Islamic Financial Technology (FinTech), a new wave in Islamic finance, has grabbed the attention of both local and international players in Indonesia. With a population of over 260 million people where the majority are under the age of 35 and growing mobile phone and Internet penetration rates, Indonesia is indeed a treasure trove of untapped Fintech opportunities. The Fintech industry in the country is in the midst of a period of significant growth with total transaction value in digital payments amounted to US$27 million in 2018 and is estimated to reach US$50 million by 2023. While the number of users in the digital payment segment is expected to reach 241 million by 2023 from 82 million in 2018.
Currently, several Islamic Fintech firms are operating in Indonesia; providing varied and inclusive financial services to the market. Up till August 2019, Islamic Fintech firms registered with the OJK (Financial Service Authority of Indonesia) included Ammana, Danasyariah, Danakoo, Alamisharia, Syarfi, Duha Syariah, Qazwa, and Bsalam. These firms are termed as fintech lending firms and are licensed to operate legally under the law of the Republic of Indonesia.
Despite the burgeoning Islamic Fintech sector, scholarly work in this area is still emerging and limited. Motivated by this, we conducted a survey to explore the prospect and challenges faced by Islamic fintech firms in Indonesia. We disseminated questionnaires to 24 Islamic Fintech firms that are members of the Asosiasi Fintech Syariah Indonesia (AFSI), which is an association of Islamic Fintech firms in Indonesia. However, only six of them showed a willingness to participate in our survey and returned the questionnaires. They were InvesProperti.id, Goolive, Alami Teknologi Sharia, Syarfi, Qasir, and Ethis.
Invest Properti.id is an Islamic-compliant crowdfunding company based in Bandung city. This firm focuses on property investment and provides opportunities to investors to invest in real estate with a ROI (return of investment) of up to 25%. On the other hand, Goolive is a platform that helps farmers and investors to synergize Indonesian agronomy by promoting high-quality, secure, and halal agricultural products. Goolive is also reviving Indonesia’s status as a country well-known for its agriculture and marine. Alami Teknologi Sharia is an aggregator for small and medium enterprises (SMEs), and it focuses on helping SMEs get financing for their operations from the Shari’a-compliant creditors such as Islamic banks. Another crowdfunding firm in our study is Syarfi, which provides Shari’a-based services to improve the economy of the Islamic communities. Syarfi links investors from various countries and people of Indonesia who need funds for their business.
While another Islamic fintech, Qasir, is different from other firms as it is a free cashier application helping business owners to track sales, manage products, observe inventories, and create reports of the sales. Qasir is available in web and mobile versions, which can easily be installed on Android smartphones. Qasir is helpful for SMEs in Indonesia who usually do not have proper accounting and bookkeeping records. Ethis, the world’s first real estate crowdfunding Islamic platform, was the largest Fintech firm that participated in our survey. Ethis has several branches or representatives located in Indonesia, Singapore, Malaysia, and South Africa. Although Ethis is a Singaporean company, it is now also operating in Indonesia as the property business is developing, especially the construction of affordable housing for the Indonesian middle-income families.
Findings from our survey indicated that all Islamic Fintech firms strongly agreed that Islamic fintech sector has a bright and promising future, both in their home country and globally. This is supported by the evidence that the number of customers have increased over time. In terms of challenges, our participating Islamic fintech firms said they did not find it difficult to fund their operations. They also stated that they have adequate skillful human resources to support their business operations and expansion. So, our findings suggest that these two aspects do not constitute any challenge to them.
Nonetheless, they perceived lack of support from the regulators as one of the main challenges they are facing. This is supported by the fact that none of the participating Islamic Fintech firms answered “strongly agree” to the statement “our government provides sufficient support regarding regulation.” In Indonesia, regulations on Fintech falls under two different entities; namely, Bank Indonesia (central bank of Indonesia) and OJK. Presently, regulations set by these two government bodies are few and far between. In addition, the term regulation in itself is below the level of the statute. Hence, regulations of Fintech and Islamic Fintech themselves are still inadequate. Based on our findings and analysis, we recommend that the Indonesian government be more active in devising regulations that are dynamic enough to accommodate the Fintech revolution and meet the demands of this burgeoning industry while at the same time promote innovation.
