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.

Talk to most experts in Southeast Asia about the potential of ecommerce in the region and they’ll find common ground: the real bottleneck towards growth lies primarily in logistics that can’t keep up.

Decrepit infrastructure, outdated customs processes, and the sprawling landscape all add up to a scenario notoriously murky to navigate. Indonesia, for example, is the largest internet market in Southeast Asia and it’s expected to drive the bulk of growth in ecommerce. Economic indicators are rosy and consumers have higher disposable incomes.

The problem? It’s a massive archipelago consisting of 17,000 islands. Ecommerce deliveries can take up to a week if delivery is even offered at all, leaving customers frustrated and uncertain whether they’d engage in a purchase again.

It’s a similar story in the Philippines, which has over 7,000 islands. Countries like Thailand may be geographically easier to navigate but it’s not without its own set of challenges: the Kingdom witnesses the second-highest road accidents in the world, just marginally behind Libya.

But simply adding more delivery vehicles and hiring people to drive them won’t instantly solve the problem. Within the logistics industry, there are issues such as fuel pilferage, lack of adherence to safety rules and regulations, and rash driving. These problems entail an inherent cost for fleet operators ordinarily passed on to end consumers in the form of delivery fees. And that’s a cost which can be avoided.

Thai company Drvr is trying to tackle these challenges head-on. It uses telematics, which allows devices to send and receive information across large distances, to track vehicle performance, driver behavior, unscheduled stops, and so on. Drvr installs an array of sensors inside vehicles to help managers keep track of the fleet and also provides a SaaS platform that displays an overall dashboard. It can be modified and tweaked according to client requirements, of which Mercedes Benz is one.

CEO and co-founder David Henderson, who hails from Seychelles, first moved to Thailand in 2014 following a stint at a telematics firm in Australia. The challenges of solving mammoth problems in Asia was the primary motive – he had originally pitched the idea to his previous employer but they were far too risk-averse for his liking. So he decided to quit and branch out on his own.

“The product we had two years ago was simply a GPS tracking product,” David tells ecommerceIQ. “We’ve matured significantly as a company since, and it’s fair to say that we have one of the most advanced fleet management and IOT platforms in the world now.”

The Drvr analytics dashboard

Why start in Thailand?

David explains that his target market isn’t just the logistics sector, but any business that owns and operates a large fleet of vehicles. This could entail players in transportation as well as construction. Such businesses need to keep a keen eye on the health of their vehicles to make sure that drivers and support staff aren’t running amok.

“Thailand is a natural market for us because there are over 3 million vehicles manufactured here annually with commercial vehicles accounting for half that number. That’s the primary reason we’re based here,” he explains.

Drvr’s core solution aims to make fleet operators operate efficiently. It achieves this via a number of ways – the first, as mentioned earlier, is via the predictive analytics platform it offers. The driver version of its app also combines gamification elements to help coax drivers into following the rules. There are rewards every time they adhere to a certain standard such as the maintenance of an average speed or keeping unscheduled stops to a minimum – these could be in the form of cash bonuses or enhanced performance reviews, but is agreed mutually between the fleet manager and driver. The company says this helps reduce the element of confrontation between them and HR.

“One of our immediate use cases that we can prove to our customers is in the case of fuel theft. Fuel theft is a major issue, not just in Thailand but right across the world in fact. It takes on different forms in different areas – [in Thailand] it tends to be siphoning but in Australia and other places […] people tend to fraudulently buy fuel or fill up their own car with the company credit card. We can detect these scenarios and prevent them from happening,” says David.

Before Drvr came along, the common solution to this issue was that companies would simply pay their drivers lower. These would lead to distorted economic incentives – drivers would simply shrug their shoulders and pilfer more fuel from the vehicle in order to sell it for cash. And the cycle would worsen.

David doesn’t disclose how many customers he has but does say that the startup turned a profit last month. While they’re based in Thailand, the largest market is currently Myanmar in terms of volume. However, both Indonesia and the Philippines are high on his list of priorities.

“We see Indonesia as the critical market in Southeast Asia – volume-wise, it’s just one with huge potential. Margins are a bit lower, admittedly, but there are big opportunities there,” he adds.

“At the same time it’s very tricky to get a foothold – we’ve failed a couple of times because of the difficulty of finding a reliable local partner. If you’re successful in Indonesia, it’s a massive tick on your profile.”

What trends does he notice?

Fleet analytics companies aren’t exactly mindblowing tech and there’s a few of them around already such as Cartrack and Coolasia. For David, however, they’re trying to set themselves apart in terms of the sophistication of their platform and the clients.

