Indonesia’s Alami wants to prove Islamic finance can be profitable

Dima Djani was serving as a vice president of French investment bank Societe Generale when he got the calling to pursue a career in finance based on sharia principles. He then decided to leave his high-paying job to build a sharia-compliant peer-to-peer lending startup called Alami with his partners Harza Sandityo and Bembi Juniar in 2018.

Alami co-founders (from left): COO Harza Sandityo, CEO Dima Djani, and CBO Bembi Juniar / Photo credit: Alami

“My move was driven by personal and commercial reasons,” Djani told KrAsia in a recent interview. “As a Muslim, I find that building a fintech startup that complies with sharia law is fulfilling. Moreover, I see that although everybody talks about the big potential of Islamic finance in Indonesia, its penetration, especially in banking, is very low – less than 6%,” he said.

Djani also noticed that there are many inefficiencies in the industry, he said, and therefore, by utilizing technology, “many innovations can be launched to serve Indonesia’s already big fintech market.”

“We’re developing and reviving Islamic financing with tech because we’re targeting millennials. We hope that every time they hear about ‘Islamic finance,’ Alami will be the first company that comes to mind,” Djani said.

First to raise a sharia-based VC funding scheme

Alami started as an aggregator platform in 2018. However, according to Djani, Islamic financial and banking institutions were not ready to partner with fintech platforms back then. Djani and his partners promptly decided to pivot their business model into P2P lending, focusing on providing loans to small and medium-sized enterprises. The firm later obtained a registration from the Indonesian Financial Services Authority (OJK) in May 2019, and since then, the startup has channeled nearly 70 billion rupiah (US$4.96 million) to more than 50 SMEs.

Djani hopes to dispense a total of 80 billion rupiah (US$5.6 million) by the end of this year, and he targets to triple the number next year.

Earlier this month, Alami raised an undisclosed amount of investment commitment led by Golden Gate Ventures, with participation from Agaeti Ventures and RHL Ventures. The company will utilize the fresh capital to support talent acquisition and product development and strengthen its operational structure, Djani said.

He added that the funding round was conducted through a sharia-based scheme, becoming the first company in Southeast Asia to raise VC funding via such a system.

“In practice, the sharia profit-sharing scheme is quite similar to equity financing. However, no one has combined the sharia structure with VC fundraising before. Therefore, this investment commitment is very special as it has an added value for us,” he said.

According to Djani, there are various principles that a sharia finance company must strictly follow. Among them, interest payments (riba) are prohibited, as it is seen as an exploitative practice that favors lenders at the expense of borrowers. Any form of speculation (maisir) is also excluded, as well as participation in contracts with excessive risk (gharar).

Moreover, since Alami connects lenders and small enterprises, the nature of lenders and borrowers’ businesses also have to follow the Islamic law, which means that such individuals or companies cannot involve themselves in any forbidden activities like producing and selling alcohol and pork, gambling, prostitution, and so forth.

From fundraising to business operations, Alami is committed to complying with all sharia principles and values, Djani affirmed.

“For lenders, we give a commission in exchange for an interest fee, but we don’t charge late fees for borrowers. Generally speaking, sharia investment might not sound too competitive when it comes to maximizing profits [for lenders]. However, what we want to promote is that financing with sharia principles has a sustainable social impact,” he explained. “Fortunately, many lenders, especially millennials, are already aware of this concept and its benefits. So when they invest in Alami, they don’t only look for profits, but they are also keen to help others.”

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