Sharia economy became a topic in the presidential election debate held last April. Aside from the representatives’ answers, bringing the topic out marks that the sharia economy and its derivatives are already taken its place in the country’s economy.
After Joko Widodo and Ma’ruf Amin became officially Indonesia’s President and Vice President, sharia economy is emerging faster, represented by some digital companies which are counting their luck in the Islamic-based economy.
The first indicator was seen as Tokopedia and Shopee visited the office of vice President Ma’ruf Amin last November. Tokopedia‘s chief commissioner Agus Martowardojo and vice-chairman Leontinus Alpha Edison arrived first. After two weeks, Shopee also made a similar move by taking its top officials to meet Ma’ruf.
The second visit of the e-commerce giant is said to be a new round of their competition in the Islamic market. Tokopedia with its Salam feature, while Shopee with Barokah.
Another indicator is the entrance of conventional investors into sharia-based businesses, which can be traced from the investment of Golden Gate Ventures, Agaeti Ventures, and RHL Ventures in Alami, a local sharia-based fintech company. The emerging new startups focusing on providing sharia products, or those expanding its coverage into the sharia market, such as Qazwa, Waqara, Investree, LinkAja, and Akulaku, have experienced high demand in Indonesia.
The keen interest of digital companies to enter the sharia market points out one thing: there is a great potential ready to be executed. It is clearly not just pocket-sized money, considering that Indonesia is the country with the largest Muslim population in the world.
The State of Global Islamic Economy Report 2019/2020 placed Indonesia in the 5th position out of 73 countries. The score of 49 points was determined from several sectors such as Islamic finance, halal food, Muslim-friendly tourism, fashion, media & recreation, also pharmacy and cosmetics. Halal food and Islamic finance are the two biggest sectors contributing to this assessment.
The report shows that Indonesia’s overall sharia market has developed quite significantly, from 10th place last year to 5th place this year. The biggest factor is said to be the country’s blueprint of Islamic economy development and fresh initiatives such as Halal Park, which was launched a few months ago.
Of the six sectors in the report, Indonesia has positioned in the top 10 in 3 sectors, namely 5th in the Islamic financial sector, 4th in Muslim-friendly tourism destinations, and 3rd in the fashion sector. Halal or sharia-based product consumption in Indonesia is the largest in almost every sector, especially for halal food. Indonesia’s halal food consumption value hit USD 173 billion (IDR 2,400 trillion), the largest in the world.
In terms of Islamic financial institutions, Indonesia is likely to be on the right path. Indonesia’s sharia financial asset is projected at the 7th place with a valuation of USD 86 billion or IDR 1,200 trillion. The number is likely to grow along with the implementation of the Sharia Economic Master Plan 2019-2024.
Some of Indonesia’s startup players have penetrated the Islamic market and halal products. Primarily, they are categorized in two; those providing Muslims products since the beginning, and those who have expanded their services.
However, the number appeared to be not big enough. Some of the players are Ammana, Alami, Syariah Funds, Qazwa, Duha Syariah, Syarfi, Bsalam, GoHalalGo, Waqara, Umra.id, Hijup, and Hijabenka. It’s to be noticed that almost all of these names are divided only into two types of services: Sharia fintech and Umrah marketplace. As for investors, the Financial Services Authority (OJK) noted per October 2019, there were at least 6 registered venture capital companies operating. Ma’ruf himself claimed that there are 31 fintech sharia in Indonesia, a bigger number than in any other country.
On the other hand, there are some conventional startups entering the sharia business, such as Bukalapak, Tokopedia, Shopee, LinkAja, and Investree. As an example, Tokopedia had a quite fast expansion through its product Tokopedia Salam. Through this feature, the platform transformed into a marketplace for Umrah travel agent services to accommodate Muslims. In addition, Tokopedia claimed to provide over 21 million halal products on its platform.
Opportunity’s Wide Open
Referring to the still small numbers of Sharia business players, this type of economic clearly has large opportunities to grow in various sectors, according to the State of Global Islamic Economy report.
In terms of halal products, for example, there are some sub-sectors that can be targeted by local businesses, such as halal-certified e-commerce products, halal-concept retail, or halal food technology, as global’s money circulation in the halal food business is predicted to reach USD 2 trillion or around IDR 28,000 trillion by 2024.
The same opportunities count in the halal tourism sector, Islamic finance, Islamic fashion, and media & recreation. Specifically, startups can pay more attention to the tourism and finance sectors. Also, the government has been promoting halal tourism. Meanwhile, sharia-based finance is considered an alternative way of fueling the country’s economic growth. The sharia-based finance sector’s contribution to the national economy is still at 8.73%. It determines a greater opportunity to evolve and transform into an alternative engine driving economic growth.
Before moving further, Indonesia still has quite a large amount of homework. Azis Setiawan, a sharia economic observer at the SEBI College of Islamic Economics (STEI), said the blueprint of the sharia economy and halal industry made by the government has yet to meet its objectives.
“I think the current blueprint still needs sharpening up and to translate it is the relevant government institutions’ job,” Setiawan said to DailySocial.
In fact, digital companies engaged in sharia-based economics, said Setiawan, are yet to penetrate the overall market potential in Indonesia. The lack of public knowledge of sharia products and halal industries is one reason, but he also highlighted the fact that Indonesia is the country with the largest Muslim population in the world.
“Let’s take the example of halal tourism. There are matters like sharia homestay, halal food, and many others. The perspective must be taken globally because people come from various countries,” he added.
Setiawan believes the government is capable to set the sharia economy as an alternative engine to Indonesia’s economic growth. However, he suggested that the government, as a full policy-holder, must be faster at implementing plans and be responsive to the existing developments.
This article was first published on Daily Social. It is republished as part of a partnership with KrASIA.