Mercedes Benz trucks, one of their key clients, actually ships all vehicles in Myanmar with Drvr sensors pre-installed. This provides a certain degree of validation when pitching to other companies. Drvr is also helping facilitate the growth of a subscription vehicle model – whereby fleet owners ‘rent’ vehicles from manufacturers as opposed to simply buying it outright and then allowing it to depreciate over its lifecycle.

This scenario – which David claims is already happening in markets like Australia – necessitates razor-sharp analytics so manufacturers know how to charge on an hourly or monthly basis. Analysts need to understand costs specifically and it’s simply not possible to do that without carefully monitoring existing vehicles to figure out when it’s liable to break down, what the fuel costs are, and other predictive analytics.

He claims Drvr is working with manufacturers interested in this model – the sensors and analytics will help them build a financial model – but doesn’t name names.

Will IOT engulf Asia?

Some people might scoff at the idea of high-tech commercial vehicles plying the backwaters of Asia given how cheap labor costs are, but David doesn’t believe it’s so far-fetched. He agrees on the fact that the economic imperative, for now, is missing but says the costs of devices and provisioning the service is “much lower than what it was in the past.”

“If you’re in ecommerce or logistics, the reality is that customers expect goods to be delivered the same day or as quickly as possible. In order to facilitate that you can’t have drivers sleeping on the side of the road or stealing fuel. It damages your brand and the perception of your service. Even the most old-fashioned Thai companies are beginning to realize that,” he explains.

The first thing that comes to a consumer’s mind when asked about virtual reality (VR) often involves gaming.

Why? Because virtual reality is used to describe a three-dimensional, computer-generated environment that can be explored by a person. That person is immersed in a space where they are able to manipulate objects or perform a series of actions.

The virtual reality technology buzz, whether in content or hardware, is projected to be worth $80 billion by 2025 globally, while gaming unsurprisingly will make up the largest share of an estimated value of $11.6 billion.

But the application of virtual reality is not limited to only video games. According to Jirayod Theppipit, CEO and Founder of Infofed, a VR content development startup, virtual reality can be used as a marketing strategy in almost every area.

“Dare we say that virtual reality is the future of content? The experience VR offers can solve the pain points of businesses in almost every industry.”

“People often associate virtual reality with gaming and we can’t blame them. Consumers in the gaming segment have the ability to afford new technology and gadgets,” continues Jirayod. “This is why they’ve adopted virtual reality before others.”

Instead of scrambling to compete in an already crowded gaming market overtaken by virtual reality gaming content creators like VRX, Infofed sees a blue ocean in real estate for virtual reality content in Thailand.

“I know this technology is going to take off because big players like Facebook and Google have already jumped into it.”

Two years ago, Facebook invested $2 billion into VR technology to promote its own VR headset Oculus and only earlier this year, Apple launched ‘ARKit’ to turn its iPhones and iPads into AR/VR (Augmented Reality/Virtual Reality) devices.

IKEA has already jumped on board with its new app, IKEA Place.

IKEA ecommerce

The highly affluential Chinese shoppers have also taken a liking to VR based on a survey by Worldpay, which has been a strong indicator of how content will be consumed in the future.

Phil Pomford, General Manager for Asia Pacific at Worldpay, says,

“China is blazing a trail for VR/AR adoption and showing other Asia Pacific markets what the future could look like…with China leading the way, Asian businesses should start investigating the future of VR/AR technology now, so that they’re ready to meet consumer demands as and when they arise.”

84% of 16,000 consumers surveyed across Asia Pacific believe that AR/VR is the future of shopping, 92% say they’d like to see more retail apps make use of AR/VR – Worldpay.

But for a nascent market like Thailand, can virtual reality successfully take off?

Infofed believes it already has.

ecommerceIQ speaks with Jirayod to understand how the two-year old startup has utilized VR in industries like tourism and education and what it has learned from its latest project, real estate.

Giving a slow-moving industry an upgrade

The current real estate industry in Thailand is experiencing slowing growth but the number of new condominium units are set to rise 15% from 2016.

To sell units, typical marketing tools often include flashy brochures with heavily photoshopped photos and miniature models in an attempt to give homebuyers a glimpse of the expensive home they should buy.

Higher-end real-estate developers will also set up a physical showroom for visitors to experience the ambience of the unit, but this requires travel and more effort than today’s digitalized world is used to.

Virtual Reality Infofed

The Deck, project by Sansiri. Source: Sansiri

“Because my background is in architecture, I can understand the blueprints and engineering language that the marketing material contains but there are many people who are confused by it. The current content in brochures and on websites aren’t extremely helpful for consumers who want to properly ‘experience’ the product.”

