based philanthropy entails sharing and assistance activities conducted without discrimination between ethnicity, religion or race. In Indonesia it is increasingly common for philanthropic agencies to collaborate and develop interfaith partnerships to carry out humanitarian missions in conflict and disaster areas. For example, The Tzu Chi Buddhist Foundation assists the community of pesantren and builds housing for Muara Angke residents, who are predominantly Muslim. The catholic Karina Foundation develops emergency response and disaster risk reduction programs. Islamic Philanthropy Institutions such as Dompet Dhuafa, Lazismu, Rumah Zakat, PKPU, Aksi Cepat Tanggap, Wahid Institute, also work together and readily help non-Muslim communities. Interfaith philanthropy is especially important in the current environment in which the unity of Indonesia is under attack by religious separatists. Many institutions collaborate on running programs. Through collaboration, suspicion can be minimized and the programs can be run optimally.

#Indonesia became the first Asian sovereign to sell green sukuk, raising $1.25 billion via a five-year deal, alongside a $1.75 billion 10-year sukuk. Proceeds will be used on eligible projects, ranging from renewable energy to waste management. Indonesia’s sukuk was based on an agency contract known as wakala and also incorporated a green framework assessed by the Centre for International Climate and Environmental Research (CICERO). Such a convergence of investment principles could widen the appeal of sukuk beyond Asia and the Middle East to include ethical investors in Western countries. More transactions might be needed to fully test the appetite of green investors for sukuk, as Indonesia’s green sukuk saw stronger takeup from regional investors.

Indonesian P2P firm Investree expects to close a Series B funding round in two to three months to finance the company’s marketing activities and expansion. Investree chairman Adrian Gunadi said that the investment would not only boost the company’s core business but also its new sharia product and online government securities business. The firm is hoping to capitalize on its large lender base, made up predominantly of the country’s millennials aged 21-35. Since its inception in 2016, Investree facilitated Rp 623 billion in loans. From the Rp 623 billion, around Rp 500 billion has been disbursed and Rp 367 billion has been paid back. So there’s around Rp 120 billion in outstanding loans. Investree plans to offer a new asset class on its platform, that of retail online government securities. The initiative will start either in April or May, they are currently waiting for confirmation from the Finance Ministry.

Indonesia raised $1.25bn as the world’s first sovereign green sukuk. The country's latest sukuk was priced at a yield of 3.75% and has a tenure of 5 years. Non-Sovereign Malaysian organisations have previously issued green sukuk, most recently with two issuances in 2017. Indonesia also raised US$1.75 billion via a 10-year sukuk sold at the same time as the green issuance. The non-green sukuk was sold at a coupon rate of 4.4%. Globally, $155.5 billion of green bonds were sold last year, according to the London-based Climate Bonds Initiative.

Indonesia, the world's largest exporter of coal, has become the first country in the world to sell a sovereign green sukuk bond. The country has borrowed $1.25bn with the issuance of a five-year sukuk. Luky Alfirman, head of the Budget Financing at Indonesia's Finance Ministry said the proceeds would be used to finance projects such as renewable energy, green tourism and waste management. The government also said it would take up more projects to address climate change mitigation and adaptation, which requires alternative financing. CIMB, Citigroup, Dubai Islamic Bank PJSC , HSBC and Abu Dhabi Islamic Bank were bookrunners on the deal.

Indonesian President Joko Widodo (Jokowi) sees great potential in Islamic finance, considering that the country has the largest Muslim population in the world. According to the President, sharia banking assets continued to increase in 2017 and amounted to Rp435 trillion (about US$32.2 billion) or about 5.8% of the total assets of Indonesian banks. In addition, the sharia capital market in Indonesia also continues to improve with sukuk reaching a 19% market share. The government also noted that non-bank Islamic finance industry assets have doubled since 2013. Jokowi explained that the potential of sharia industry and trade can be immediately developed in the Muslim fashion industry, halal food industry, pharmaceutical industry and tourism industry. He urged all people to become the driving force of the sharia economy.

The Republic of Indonesia has appointed banks for a US dollar sukuk offering that could include the first offshore Green bond from an Asian sovereign. Abu Dhabi Islamic Bank, CIMB, Citigroup, Dubai Islamic Bank and HSBC are joint bookrunners. The sukuk maturities are expected to be of 5 and 10 years, and the issuer may also consider the possibility of a longer dated tranche. Poland was the first sovereign to issue Green bonds, in a euro-denominated transaction in 2016. In Asia, Hong Kong has also expressed interest in issuing Green bonds. Indonesia last issued dollar bonds in December, when it completed a $4 billion transaction split across three tenors.