The importance of Islamic financing

Indonesia is the world’s most populous Muslim nation – out of the 260 million people living in the country, 87 percent identify as Muslim. But the country remains a laggard when it comes to developing a robust finance industry.

One of the factors contributing to the slow growth of inclusive economic development is lack of Islamic financing.

What is Islamic finance and how does it differ from conventional practices?

The main difference between Islamic and conventional finance is the treatment of risk, and how risk is shared. In a conventional loan, the financier has a contractual right to receive interest (and capital repayment) irrespective of the condition of the borrowers’ business.

The main principles of Islamic Finance is the avoidance of all haram (harmful) activities such as charging interest. Islamic financial institutions must ensure that ambiguity (gharar) or gambling/speculation (maysair) is minimised in transactions and contracts. Complying with Shariah law also means these Institutions are not permitted to invest in alcohol, pork, pornography or gambling. – Financial Times

Promoting risk-sharing instead of debt-financing, reduces poverty and inequalities, which are the necessary objectives that need to be addressed by economic development policy makers. – Journal of Business & Financial Affairs

Indonesia has long been a contestant to become a global hub for Islamic financing, and created a road map for its development since 2017. The government believes Islamic finance will be an engine of stability and drive financial inclusion. Both Muslims and non-Muslims can benefit from Islamic Finance as it aims, by principle, to be a more transparent system of finance.

The risk-sharing features in Islamic financings also help ensure the soundness of individual financial institutions and discourage the types of lending booms and real estate bubbles commonly seen as precursors to the global financial crisis.

By focusing on asset-backed and shared-risk principles, Islamic financing has the potential to persuade more financing by small and medium sized enterprises (SMEs) to kick start their businesses. With so many beneficial qualities, it seems strange Islamic financing isn’t more widespread in the country, why is that? Without the right financial literacy, people are reluctant to shift from conventional financing.

Lack of Islamic finance in Indonesia

The establishment of Islamic banks in Indonesia 25 years ago is considered late compared to other Muslim-majority countries such as the Philippines (in 1973) and Malaysia (in 1983).

Indonesian authorities were reluctant to support it for a long time because the country was colonized by Dutch adopted Western-led financial institutions that dominated international finance since the end of World War II.
But after the global financial crisis in 1998, Indonesia was keen to find alternatives to broaden its financial base and better protect itself from global financial shock.

Indonesia’s President Joko Widodo (Jokowi) put together the National Committee for Sharia Finance (KNKS) in 2017 to boost Islamic finance and tackle the challenges surrounding Shariah banking in the country.

And while Shariah banking assets continued to increase in 2017, amounting to IDR 435 trillion (US$32.2 billion), or about 5.8 percent of total assets of Indonesian banks – up from 4.83 percent in 2015 – it was still small compared to Saudi Arabia’s 51.1 percent, Malaysia’s 23.8 percent, and the United Arab Emirates’ 19.6 percent.

The adoption of Islamic finance is also in line with government initiatives working to address barriers to SME growth, such as limited access to finance, which is frequently cited as a problem for smaller firms that lack sufficient collateral for loans.

In the last five years, SMEs have played a large role in Indonesia’s economic structure. Last year, SMEs accounted for 60.3 percent of the total GDP from 57.84 percent in 2012.The Governor of Bank Indonesia Agus Martowardojo hopes the role of SMEs to GDP can increase to 70 percent by this year.

A new early stage fintech startup hopes to help the government achieve their ambitious goal. Ex-bankers and friends Bembi Juniar, Dima Djani, and Harza Sandityo created Alami to boost Shariah financing and focus on educating SMEs about its benefits.

“Alami is a technology company that aims to facilitate small businesses to obtain Islamic financing from banks. It will accommodate Shariah financing, filter and provide accurate ratings for prospective borrowers and facilitate communication between banks and prospective borrowers,” explains Dima.

“I hope through the technological advancement that we offer, we will speed up Shariah banking processes and increase efficiently by at least 50 percent.”

Popularising Islamic-based finance in an unbanked country

Alami was founded in December 2017 and was the runner-up start up in the INSEAD Venture Competition held in Singapore and Paris. The company has raised at least US$100,000 in pre-seed funding round from undisclosed angel investors.

Bembi Juniar, Dima Djani, and Harza Sandityo the founders of Alami Shariah

Dima Djani, one of the founders of Alami, shares with ecommerceIQ that the lack of infrastructure, lack of support from key opinion leaders, and lack of education on Shariah finance are main roadblocks to the country’s slow adoption of Islamic financing.

