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FOR the first time in many years, Indonesia overtook Malaysia in an Islamic finance ranking. It took many by surprise.
We are talking about the Islamic Finance Country Index (IFCI). It was one of the highlights of the Global Islamic Finance Report (GIFR) 2019, which was released in Jakarta in October.
The report was launched at a forum themed “Artificial Intelligence and Innovation in Islamic Finance”, which was declared open by the then National Development Planning Minister Prof Bambang Brodjonegoro.
For disclosure sake, Silverlake Axis Ltd was one of the corporate partners for this year’s GIFR.
Now, let us dive into the index. Based on GIFR methodology, Indonesia ranked No 1 in IFCI 2019, overtaking Malaysia that has 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 part of a panel discussing financial technology (fintech), artificial intelligence and innovation in Islamic finance. A participant asked how Indonesia and Malaysia are compared to when it comes to technological advancement in their respective Islamic finance markets.
Malaysia may have had early mover advantages with a top-down approach in its positioning as a global hub for Islamic finance.
Our financial industry regulators, Bank Negara Malaysia and the Securities Commission Malaysia, have also been quite advanced in acknowledging fintech disruptions. They had come up with initiatives to encourage fintech development, including those that serve the Islamic finance industry. However, Malaysia’s market size is limited compared to neighbouring Indonesia.
Indonesia has shown a great penchant for creativity. Applying the latest technologies into solutions that bring value to consumers is creativity.
Known for being creative and amplified by the market size, Indonesia has the potential to vault ahead in the near future. Of course, the right infrastructures and eco-systems are crucial to stimulate development.
As for Islamic finance and Islamic fintech agenda, Indonesia is definitely moving in the right direction. The IFCI is an early indicator.
Indonesia had earlier unveiled its Islamic Economic Master Plan 20192024. Two out of four main strategies are directly benefitting Islamic finance and Islamic fintech.
These strategies strengthen the Islamic financial sector and the digital economy.
Moreover, Indonesia has a dedicated Shariah Fintech Association initiated in October 2017. As stated in its website, the association was formed with the aim of advocating Shariah fintech startups in “expressing aspirations to regulators in order to support the development of 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”.
In one panel discussion in Malaysia last month, Indonesian Fintech Lenders Association chairman Adrian Gunadi said there were 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 ecosystem. In summary, Indonesia is a country to watch out for when it comes to Islamic finance, including Islamic fintech.
The five-year master plan mentioned earlier has put much emphasis on strengthening Islamic finance and the digital economy.
The infrastructure and support systems are in place to stimulate Islamic fintech development. With the people’s creativity and amplified by the market size, Indonesia has the potential to lead in Islamic fintech market in the very near future.
Othman Abdullah is CEO for Islamic banking and innovative services delivery at Silverlake Sprints Sdn Bhd, a unit of the Malaysian-based Silverlake Group. The views expressed are of the writer and do not necessarily reflect the stand of the newspaper’s owners and editorial board.