Indonesia’s Alami Sharia began life in 2019 as a digital peer-to-peer (P2P) lending company for micro and small and medium-sized enterprises, disbursing over $230m-worth of loans to more than 10,000 such projects across the country as of August of this year.
The company acquired sharia-compliant rural bank BPRS Cempaka Al-Amin in March 2021 in a $10m deal and turned it into Hijra Bank, which is due to launch its mobile banking app by the end of 2022.
Alami Sharia chief executive Dima Djani spoke to The Banker about the growth dynamics of sharia-compliant finance in Indonesia – home to the world’s largest Muslim population – and how it intends to compete in the retail banking market.
Q: What made you decide to pivot from P2P lending to retail Islamic banking services?
A: The funding for our P2P lending business comes from both institutional and retail investors. Right now we have about 111,000 P2P investors as users on our platform with a high retention rate of about 70% on a monthly basis.
We’ve decided to leverage our branding and our user experience, and open the top of the funnel and provide banking solutions. We did a limited soft launch within the testing environment to iterate our products and we’re working towards a full launch in November this year. From what we have been monitored so far, we’ve been amazed that our users have a significantly higher average balance per user compared with other digital banks in the market.
Q: How will your retail product compete against other banks’ offerings?
A: Our hero product at the moment is the ability to have different saving boxes, which can be easily tailored to customers’ individual saving goals. There are advantages to being a pure-play Islamic bank in a country like Indonesia, which has a Muslim population of 230 million, as we’re predicting a rise in the Islamic savings market.
zero-interest savings is a unique trend in Indonesia’s Islamic banking space
While other digital banks across south-east Asia have been offering higher savings rates to attract liquidity, we’re pursuing the opposite strategy, offering zero-interest Islamic savings accounts that have no administrative charges, thereby tapping into a low cost of funding. Zero-interest savings is a unique trend in Indonesia’s Islamic banking space that has already resulted in growth for incumbent lenders. We’re trying to leverage off that via our digital platform, which sets us apart from our competitors.
Q: How much funding have you raised thus far?
A: The investors we’ve attracted so far are a combination of global fintech-focused investors like Quona Capital and Capria Ventures, as well as regional investors such as AC Ventures, East Venture, Golden Gate Ventures, and FEBE Ventures.
So far we’ve raised around $30m in equity and about $50m-worth of debt. We just recently closed our pre-Series B and are planning to raise Series B after we’ve launched the banking app.
Q: Why has there been limited growth in Indonesia’s Islamic banking sector so far?
A: Historically, Indonesian banks have focused on the commercial, retail and micro segments, with very few targeting the corporate sector. When you look at total assets, sharia-compliant assets’ share is quite low, at about 7%, partly due to various legacy issues. But when you look at the total number of Islamic bank accounts, it’s significantly higher at between 12% and 15% of total accounts.
In other major markets like Saudi Arabia and Malaysia, there has been a top-down approach to expand the Islamic finance sector, whereas in Indonesia we’ve seen more of an organic, bottom-up trend. This means things have been quite slow moving in the early days, but in the longer term, growth is more organic and market-driven, and I believe that this will create more sustainable and faster growth when it comes to the industry as a whole.
Q: How will the creation of Bank Syariah Indonesia [via the merger of three Islamic banks in 2021] affect the sector, and what other growth factors are you seeing?
A: The merger is definitely going to help growth. The government has also been heavily promoting sharia-compliant finance, via the formation in 2020 of the National Committee for Sharia Economics and Finance, which is chaired by the president himself, and the annual Indonesia Sharia Economic Forum event by the Bank of Indonesia.
At the same time, Islamic finance faculties are the fastest-growing faculties in Indonesian universities, so we’re seeing a lot of Islamic finance talent coming up through higher education institutions. It indicates a bottom-up growth in interest for Islamic finance, boosted by Islamic scholars at the grassroot level, combined with a newer top-down approach, which is going to create a more vibrant Islamic banking industry going forward.
