Global Islamic Finance Report (GIFR) 2019 was launched by Professor Bambang Brodjonegoro, then the Minister of National Development Planning Indonesia in an event organized by National Islamic Finance Committee in Jakarta on the 17th October 2019. Published by Cambridge Institute of Islamic Finance, the theme of GIFR 2019 is Artificial Intelligence and Innovation in Islamic Finance. Silverlake is one of the corporate partners for this year’s publication.
The highlight of GIFR is the Islamic Finance Country Index (IFCI). It is interesting to note that based on GIFR methodology, Indonesia ranks number one on the IFCI 2019 overtaking Malaysia that dominated the index since 2011. The methodology to derive IFCI takes into consideration the number of full-fledged Islamic banks, Islamic banking windows, Shariah supervisory regime, Islamic financial assets, Muslim population, Sukuk, Islamic finance education as well as laws and regulations.
I was in the panel to discuss Fintech, Artificial Intelligence and Innovation in Islamic Finance in conjunction with GIFR 2019 launching ceremony. One audience asked me to compare Indonesian and Malaysian Islamic finance markets in terms of technological advancement. I thought that was interesting and would like to elaborate further in this entry.
Malaysia may have had early mover advantages with top down approach in its positioning as a global hub for Islamic finance. Our financial industry regulators, Bank Negara and Securities Commission, have also been quite ahead in acknowledging fintech disruptions and come up with initiatives to encourage fintech development including those that serve Islamic finance industry. However, our market size is limited compared to our neighbor Indonesia.
As I shared during the panel session, I am especially intrigued by Indonesians’ creativities. Applying latest technologies into solutions that bring values to the consumers is all about creativity. Known for being very creative and amplified by the market size, Indonesia has the potentials to be much be much ahead in the near future. Of course, the right infrastructures and eco-systems are also crucial to stimulate the development.
On the stimulations for Islamic finance and Islamic fintech agenda, Indonesia is definitely moving towards the right direction and it has started to bear fruit by the scoring highest in the IFCI. Indonesia had earlier unveiled its Islamic Economic Master Plan 2019-2024. Two out of four main strategies are directly benefiting Islamic finance and Islamic fintech. These strategies are strengthening the Islamic financial sector and strengthening the digital economy.
Indonesia also has a dedicated Shariah Fintech Association which was initiated in October 2017. As stated in its website, “this association was formed with the aim of advocating for Shariah fintech startups in expressing aspirations to regulators in order to support the development of the Shariah fintech business.” One of its missions is “uniting synergy with Islamic economic institutions and international financial technology in developing the potentials of Islamic fintech“.
Adrian Gunadi, the chairman of Indonesian Fintech Lenders Association (AFPI), mentioned during a panel discussion on the topic of Islamic Finance in the Digital Era at SCxSC 2019 held at the Securities Commission Malaysia on 22nd and 23rd October 2019, “there are growing demands by the more established Fintech companies in Indonesia to partner with Islamic fintech providers as a mean to capture Shariah compliant fintech services market”. Collaboration is indeed a practical way of moving forward in the digital ecosystems.
In summary, Indonesia is a country to watch out for when it comes to Islamic finance including Islamic fintech. Indonesia’s Islamic Economy Master Plan 2019-2024 has put much emphasis on strengthening Islamic finance and digital economy. The infrastructure and support system are in place to stimulate Islamic fintech development. With the people’s creativity and amplified by the market size, Indonesia has the potentials to lead in Islamic fintech market in a very near future.
Edited version of this article was published in my column at the Malaysian Reserve on Monday, November 18, 2019.