Why Indonesia isn’t at the top of global Islamic fintech

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Hello reader,

As a Dallas Mavericks fan, this past NBA season was a tough one. After making it to the Western Conference Finals last season, the team didn’t even make the playoffs this time.

There are a myriad of reasons for this – I could spend an hour just complaining about team owner Mark Cuban. But suffice it to say, not even making the postseason when you have Luka Dončić on the team is the very definition of unfulfilled potential.

Similarly, Indonesia – which has the biggest Muslim population globally – is lagging behind in Islamic fintech. The archipelago trails Malaysia and Saudi Arabia in market size.

Read on to find out more about the obstacles that Indonesia has to overcome if it’s to fulfill its potential in this space.

Today we look at:

• Indonesia and its path to Islamic fintech dominance
• The US$10 million fundraise of a Singapore-based ecommerce solutions startup
• Other newsy highlights such as an investigation involving the co-founder of Singapore firm BasisAI and Dyson’s plans to build a battery plant in Singapore

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The hurdles that Indonesia’s Islamic fintech scene faces

Image credit: Timmy Loen

There have been plenty of soccer players who came into public consciousness at a young age, presented as wonderkids with a starry future, who then failed to come anywhere close to those expectations.

Freddy Adu, Bojan Krkić, Adnan Januzaj – the list goes on. And while it’s easy to blame their (relative) failures all on a lack of application or the right attitude, there could have been any number of reasons at play. Personal issues, bad coaching, suboptimal advice from agents… who knows, right?

Fortunately, with Indonesia’s Islamic fintech scene, the factors appear a bit clearer.

• Education and inclusion: The lack of financial literacy and inclusion has stunted the growth of Shariah finance in the country. OJK, Indonesia’s financial services authority, reported significantly lower Islamic financial literacy and inclusion rates in 2022 – at 9.1% and 12.1%, respectively. In comparison, the general financial literacy and inclusion rates are 49.7% and 85.1%.
• Geographic challenges: A lot of demand for Shariah businesses may exist in the country’s remote areas. In a report by research and advisory firm DinarStandard, Indonesia scored four points for proximity to customers, while Malaysia and Saudi Arabia had five points each.
• Sorry, I’m late: The country’s political and economic instability during the 1990s meant that it took the 1997 Asian financial crisis for Indonesia to take the necessary steps to create a more stable financial environment. In contrast, the Malaysian government initiated the Islamic Banking Act in 1983, and Saudi Arabia has implemented Islamic banking since the beginning.

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