Bank Hijra Becomes NATURAL's Spearhead in Solving the Challenge of Islamic Digital Bank

The chaos related to financing through Islamic banks some time ago showed that the public's understanding of how sharia principles worked was still minimal. This is ironic in a country with the largest Muslim population in the world.

Penetration of Islamic banking in this country is indeed low. Only 6,51% when compared to conventional banking. Not surprisingly, the Ministry of SOEs merged 3 subsidiary SOEs into a large-cap Islamic bank in order to increase competitiveness.

Nevertheless, the potential to increase the trend of Islamic banking does exist. The public's enthusiasm to understand the management of public funds according to sharia shows an upward trend. This opportunity is utilized by the sharia fintech platform NATURAL Group with Natural Hijra BPRS(hereinafter referred to as Hijra Bank), results rebrand BPRS Cempaka Al Amin which has been acquired.

Hijra Bank currently preparing to launch the application in the near future. In connection with this, DailySocial had the opportunity to interview ALAMI CEO Dima Djani.

Behind his decision to choose a BPR over a commercial bank, Dima did not explain further. Our question regarding the possibility of raising BPRS Hijra's license level as a commercial bank was also not answered.

He said that this corporate action was part of the process of helping expand access to sharia financial services to make them easier and more competitive for all levels of society. The acquisition and capital increase process is carried out in stages. Now it has reached more than IDR 50 billion.

BPR business activities are actually narrower than commercial banks. They can only distribute credit (you cannot have a credit card and the credit limit is generally limited to billions of Rupiah), savings and time deposits. The reach of BPR customers is also more limited at the provincial level.

OJK itself classifies bank establishment permits into only two, namely commercial banks and BPRs. Regulations related to digital banks are still being prepared and harmonized by regulators. It is planned that a special POJK will be published this year.

Digital is the keyword that ALAMI is looking at. Apart from Bank Hijra, a digital banking player that carries the spirit of sharia is Bank Aladin Syariah.

Dima explained that in the initial stage, Hijra would start a synergy with the ALAMI Group, armed with OJK outreach regarding synergy guidelines between fintech p2p lending and BPR. The form of synergy will start from financing channel and will continue with cross selling other sharia financial products.

OJK publishes guidance This is to improve the quality of financing distribution with the support of an extensive BPR network spread throughout Indonesia. The cooperation scheme that both parties can work on is: channeling and referral.

Dima said, customers ExistingEXPERIENCE will be the main target for Bank Hijra consumer acquisition in the early stages. They can open savings accounts easily and the system will continue to be improved so that the integration process is more complete seamless pattern.

"As an illustration, in Indonesia, ALAMI p2p lending provides the highest level of returns for its nature fixed income such as sharia deposit banks, state sukuk, and sharia P2P. "The average return is equivalent to 14% -16%," said Dima.

This condition is expected to be a special attraction for potential customers and spark more interest from conventional banking customers who have been expecting added value in sharia banking products. "Hijra could be the answer to this need."

ALAMI had 40 thousand registered funders at the end of last year. Apart from targeting customers Existing, it is targeting the urban segment that has begun to become aware of sharia finance.

Hijra customers will find it much easier to access the financing features available at ALAMI. Apart from that, other features that must be present in a bank will certainly be present, such as ease of opening accounts, transfers, integration in certain ecosystems, and customer service which is easy and fast. “We are focused here.”

apart consumer banking, Hijra Bank is also eyeing the segment SME banking which is equipped with features to help people affected by the pandemic to open businesses. This segment has a large market share because Indonesia has millions of MSMEs which are claimed to be ready to move to the digital sharia segment.

Responding to challenges

Dima believes that the sharia banking industry can still compete with the implementation of the right technology and strategies to overcome chronic problems that have haunted them for years.

First, Regarding credit interest, it is higher than conventional. If we look back, there are higher costs for Islamic banks due to limited infrastructure and Islamic financial literacy.

People tend to be hesitant to put their funds in sharia banks because they don't understand what they will get.

“In fact, around 50% of total liabilities in sharia banks are deposits. [..] Therefore, their loan costs are more expensive than conventional banks. That's a first. And second is inefficiency. We don't see [use of] technology in [Islamic] banks. So these two factors create relatively higher prices [credit costs].”

Second, lack of development of sharia industry or products. Interestingly, over the last eight years, with the power of social media and the interest of the younger generation, market demand for sharia products has increased significantly.

"Providing education that is easy for the public to understand and providing technology that makes it easier to provide products will be NATURAL's strategy in facing this challenge."

Next is challenge positioning. How Bank Hijra makes sharia not just a complementary product, but also something that... driven. “So people see not just the label, but the action. So people's views are different. "Now the apathetic public is looking at Islamic banks."

Entering its fourth year, ALAMI's performance is claimed to be increasingly impressive. In the first quarter of 2021, ALAMI user growth increased by 1.000% year-on-year (yoy) and total distribution of IDR 200 billion. The quality of distribution is claimed to be good with the ratio of traffic jams or defaults still at 0%.

The company has collaborated with eFishery and BukaPengadaan to widen the range of credit distribution. In addition to individual lenders, ALAMI is supported by a range of institutional lenders, such as Bank Syariah Indonesia (BSI), BPR Syariah, and seven other BPRs.