Through VR content, Infofed believes that its content can help developers market its products to consumers. What better way for someone to experience their new home than to actually walk through it?

The company has already worked together with Nirvana Property, one of the leading developers in Thailand, to showcase its showroom through virtual reality content.

 

Virtual Reality Infofed

Virtual reality Showroom for Nirvana Rama 2 by Infofed

Consumers are able to view the showroom in 360 degrees, simply through their electronic devices without the need of a virtual reality headset.

According to Jirayod, consumers on average spend up to five minutes viewing a VR showroom whereas they spend no more than two minutes flipping through a brochure.

“The longer consumers spend on our content, the more interest they develop in the product and reflects on a higher rate of purchase.”

The appeal of VR can also save real estate companies money to build and dismantle their showrooms – especially in trade shows and exhibitions. From Jirayod’s past architectural experience, building a showroom has an average cost of $60K for condominiums and $200K for houses.

Creating VR content, on the other hand, can start as low as $1,500 at Infofed according to Jirayod.

New age but in demand

Despite North America being the current leader in VR content market with a share of 73.4% in 2016, Asia Pacific is forecasted to exhibit higher growth.

Transparency Market Research has forecasted that this region will see an exponential CAGR of 116.1% between 2016 and 2024.

Virtual Reality Infofed

But in order to capture the opportunity VR presents, Infofed is committed to educating Thai consumers about new technology and training the people necessary to create VR content. One way it has done so is by creating content for influential industry players like the Tourism Authority of Thailand and leading real estate companies.

“It’s important that we help create build an ecosystem for virtual reality content. I have never viewed other virtual reality players as competitors but instead as partners to together push this technology out.”

Infofed has also brought in experts from the US through partnerships to equip its local staff with sufficient virtual reality knowledge to produce content. It’s also sharing its own experiences at top universities to educate the incoming digital-savvy workforce.

Virtual Reality Infofed

Infofed Team

All of the company’s efforts come down to one goal – to make Thailand a virtual reality society, even if it’s not fully ready now.

With the boom of technology in the region, Southeast Asia has become home to young startups, and investors hoping to help fuel its rapid growth.

Some examples of investment news surrounding the region only this year include Chinese ecommerce giant JD.com confirming a $500 million joint venture with Thai retailer Central to build up the ecommerce and fintech sector in Thailand; Malaysia Debt Ventures set aside a $238 million fund to target technology-based companies like AR, VR, etc; and 500 Startups has made its debut investment in Myanmar backing a social media monitoring and news discovery app.

A recent report commissioned by Google and AT Kearney also highlights just how much money has been funneled into the region, which market is the most attractive and where are the most deep-pocketed investors coming from.

Southeast Asia’s golden child

Although the investment for startup companies in Southeast Asia only contributed to 8% to the total $90 billion of investment into Asia, this value has grown 23 times from 2012 to 2016 from $0.3 billion to $6.8 billion.

Most of the money has been pumped into Singapore and Indonesia that captured 60% of the entire investment.

Indonesia startups investment

Singapore gained most of the startup investment in Southeast Asia

However, nothing shone brighter this year than the myriad of Indonesian startups that have been stealing the attention of global industry giants like Tencent, Expedia, and Tim Draper from Draper Associates who invested in the early days of Tesla, Baidu, and Skype.

The country has produced three startups that classify as a ‘unicorn’, a company valued at more than $1 billion. They are Traveloka, Tokopedia and Go-Jek.

The first is valued at $2 billion after a $350 million investment from Expedia in July, and both Tokopedia and Go-Jek also are worth around $1 billion and $3 billion respectively.

Where’s all the money coming from?

Attracting the Chinese investors

In a short span of four years time from 2012 to 2016, Indonesia has seen 31 times growth of investment value from $44 million to $1.4 billion. During 8 months in this year alone, this value has grown more than two times to $3 billion driven by later-stage investments.

Indonesia startups investment

The staggering growth has AT Kearney predicting the ecosystem could attract more investment than the oil and gas industry — which contributed $23.7 billion or 3.3% of the country’s GDP last year.

“Due to the massive growth, the value of startup investments in Indonesia may surpass the nation’s oil and gas investment which was $5 billion in 2016,” said AT Kearney partner, Alessandro Gazzini.

From all of the investment raised by Indonesian startups since 2012, ecommerce received the biggest chunk of gold taking 58% of the total investment value.

Transport and fintech quickly follow behind with 38% and 2% respectively.