“People don’t learn about this at school, and we believe technology is needed to spread the benefits of Shariah finance,” says Dima.

“Me and two other founders are young professionals with banking backgrounds. We create technology to simplify the loan process for SMEs to get financing and for bankers to easily focus on SMEs,” says Dima.

“Fintech is a strategic opportunity for Shariah finances to expand their market segment,” Financial Service Authority chief Wimboh Santoso said as quoted on CNN Indonesia.

The startup positions itself as a strategic partner to the few existing Islamic banks, not as a direct competitor and has already partnered with three prominent Islamic financial institutions: BNI Syariah, Bank Mega Syariah and Jamkrindo Syariah, with a total transaction value of IDR 9 billion and IDR 50 billion.

“The most common deals SMEs need money for is working capital to expand, either through trade finance or plain working capital financing and they are coming from the chemical and construction industries,” shares Dima.

How does Alami services work?

There are two simple steps SMEs need to follow to use Alami’s service:

  1. .SMEs register and fill out a form on Alami’s website – data to be shared includes corporate and some historical financial information
  2. The system assigns a rating indicating the SMEs risk and matches the business to Alami’s bank partners

According to Dima, Alami is an abbreviation of Alif-Laam-Meem, the first sentence of the second Surah or chapter of the Al-Quran (the meaning which only God knows according to Muslims).

But philosophically for Dima and his two other founders, Alami means to motor Islamic finance 2.0 in Indonesia.

“We see Alami as the second chapter trying to improve the Islamic finance sector in Indonesia through technology, creating value for our partners and being a unique Islamic-based fintech startup,” Dima elaborates.

“It is thought that wealth should be created through legitimate trade in assets,” – Dima, co-founder of Alamai

In Indonesia, there are other Shariah-based financing platform such as Cermati and CekAja, but these platforms focus on individual loans, not on SME financing.

What’s next for Islamic financing in Indonesia?

The startup announced its collaboration with Kapital Boost, the Singapore-based Shariah-compliant crowdfunding platform for SMEs to address the lack of financing available to SMEs in Indonesia earlier this year.

Under the partnership, Alami will leverage its SME network in Indonesia to direct businesses to Kapital Boost, who will facilitate fundraising and financing from global investors.

“We believe SMEs are a huge economic contributor for Indonesia and by helping them to grow, we are impacting positively on Indonesia’s economy,” shares Dima. “That’s our aim.”

“Our plan is to be one stop solution for Shariah finance in Indonesia, we are committed to popularizing Islamic finance in Indonesia and work hard to create easy to use technology for both SMEs and our bank partners,” says Dima.

Over the last few days, major moves have been made by a handful of top ecommerce players in Southeast Asia in efforts to cement a position in payments. Each company is already well aware: if you want people to buy or use your services, it makes sense to have direct influence over their spending.

Owning the payments chain has become so important (thanks to what was witnessed in China), that Amazon announced it would pass discounts to retailers if they used its online payment service.

Earlier this week, ShopBack, a cash back ecommerce aggregator, acquired Singaporean personal finance startup for an undisclosed amount. The stated reason being it wanted to help millennials ‘better handle their money‘, but with a new team of developers, no doubt the company is looking to optimise its existing system.

What was more interesting this past week were the new discoveries made by Go-Jek and Grab users in Southeast Asian markets.


The on-demand market leader in Indonesia has expanded its reach to the most unexpected locations – street food vendors.

Tweet translation: “Interesting find this afternoon: Some street vendors on the alley beside Bank BNI Kebon Sirih have accepted payment with Go-Pay. When I bought ayam penyet [fried chicken] at my regular place, I just have to scan a QR code, show the payment slip, and that’s it. So cool!”


The popularity of Go-Jek in Indonesia is almost legendary and this example shows how far its reach goes. The difficulty for Go-Jek will be expansion outside of Indonesia to other markets in the region, where similar on-demand companies exist.


With Uber officially out of the picture, Grab is doubling efforts to increase the adoption of its e-wallet, GrabPay. On a trip to Manila May 7th, an ecommerceIQ Community member shared with us app screenshots of Grab promoting a new cash ‘top up’ feature. Riders can add money to their Grab accounts by simply handing their drivers cash.

This is hardly innovative as Go-Jek has offered cash top ups since 2016, a large contributing factor to its success in Indonesia, but it shows Grab’s seriousness in evolving its payments product to the local market.




This new feature follows Grab’s launch of three other services the company introduced to the Singapore market: GrabAssist, GrabCar Plus, and GrabFamily.

