From principles to practice: Shariah investing in Southeast Asia

While Southeast Asia houses a massive Muslim population, many of them struggle to find investment options that align with their faith. Sharia investment, which adheres to Islamic principles, is emerging as a powerful solution. 

Southeast Asia houses a massive Muslim population, with over 240 million Muslims, making up about 42% of the region’s population and 25% of the global Muslim community. The global Islamic financial industry was valued at an estimated US$2.7 trillion in 2020, and about a quarter is concentrated in Southeast Asia. This strengthens Southeast Asia’s position as the second-largest market for shariah investing.

By 2025, the Refinitiv’s Islamic Finance Development Indicator (IFDI) has predicted the global Islamic financial services industry will reach US$4.94 trillion, and Southeast Asia and particularly Indonesia will serve as key markets for its expansion.

Indonesia has the largest Muslim-majority population in Southeast Asia and the world but has an Islamic financial literacy index of only 9.1%. In other words, only a few people also have the knowledge and skills to manage money within the principles of Islam. This is a stark contrast to the overall financial literacy index, which stands at 49.6%. 

Sharia investing in Indonesia

Shariah, which means ‘clear path’ or ‘way to the original source’, guides how people who follow Islam live their lives, including how they manage money, like investing. Shariah investing involves putting money into assets that comply with Islamic principles. These principles prohibit investments in activities like gambling or selling alcohol.

To meet these requirements, Shariah-compliant financial products are created. Shariah-compliant investments are governed by the requirements of Shariah law, and so all Shariah products must adhere to the rules and regulations in the region. In Indonesia, the Shariah Supervisory Board (Dewan Pengawas Syariah) provides oversight for Shariah-compliant financial products according to Shariah principles.

This emphasis on ethical considerations is broadening the appeal of Shariah investing, attracting interest from both Muslim and non-Muslim retail investors in Indonesia. Stockbit, Indonesia’s fastest growing stock investing app, secured series A funding from East Ventures in 2019, and subsequently launched Bibit, a leading Robo-investing app in which users can explore Shariah investing. More than 50% of Bibit’s users have Shariah products in their investment portfolios with money market funds and fixed-income funds becoming the two most sought-after products.

As a distribution partner to sell government bonds, Bibit also markets Shariah-compliant products, such as retail sukuk (Sukuk Ritel or SR) and savings sukuk (Sukuk Tabungan or ST). Their other Shariah-compliant investment products such as Project Based Sukuk (PBS) in the secondary market and stocks that are included in the Daftar Efek Syariah.

Shariah and sustainable finance

Interestingly, Shariah investing aligns with the growing interest in sustainable finance. Both prioritize ethical considerations and societal benefits alongside financial returns while steering clear of harmful practices. Furthermore, Shariah finance, which includes investing and financing, has the potential to support sustainable development. It encourages investments in sectors that have a positive impact on society and the environment, such as renewable energy, healthcare, and education.

A frontrunner in sustainable finance is Hijra, an Indonesian fintech platform with Shariah-compliant financing solutions backed by East Ventures since 2021. Hijra has disbursed Rp 5.2 trillion to small-medium enterprises (SMEs) in sectors such as agriculture, aquaculture, healthcare, and businesses practicing sustainability since its establishment, showcasing the viability of Shariah-compliant finance in driving sustainable economic growth.

Furthermore, technology can play a key role in democratizing access to sustainable finance. Recent innovations in the fintech sector have paved the way for rapid growth and opportunities coming from Shariah investments. 

For instance, Bibit, with its advanced investment technology platform, enables all users to invest effectively. By providing access to various asset classes and encouraging investment based on individual risk profiles and financial goals, Bibit contributes to Islamic financial inclusion and literacy. Users can easily access Shariah-compliant products by toggling the Shariah option on the platform, and they will only see Shariah-compliant mutual funds and government bonds, and will no longer see conventional products.

East Ventures’ investment in Bibit and Hijra reflects our belief in the transformative potential of Shariah investing and fintech innovations in unlocking opportunities in sustainable and responsible investing. The synergy between sustainability efforts and increased awareness of Islamic financing creates a mutually reinforcing cycle that benefits communities and the planet.