Indonesia startups investment

Indonesia has also become a hotbed for the expansion of Chinese companies as the country sees a growing interest from Chinese investors this year.

94% of the startups investment in the country during 2017 have involved Chinese investors, up from only 2% last year. Two of the infamous Chinese BAT, Alibaba and Tencent, are raising stake in Indonesia by investing in Tokopedia and Go-Jek respectively.

Meanwhile, JD.com diversified its portfolios with investment in Traveloka making Indonesia the official battleground for Chinese companies to fight their proxy war.

Indonesia startups investment

The involvement of Chinese investors in Indonesia is something that the government has encouraged across all sectors. Indonesia’s Investment Coordinating has even set up a special China desk to attract more investors.

With the country still at a nascent digital stage, there is no precise measurement to find out the country’s true potential until company’s try but as the famed venture capitalist Tim Draper said about Indonesia, “it is a great place to be”.

The name Dara Khosrowshahi has been everywhere in the news lately. Why? The Expedia CEO of 12 years has officially confirmed reports that he will be joining Uber as its new CEO.

The ride-hailing platform has had its fair share and sometimes self-inflicted misfortunes. In Southeast Asia alone, it is under high scrutiny from the Thai transport authorities calling for a crackdown, it recently paid $9.6 million in fines after the Land Transportation Franchising and Regulatory Board in the Philippines banned it, and is going up against Grab, the region’s unicorn soon to close an investment round of $2.5 billion backed by Toyota, Softbank, and Didi Chuxing.

Who is Mr. Khosrowshahi and what does he bring to one of the world’s most valuable and troubled startups?

A great answer was shared by angel investor Terrence Yang, excerpt below:

In a perfect world, Uber would just hire Sheryl Sandberg. But in the real world, there’s no way Sheryl would ever join Uber. If you were Sheryl, would you? Becoming Uber CEO poses massive downside risk and and only moderate upside for Sheryl.

Among other things, former CEO Travis Kalanick keeps meddling/trying to come back, Uber has massive problems with recruitment and retention, Uber is highly unprofitable and probably needs (not wants) driverless cars to happen sooner than later to make the economics work (but Alphabet’s Waymo is suing Uber for, shall we say, inappropriately appropriating and basically colluding with Lewandowski to steal Waymo’s self-driving tech).

Here’s what’s great about Dara:

  • Dara is a grown-up Travis. Like Travis, Dara was and remains ruthless, smart, tough. But unlike Travis, Dara developed empathy and soft skills that Travis failed to do for years. Dara is also much more humble and learns fast, including learning soft skills.
  • Travis was the right person to lead Uber when he did. Uber was the fastest growing big startup company in the world by some measures. It’s a truly impressive accomplishment. Travis will go down in history for that. But Travis also went down – because Travis never evolved. Dara did. That’s why Dara is the best realistic choice for Uber.
  • Jeff Immelt and Meg Whitman just don’t know much about the travel industry. I don’t see how leading GE, eBay or HP is very relevant to leading Uber. Dara’s experience is much more relevant (and, no, you are not going to be able to hire the CEO of Lyft right now).
  • Dara bought HomeAway, which competes with Airbnb. Expedia also tried to compete with Airbnb directly. Airbnb is a good model of how to technically violate laws (e.g. turning homes into hotels) without pissing off so many people. Unlike Uber. And Dara is even an investor in freight startup Convoy. Uber is trying to make UberFreight a success.
  • Dara started as an investor in Expedia and CFO of that investor. Benchmark is suing Travis in part over Uber’s lack of CFO.
  • Dara learned to be a great CEO of Expedia. He’s been ranked in the top 100 CEOs in 2015 and 2016. Expedia stock and revenues are doing great.

Southeast Asian startups need…adults?

The lack of experienced digital professionals, coined the talent challenge, has always been a looming backdrop to the bustling nature of startups, especially in emerging markets like Southeast Asia. As long as someone was able to get the job done, they were hired. Age was just a number.

But given the growth of these companies from a team of 10 to 300 in the span of a few short months, businesses need leadership and maturity, two things that usually stem from experience. This is not to say that older means better but that a great leader is able to recognize what a company needs at Stage 1 is completely different than what it needs at Stage 3 and willing to implement the necessary changes.

Dara Khosrowshahi Humility

Source: Medium, Al Doan

Given the 48-year old’s track record leading Expedia to become “one of the largest online travel companies in the world” and positive reviews by Expedia senior execs, it isn’t surprising that 93% of employees told company review site Glassdoor that they currently approved of his leadership.

