Dima Djani, CEO and Founder of ALAMI Group

How ALAMI drives sustainable Islamic finance in Indonesia

April 27, 2022

Being part of the sharia market in Indonesia might be an advantage for some sharia-financing products and fintech platforms. With the rise of awareness for sharia products & services and the growth of the Islamic finance industry, the sharia-based platforms have an enormous opportunity to seize Indonesia’s market. 

Indonesia is home to the largest Muslim population globally, with more than 230 million Muslim population. However, according to a Deloitte report in 2019, Indonesia’s sharia economy market was lagging behind other OIC countries in terms of Sukuk (sharia-compliant bonds), outstanding and Islamic funds asset under management (AUM). 

However, the government does not want a standstill to boost the sharia market with several efforts, including the ongoing implementation of the Islamic Economic Masterplan 2019-2024, increasing Islamic finance literacy, and Islamic-related events hosted. Indonesia was ranked second as the country with the most developed Islamic finance industry in the ICD-Refinitiv Islamic Finance Development Report 2020. 

Islamic finance is also an alternative for Indonesia to close its financial gap. According to The World Bank and International Finance Corporation (IFC), in 2019, the credit gap for Micro Small Medium Enterprises (MSMEs) in Indonesia reached US$ 165 billion (or 19% of gross domestic product), while the current availability is only US$ 57 billion. These challenges become the opportunity for sharia-fintech platforms like ALAMI to seize Indonesia’s Islamic finance market. 

East Ventures invests in ALAMI, an Indonesian prominent sharia fintech platform. ALAMI was established in 2017 by Dima Djani, Harza Sandityo, and Bembi Juniar. It is putting itself as sharia-focused and applying the ESG principles to its business model and borrowers.

“The sharia principles very much resemble the ESG principles. Ethical business processes are instrumental under sharia principles, including consciousness about the planet and society,” said Dima Djani, CEO and Founder of ALAMI Group

Dima believes that the ESG framework allows business organizations to be more conscious of their mutual relationships with the environment, their stakeholders (employees, suppliers, customers, communities), and their organizations’ internal factors (leadership, audit, internal control, shareholder rights).

The sharia principles also implement these elements, such as fairness, accountability, inclusion, equitable, and transparency, which are embedded in ALAMI’s business model. 

According to a PRI and CFA Institute report, modern Islamic finance and ESG investing are complementary capital-raising and investment approaches with many shared principles, such as being a good steward of society and the environment. 

Another critical pillar of Islamic finance is the prohibition of investments in specific industries, such as tobacco, alcohol, pork, pornography, weapons, gambling, human trafficking, and other unlawful products and activities. Shariah-compliant products are screened to avoid these industries, a practice that closely parallels ESG investing.

Besides the ESG screening policy, ESG investing strategies also assess the financial value of environmental, social, and governance factors and integrate the value into the investment analysis, decision, and process. For example, active ownership activities (for example, company engagement and voting) may also be part of ESG strategies to mitigate risks, enhance returns, and improve ESG performance and disclosure of companies/issuers.

Although ESG integration and active ownership activities are less common in Islamic finance, they complement Islamic finance practices, and environmental issues are consistent with the fundamental principles of shariah. 

ALAMI’s business model further combines responsible business growth with broader social contributions. Small-medium enterprise (SME) borrowers will grow their fortune and protect and build the planet sustainably. 

As a part of East Ventures’ portfolio, ALAMI has started financing SMEs that operate within the impact sectors in late 2020. In the first half of 2022, the platform reassessed the existing SME borrowers to find businesses that practice sustainability and thus provided the pricing incentives. Currently, ALAMI focuses the financing on impacting sectors such as agriculture, aquaculture, and healthcare. Additionally, the platform also rewards SMEs that practice sustainability in its business model by providing pricing incentives in the financing.

ESG impact on ALAMI’s business model

Besides providing financing to specific sectors, ALAMI also sees a more robust appetite from its retail funders, mainly categorized under the millennial generation. This generation emphasized doing business with purpose, which translates into faster fundraising time for these impact-focused SME segments. 

To date, ALAMI has successfully disbursed productive financing of more than IDR 2.2 trillion for more than 8,500 MSME projects in Indonesia, the majority from the telecommunication sector 18.2%, halal food 14.6%, and energy 13.2%. 

With an average financing period of three months, the success rate of repayment (TKB90) in ALAMI reaches 100%. ALAMI’s Non-Performing Financing (NPF) has also been consistent at 0%. Besides, ALAMI’s ecosystem covers 482 cities/regencies in 34 provinces across Indonesia, both from the side of funders and borrowers, with a focus on commercial and social activities. The majority in Jawa Barat at 28.73%, DKI Jakarta at 24,99%, and Jawa Timur at 11.12%. 

With a more robust appetite from lenders and providing more significant impacts for sectors, ALAMI hopes that people are more aware and educated about the importance of fairness, transparency, and accountability in their financial transactions to grow businesses that can improve the planet that we are living in.