Dima Djani was serving as a vice president of French investment bank Societe Generale when he got the calling to pursue a finance career based on sharia principles. He then decided to leave his high paying job to build a sharia-compliant peer-to-peer lending (P2P) startup called Alami with his partners Harza Sandityo and Bembi Juniar in 2018.
“My move was driven by personal and commercial reasons,” Djani told KrASIA in a recent interview. “As a Muslim, I find that building a fintech startup that complies with sharia law is fulfilling. Moreover, I see that although everybody talks about the high potential of Islamic finance in Indonesia, its penetration, especially in banking, is very low, less than 6%,” he said.
Djani also noticed that there are many inefficiencies in the industry, he said, and therefore, by utilizing technology, “many innovations can be launched to serve Indonesia’s already big Fintech market.”
“We’re developing and reviving Islamic financing with tech because we’re targeting millennials. We hope that every time they hear about ‘Islamic finance’, Alami will be the first company that comes to mind,” Djani said.
The first to raise a “sharia-based VC funding scheme”
Alami started as an aggregator platform in 2018. However, according to Djani, Islamic financial and banking institutions were not ready to partner with fintech platforms back then. Djani and his partners promptly decided to pivot their business model into P2P lending, focusing on providing loans to small and medium-sized enterprises (SMEs). The firm later obtained a registration from the Indonesian Financial Services Authority (OJK) in May 2019, and since then, the startup has channeled nearly IDR 70 billion (USD 4.96 million) to more than 50 SMEs.
Djani hopes to dispense a total of IDR 80 billion (USD 5.6 million) by the end of this year, and he targets to triple the number next year.
Earlier this month, Alami raised an undisclosed amount of investment commitment led by Golden Gate Ventures, with participation from Agaeti Ventures and RHL Ventures. The company will utilize the fresh capital to support talent acquisitions, product development, and strengthen its operational structure, Djani said.
He added that the funding round was conducted through a sharia-based scheme, becoming the first company in Southeast Asia to raise VC funding via such a system.
“In practice, the sharia profit-sharing scheme is quite similar to equity financing. However, no one has combined the sharia structure with VC fundraising before. Therefore, this investment commitment is very special as it has an added value for us,” he said.
According to Djani, there are various principles that a sharia finance company must strictly follow. Among them, interest payments (riba) are prohibited, as it is seen as an exploitative practice that favors lenders at the expense of borrowers. Any form of speculation (maisir) is also excluded, as well as the participation in contracts with excessive risk (gharar).
Moreover, since Alami connects lenders and small enterprises, the nature of lenders and borrowers’ businesses also have to follow the Islamic law, which means that such individuals or companies cannot involve themselves in any forbidden activities like producing and selling alcohol and pork, gambling, prostitution, and so forth.
From fundraising to business operations, Alami is committed to complying with all sharia principles and values, Djani affirmed.
“For lenders, we give a commission in exchange for an interest fee, but we don’t charge late fees for borrowers. Generally speaking, sharia investment might not sound too competitive when it comes to maximizing profits [for lenders]. However, what we want to promote is that financing with sharia principles has a sustainable social impact. Fortunately, many lenders, especially millennials, are already aware of this concept and its benefits. So when they invest in Alami, they don’t only look for profits, but they are also keen to help others,” he said.
Market education is key
Although Indonesia is the country with the largest Muslim population in the world, Djani found many challenges when introducing and evolving his sharia product, especially due to the low literacy about fintech and sharia outcomes in society.
“I think the main challenge for all emerging startups is how to build a professional team that can make the right product that customers want, and how to scale the business quickly. However, especially in our case, the perception of Indonesian people towards sharia-based finance is actually fragmented, which means one Muslim group might have a different opinion about sharia financing from other groups,” Djani continued.
Therefore, market education must be carried out continuously, and one way is by conducting extensive dialogues with various Islamic communities, Djani said.
Going forward, Alami will continue to promote and advocating Islamic finance as the company wants to prove that the sharia business is not only socially responsible, but also “economically more profitable” than conventional counterparts. That’s because it targets “very niche markets”, said Djani.
In the near future, Alami plans to reactivate its aggregator platform, and the firm is also currently exploring opportunities to add individual loan services in collaboration with sharia banks. “Developing individual loans is more challenging for us because we don’t want to promote consumerism, and we want to make sure that the loans we channel will be used for activities that are not contrary to Islamic principles,” he said.
Alami will soon launch two new products, one of which is a “unique product that other conventional P2P lenders cannot offer,” Djani said, without revealing further information. “We’re also designing a system where lenders can make donations after getting a return. They can choose to donate in their charity of choice, and they will be able to monitor how the charity utilizes this money,” Djani added.
Djani hopes his company will become a one-stop sharia financial solution for all customers in Indonesia, and that more people will realize that sharia fintech can create long-term economic value, both for lenders and borrowers.
This article is part of KrASIA’s “Startup Stories” series, where the writers of KrASIA speak with founders of tech companies in South and Southeast Asia.