“Grab’s vision is to be an everyday app for consumers,” said Tarin Thaniyavarn, country head of Grab Thailand.

Regulations stand in the way of Grab’s vision in Southeast Asia as most countries lack any solid regulations to ride-hailing companies. Currently, the company is unsuccessfully trying to acquire a microfinance licence from the Bank of Thailand.

What drives the adoption of new technology?

Grab is targeting hawker stalls in Singapore, Go-Jek has already successfully penetrated local vendors in Jakarta. Grab is offering cash top ups, Go-Jek has been doing so for the past two years. They both offer on-demand services, taxis, cars, bikes and the technology and mechanics of an e-wallet are not all that different player to player. They are essentially going toe to toe, what is going to push further adoption?

The real winner will be the company’s capability in effectively communicating the benefits of its payments service to users. How aware are users of its existence and its importance? How can it make their lives easier versus using good old fashioned cash or swiping a credit card?

In developed markets like the US, Apple Pay, Samsung Pay, Google Wallet have single digit adoption rates compared to credit card usage. Why? Because the country already fares well with credit cards, there is no reason to change habits.

The same case can be made for relatively cash-less markets like Singapore. The real opportunity to dominate payments is in developing markets like Indonesia and Thailand, where credit card ownership floats around only 4 percent and majority of the population owns a smartphone.



“To enhance awareness, you really need advertising — one thing that’s not well understood [by consumers] about Samsung Pay is that it has more utility the Apple Pay; you can use it at a non-NFC terminal and that’s a huge advantage I don’t think Samsung is doing a good job of promoting.”

It seems every day is filled with announcements about fresh funding, joint ventures and market expansion in Southeast Asia’s digital economy.

Money, it seems, is not an issue for these internet companies.

There is instead an even bigger problem – a lack of a company’s most valuable resource: talent.

Every tech company I have interviewed operating in Indonesia, Thailand, Malaysia, Singapore, Vietnam, etc. has cited difficulty finding, recruiting and retaining top talent when asked about major challenges.

In a region abundant with people – 650 million – and rich resources, what in the world is going on?

Companies can’t find good talent

Through a short community survey last week, executives from companies such as Colgate, Grab, Facebook, Blibli, DHL and Abbott, shared the top traits they look for in a successful candidate and their thoughts on hiring in the region.



Over 80% of respondents believe there is a talent challenge for some specified reasons below:

“Yes, there is certainly a talent challenge in Southeast Asia. Reasons being absence of educational institutions of global level that churn out quality graduates. Focus on localization than globalization and limited exposure.” – Reliv Pharma, Vietnam 

“Yes, the young generation lacks persistence and cuts corners.” – Self-employed, Thailand

“Yes, there is a lack of ‘soft’ skills or qualities required to be successful in a technology business. These include problem solving, creativity, self-starters, willingness to take initiative and ownership. Due to the large amount of tech companies headquartered in the region, there is also a job-hopping mentality meaning that younger talent does not stay in one place long enough to learn critical foundation skills.” – Cresco Data, Singapore

“Yes, lack of ability to understand the world of digital is not binary and you need to recognise shoppers are omni-channel more and more so.” – Abbott, Singapore 

“It’s apparent that there is a talent challenge when large companies like Central Group (Thailand), MAP (Indonesia) and SSI Group (Philippines) are often having to “import” expats into management or even senior management positions because they couldn’t source a candidate locally. More to the point, the ecommerce market is in its infancy in Southeast Asia, enforcing the point that talent from maturer markets is a viable option.” – aCommerce, Thailand 

“There should be a proper place to develop these talents.” – AmorePacific, Malaysia 

“Cultural difference and attitude.” – Grab, Thailand 

The other 20% were either on the fence and believed the struggle to hire was due to other reasons:

“No, there’s a pool of strong candidates but it’s quite tough to find someone who shares the same values and goals as the company.” – Clickasia, Malaysia 

“Not really, a lot of great candidates out there. The thing is, sometimes the recruitment process and the interview questions are ridiculous and those are eliminating the great candidates from the recruiter.” – Facebook, Indonesia 

A quick overview of the feedback reveals companies are experiencing the same problems such as inflated salaries, job hopping, and lack of ownership and strategic thinking.

There are a few explanations for this:

First, ecommerce in Southeast Asia is young. The concept of digital only arose six or seven years ago around the time Lazada was born. There was no demand for online jobs, why should students study computer science and digital marketing over finance and science?