How many startups in the region can confidently say their leaders are this well-received?

Probably one of the biggest indicators of his maturity and most importantly, humility, is witnessed from the memo he wrote to Expedia staff regarding his departure obtained by Recode.

“This has been one of the toughest decisions of my life. I’ve had the privilege to run Expedia for 12+ years now, and most of you who have been on this journey with me know it has not been easy going.”

“I have to tell you I am scared. I’ve been here at Expedia for so long that I’ve forgotten what life is like outside this place,” he added.

Best of luck Dara.

Marilyn Monroe once sang, “diamonds are a girl’s best friend” and it seems to be ringing true as Indonesia’s fine jewelry sales grew 13% from 2015 to 2016 reaching $1.57 million, according to Euromonitor.

The country’s upper-middle class households are expected to more than double by 2030 and the current existing 1.5 million are creating demand for gold, silver and metal combinations growing annually 7.8% until 2021 making Indonesia the fastest-growing in the world for jewelry sales.

Indonesia Jewelry Market

Model showcasing products at Orori event in Indonesia.

“Jewelry is part of the culture during wedding and childbirth [celebrations] for people in eastern Indonesia,” said president director Sandra Sunarto in Bandung, West Java. “They are more interested in buying heavier [jewelry] made of higher carats.”

It’s not difficult then to understand why George Budi Sumantri, CEO and founder of Indonesian online jeweler Orori, shut down his family’s offline business to focus on ecommerce in 2012 after taking over in 2003.

ecommerceIQ conducted an email interview with the founder to discover why and how he decided to sell a high AOV product in a country that is still skeptical about shopping online.

Pioneering jewelry trading online

At the time Sumantri decided to close down his offline operations, 80% of the company’s revenue came from its stores spread across Jakarta’s shopping centers.

While an extremely risky move, he believed that moving operations online would save the company money previously spent on sitting inventory and rental costs.

Within a year, the company racked up $1.3 million in revenue and as of 2017, Orori claims to have 2 million consumers and processing thousand of transactions per month.

Global sales of personal accessories are growing at 2%, internet retailing is experiencing double-digit growth. – Euromonitor 2016

“Yes, there are still people who like to shop in a physical store, but when you look closely at the urban population; young couples who plan to get married and the young people who are looking for Mother’s Day gifts, [they] love the practicality and ease of access that ecommerce offers,” said Sumantri.

As newly middle class female Indonesian consumers become savvier about her shopping prowess, she cares about choice—not just price and promotions.

Leaving no space for distrust

A common question asked by many skeptics remains, how do you sell a product with a high average order volume to a market that only began going online?

A quick browse through the site shows that wedding rings can start at roughly $220 and reach $6,000 depending on the carat and diamond cut.

Orori made sure consumers had no reason to doubt its reliability by arming the platform with certain features to ease the minds of shoppers.

For example, all of Orori’s more than 35,000 diamonds are certified by the Gemological Institute of America (GIA) and each have a complete description along with product specifications.

The best way to merchandise premium categories to the discriminating Indonesian shopper is to visibly show price tags to aid comparison spending – Nielsen

For first time buyers, they can read the company’s blog OROREADS, to access online guides for buying jewelry, including how to select the right finger size, caring for fine jewelry and choosing a diamond size.

Still not convinced? The company offers a 100% money back guarantee and various payment options such as bank instalments, cashback, and a ‘buy now pay later’ programme that allows consumers to pay 30 days after they made the order.

For any stragglers with doubts, they can chat with an Orori agent, a feature that can increase conversions up to 6.3 times.

Indonesia Jewelry Market

Orori live chat offered on the website to answer questions regarding its high AOV products.

By providing all of these services, the company is hoping to encourage people to buy jewelry online as per the company’s tagline ‘Jewelry for Everyone’.

On its way to make the region sparkle 

Originally set to sell its own line of jewelry, Orori has since changed its business model to a marketplace to offer a variety of brands on its platform. Right now, the company has seven jewelers on its platform.

Sumantri targets Orori to reach $25 million of GMV in 2019 with annual transactions of 80,000.

The company also plans to move beyond the B2C sector and launch C2C and C2B (consumer-to-business) features by the end of the year. In addition to these aggressive targets, Orori has regional expansion plans starting with Singapore.

“The marketplace [model] will not only change consumer behavior about buying jewelry online, but will also help reputable brands in the industry extend their business beyond just brick-and-mortar,” said Sumantri.

Indonesia Jewelry Market

Orori CEO and founder George Budi Sumantri

Featured image credit: Leeviahan