Shariah-compliant fintech to improve financial inclusion
Home to the largest Muslim population, Indonesia is looking to sharia-compliant financial technology (fintech) to enhance financial inclusion in the country, where access to financing remains limited.
Speaking as the chairman of the Sharia Economic Society supervisory board, Ma’ruf Amin, the running mate of President Joko “Jokowi” Widodo in the 2019 presidential election, told a conference in Jakarta recently that sharia-compliant fintech players could increase loan disbursement to many Indonesians lacking access to financial services.
“The ummah [Islamic society] should be empowered to have access to economic and financial services,” he said. “That’s why we should push for bottom-up economic development, building the economy of the ummah through the use of the sharia system. This will also strengthen the nation’s economy.”
According to a recent survey conducted by the Financial Services Authority (OJK), at least 40 percent of Indonesia’s population does not have direct access to financial services, including banks.
The National Strategy for Financial Inclusion (SNKI) aims to make financial products accessible to 75 percent of the population this year.
Ma’ruf argued that shariah-compliant fintech companies could not only give people in rural areas easier access to financial services but could also introduce innovative products in the country’s sharia economy, which has seen slow growth amid low economic literacy.
OJK records show that only 8.11 percent of the country’s population were versed in the sharia economy in 2016. Although about 88 percent of Indonesia’s population of some 260 million people is Muslim, Islamic finance is struggling to penetrate the market.
OJK data also show that the market share of Islamic financial services stood at 8.47 percent of the total financial services market as of June last year, marking a slight increase from 8.24 percent in December 2017.
The market share of Islamic banking at less than 6 percent lags far behind Malaysia’s 24 percent.
When it comes to fintech, only three of 99 peer-to-peer (P2P) financing companies registered with the OJK are shariah-compliant, and only one sharia-compliant financing company, Paytren, is registered with Bank Indonesia.
Despite the promising market, Ma’ruf said more regulations were needed to support the growth of sharia-compliant fintech.
“We should pay more attention to the lack of regulations needed to protect the interests of the stakeholders,” he said.
The OJK has the same requirements for conventional and shariah-compliant fintech companies. The latter, though, must be screened by the National Sharia Council (DSN) under the Indonesian Ulema Council (MUI), which has issued a fatwa to ensure the companies comply with Islamic principles. One of the requirements is for sharia-compliant fintech companies to have a board of sharia advisors (DPS).
That requirement put a financial burden on companies in the sector, said Indonesia Sharia Fintech Association (AFSI) chairman Ronald Yusuf Wijaya, who is also the CEO of multinational crowdfunding platofrm Ethis Crowd.
He said sharia-compliant fintech companies were commonly start-ups that did not have enough capital to set up a board of sharia advisors, which could be costly.
“If supported by the government, maybe we could come up with some alternative [solutions], such as assigning a board of sharia advisors for several companies at once, at least for those unregistered, so that they can comply with the OJK regulations,” he said.
Fifty-five companies are registered under the AFSI, 11 of which are P2P lenders. Ronald said at least six of its members would be registered with the OJK this year.