Indonesian sharia fintech startup ALAMI has raised an unspecified seed round led by Singapore early stage VC Golden Gate Ventures, in a deal that marks the first funding in the region to be structured in sharia-compliant terms.
For ALAMI, the funding comes around six months after it secured a pre-seed funding from Singapore fintech investor tryb, whose investment in the startup made it the first Southeast Asian VC to bet on a sharia fintech player.
The new round sees participation from Indonesia’s Agaeti Venture Capital, Malaysia’s RHL Ventures and angel investor Amir Rahim. The proceeds will be used to enhance the company’s technology development, operation and marketing initiatives.
ALAMI initially operated as an aggregator for Islamic finance, working with sharia banks to facilitate SME invoice financing. However it expanded into the sharia-compliant P2P lending space in May, after obtaining a peer-to-peer (P2P) licence from the country’s Financial Services Authority (OJK).
Over the last six months, the company says it has pulled over a 1,500 registered users and has disbursed over Rp 50 billion ($3.6 million) worth of sharia-compliant loans.
In an exclusive interview with DealStreetAsia, ALAMI co-founder and CEO Dima Djani said that the new funding will set the startup on its way to become the go-to player for all sharia finance needs.
“After the funding Alami will be more than just a sharia P2P. We will start to build a foundation to become one-stop solution for Islamic finance,” he said.
Djani said the company will look to revive its aggregator platform and will leverage it to offer a variety of Islamic financial products to the market. The first in the pipeline will be mortgage financing – a product much in demand among Indonesia’s large sharia market.
Indonesia is home to the largest Muslim population in the world. This, coupled with an unbanked population as high as 64 per cent, makes for a large potential market. According to a 2017 Sharia Fintech Business Study published by state telco firm Telkom Indonesia, the sharia fintech market is worth up to 7.3 trillion rupiah ($525 million).
Despite the sizeable market and opportunity, VCs are said to be hesitant to invest in the industry, forcing players to largely look to angel investors and capital grants as financing avenues.
“Golden Gate Ventures has always been acutely aware of and interested in Islamic financial technologies, given the relative complexity of its unique financial instruments and the enormous (and growing) Islamic banking industry. To us, the potential in Islamic fintech is self-evident, and we’re surprised more VCs have not looked more closely at this fascinating vertical,” said Golden Gate partner Justin Hall.
First sharia-compliant funding structure
For Golden Gate, whose Indonesian portfolio include Alodokter, Ritase and Gojek, and its co-investors, the investment in ALAMI is not only their first bet on a sharia-fintech company, but is also their first deal – and the first by any VC in the region – that is structured to comply with the principles of Islamic financing.
According to ALAMI, the round of funding was structured to fit the Islamic financing arrangement of ‘musyarakah’, which is a joint enterprise or partnership structure in Islamic finance in which partners share in the profits and losses of an enterprise.
On the whole, it is similar to the equity financing structure typically employed by VCs, in which, investing entities have the right to achieve a return in the form of a portion of the actual profits earned according to a predetermined ratio. However, to make it fully compliant with sharia rules, a few other minor pre-requisites and conditions need to be met, as well as recommendations from scholars and the sharia supervisory council.
“While the funding structure initially took some time for us to sufficiently understand, ultimately we felt that our investment should respect and indeed reflect the underlying principals guiding ALAMI and its mission: to provide Indonesians with shariah-compliant financial products. If ALAMI was going to provide Indonesians with Shariah-compliant loans, then Golden Gate Ventures should rightly be able to invest according to similar Islamic principles,” Hall said.
ALAMI said that, given its sharia-compliant products and operation, it was essential for it to “safeguard all its structures from top to bottom” to ensure that they are in compliance with Islamic principles, including its fundraising.
“On our part, we try to educate all of our stakeholders to understand that what is being developed in the west, such as sustainable financing and SDG focus, is actually in line with the principles of sharia finance. So we are an example that these things can be married,” Djani said.