Fintech Prospects and Opportunities for the Sharia Financial Industry by Dr. Imron Mawardi FEB Unair

Fintech Prospects and Opportunities
for the Sharia Financial Industry

Dr. Imron Mawardi

faculty of Economics and Business

Universitas Airlangga

1. Global Islamic Finance Industry

The composition of global sharia finance is around US$ 2 trillion (2015) as follows:

1. Sharia banking ± 79% and sukuk ± 15%, the rest is al takaful and Islamic Fund under management
2. Geographic distribution in GCC ±39%, MENA (ex GCC) ±33%, Asia ±21%, the rest in other regions.

Malaysia, through the IFSA Act 2013, has begun to introduce deposit & acc accounts. Investment and strengthening sharia governance. In addition, Bahrain began to introduce a centralized national sharia advisory council at the CBB (2015). Together with the UAE, Kuwait, Bahrain and Qatar, Indonesia is grouped as emerging leaders . As a country that has the potential to have global influence (GIFR, 2016).

There was an increase in the share of sharia banking in 17 jurisdictions/countries in 2015 compared to 2014, including countries where sharia banking is regularly important also increased to 11 countries from previously only 10 countries. Meanwhile, in several countries, Islamic banking has become systematically important ( share > 15%). ( IFSB Financial Stability Report 2016 ).

1. Development of Sharia Finance in Indonesia

The country of Indonesia, which currently has many sharia banks and other sharia financial institutions, has quite large sharia financial assets. The following will be presented in the following table:   

Based on this table, as of February 2017, Indonesia's total sharia financial assets (excluding Sharia Shares) reached IDR 897.1 trillion or USD 67.21 billion (BI Middle Rate as of February 28 = IDR 13,347.00/USD). Apart from that, the proportions can also be known as follows:

1. The proportion of the Sharia Banking industry reached 40% (Rp. 355.9 T /USD 27.39 B).
2. The proportion of Sharia IKNB (Sharia Insurance, Sharia Financing, other Sharia Non-Bank Institutions) 10% (90.08T / USD 6.6 4M).
3. The proportion of Sharia Capital Market reaches 50% (Rp. 451.2 T/ USD 32.82 B).

Apart from these assets, if accumulated with sharia shares in 2017 it was IDR 4111.39 T, because sharia shares themselves in 2017 were worth quite a lot, namely IDR 3214.26 T (OJK source).

 World Islamic Economy Ranking

Several countries in the world have competed to improve the Islamic economy in all aspects of activities in order to improve the economic welfare of the people in their countries. This is in terms of food, financing , travel , fashion , media and medicine. The following is a table of Global Islamic Economy 2015-2016:

In this table, Indonesia is ranked 10th/last in the GIEI index ranking. The top 10 positions are only for two industries, namely the Sharia financial industry (rank 9) and the halal pharmaceutical & cosmetics industry (rank 7).

Why Technology?

             Indonesia, which has the fourth largest population in the world, is also a country that uses smartphones very well. Not only young people, but also among older people. In Asia, Indonesia ranks fifth in mobile phone penetration after Singapore, Thailand, Malaysia and Japan. However, there is still less use and use of the internet compared to other countries, which can reach 30-65%.

Apart from that, the banking industry is also easily accessible to fintech. payments services (Apple, Google, Paypal, Amazon, Alibaba), Investment (Robo-advisers), Lending (Zopa, Lending club, Funding circle offer peer to peer lending ).

The strength of fintech is that the large population uses smartphones. However, regulations are still needed to regulate fintech, especially in Indonesia. Apart from that, there are still transactions that can still be optimized to improve the economy in Indonesia, namely P2P Lending and cashless payments. (Tech in Asia , StatCounter, Tempo.co, World Bank).