Given the novelty of digital, not enough time has passed for any individual to become an expert in the local market and therefore, narrowing the pool of talent with on-the-ground experience. This also means companies tend to hire foreigners to fill senior roles but are usually on short contracts and don’t intend to stay for 5+ years in a developing country.

Second, education in Southeast Asia lags behind the developed world as observed by the World Bank,

“Much of what South Asian students are taught is “procedural” or rote based. Students are poorly prepared in practical competencies such as measurement, problem-solving, and writing of meaningful and grammatically-correct sentences. One quarter to one third of those who graduate from primary school lack basic numeracy and literacy skills that would enable them to further their education.”

Whereas youth in North America are expected to hold part-time jobs, complete internships and have work experience before they even start university, young people in Southeast Asia are deterred from work to focus on studying until graduation.

This means fresh graduates tend to lack basic skills entering their first job – ownership, professional communications, stress management, etc. – and are often overwhelmed at fast-paced companies with heavy KPIs i.e. digital startups.

The top three skills companies believe are crucial for successful candidates are problem solving, strategic thinking and willingness to learn. The first two are also the hardest to find in the region.



Third, companies are still applying traditional recruitment practices that won’t work here unlike in the West. Simple supply and demand.

Unless you are a Google or Amazon, recruiters cannot expect candidates here to undergo lengthy interview processes because quality talent will get snatched up. As a senior manager once told me, “the interview works both ways, I’m also checking to see whether I like the culture fit”.

Recruiters also cannot solely rely on education as a benchmark for future success or neglect candidates without Ivy League Masters.

For many individuals fortunate and wealthy enough to be sent abroad for higher education, minimum ‘white collar’ wage in Southeast Asia is seen as pocket money. These young professionals aren’t incentivised to push themselves at work when they have family businesses to fall back on. This is not to generalise an entire generation as lacking ambition but to highlight how important it is to understand their backgrounds and aspirations.

It is often individuals with operational experience in APAC and industry knowledge that tend to perform better than MBA graduates. An employee at Alibaba Group sums up her experience with hopeful graduates looking for new jobs:



We have established there exists a talent challenge in one of the world’s fastest developing regions, but so what? Can’t companies slowly develop and build their teams when education and experience catch up? What’s the big hurry?

Three small numbers: 996.

The Chinese are coming (here)

996 = 9AM to 9PM, six days a week.

This is the working mentality of employees in Chinese companies. As detailed during an episode of Economist Radio, a venture capitalist from China shared his surprise seeing empty parking lots at 5PM during a visit to Silicon Valley.

“Even in large corporations like Tencent in China, you will see taxis lined up at 2AM taking hard working engineers home when they totally run out of steam working 12 hour days.” – Kai-Fu Lee, CEO of Sinovation Ventures

The digital landscape in Southeast Asia is already saturated thanks to the influx of Chinese players and large sums of investment, but in order to win, it’s not about capital when everyone has millions in the bank, it’s about human capital.

Alibaba’s crackdown on Lazada has already started; Maximilian Bittner out, Lucy Peng in. And after three years in Indonesia, also plans to expand to Thailand sometime this year through a joint venture with Central Group.

Given the speed of the market’s competitive playing field, there is a huge opportunity cost when critical roles are left unfilled. The fear that someone else is building something better, smarter and faster.


How can companies navigate the talent challenge?

In Southeast Asia, soft skills should trump hard skills every. single. time.

Companies can teach someone to navigate SQL, manage time and set up Adwords, but they will struggle to teach conflict resolution, self-motivation and problem solving.

Like all business strategies, recruitment efforts need to be adapted to the local market in order to be successful, whether through an in-house team or third party platform. These were hiring best practices shared with me:

  • A resume is not a 360° review of an individual, experiences and results count more
  • Fancy education doesn’t guarantee strategic thinking or grit, less experienced but hungrier candidates will go further
  • Update old application systems that require 10 steps to upload a CV
  • Tap into your C-levels to scout for talent as they are your biggest network of eager candidates
  • Rethink unrealistic qualifications (ex. 10+ years in digital, 7 years in ecommerce, etc.) or you will never find someone
  • Continue training your people and have an internal culture accommodating to the locals

Companies in developing markets like Southeast Asia often focus on high growth and cash burn to grab market share, but forget to build a strong, positive company culture so the top talent actually want to stay.

Understand the three crucial skills required to be successful in the role and how the individual demonstrated this through his/her past experience and forget about all the other bells and whistles.

At the end of the day, how defensible is your team?