JAKARTA, March 13 (The Straits Times/ANN): Newly established tech-based lenders are enthusiastically tapping into syariah banking in Indonesia, betting on an underpenetrated market with a potential customer base of 45 million in a country with the world's largest Muslim population.
The rate for such banking in Indonesia is just a mere 7 per cent, dwarfed by Malaysia's 29 per cent and Saudi Arabia's 65 per cent.
Bankers say growth has been stymied because syariah banks, unlike conventional banks, are not ubiquitous, with hardly any physical branches or automated teller machines (ATMs).
In a country with more than 100 banks, attention has been focused on conventional banking, with few syariah products and services available and little economies of scale.
"This is an area where there is an unsatisfied niche," said Arief Harris Tandjung, deputy chief executive of Indonesia's tech-based Bank Jago, which counts Singapore sovereign wealth fund GIC as among its investors.
Arief added that there was strong demand but convenience and syariah product features had been below expectations.
Bank Jago, which launched a syariah app three weeks ago, saw syariah financing account for two-fifths of its 5.3 trillion rupiah (S$503 million) in lending at the end of 2021.
It provided zero syariah financing in the previous year.
Two fundamental principles of Islamic or syariah banking are the sharing of profit and loss, and the prohibition of the collection and payment of interest by lenders and investors.
The head of Bank Aladin, Dyota Mahottama Marsudi, who agrees that demand for syariah banking is large in Indonesia, said products needed to match customers' needs.
"This makes us extremely excited to build Aladin Bank to be the leading syariah-compliant digital bank in Indonesia," Dyota said in a reply to a query from The Straits Times on Friday (March 11). "We have ambitious goals."
Mohamad Alen Aliansyah, 25, a junior associate at a Jakarta-based law firm who has had both conventional and syariah savings accounts, said he was never impressed with the level of customer service provided by the traditional syariah bank.
But he was impressed with Bank Jago's new digital syariah banking app on his smartphone.
"It's like service excellence is non-existent with the syariah banks in the old days," he told The Straits Times.
Alen sends his monthly salary to his conventional bank account but relies on his syariah account for his personal savings.
Similarly, Annisa Anindita, 32, an entrepreneur who sells garments, told The Straits Times that she keeps all her personal funds in a syariah bank, but still relies on an account in a conventional bank for her business because most of her partners and suppliers also use a conventional bank account.
Jago CEO Karim Siregar said that it was high time banks gave syariah customers their due, adding that it was now possible with advanced technology. He added that digital banking apps make it possible for a customer to not need to rely on physical branches.
"We provide the same standard of service and convenience to our syariah customers as with our conventional banking customers," Karim said. - The Straits Times/ANN