A few weeks ago we saw the launch of a Sharia-compliant mobile phone-based loan service. The new service, called Trust Network Finance (TNF), was rolled out by Allianz in Indonesia. TNF reflects the big opportunities in Indonesia for mobile money and for Sharia-compliant services.
Although roughly 60 percent of Indonesians have a mobile phone, only 3 percent of the population is reportedly aware of mobile money. Indonesia has the world’s largest Muslim population, and Sharia-compliant finance has grown over the past few decades in the country; however by the end of 2016 Islamic financial institutions in Indonesia are only expected to hold 5 percent of the nation’s total banking assets.
TNF is breaking ground in this space through a digital, cashless service that aims to empower micro-entrepreneurs. As its name suggest, trust is important. In keeping with Sharia-compliant finance practices, TNF does not charge interest rates or fees. Nor do borrowers provide any sort of collateral. Instead, in return for micro-enterprise funding, TNF receives a minority stake in the business.
TNF works with entrepreneurs through a four-phase structure. During the first phase, TNF invests in the micro-enterprise (between Rp. 1,000,000 and Rp. 2,000,000 – US $75-150) without taking any stake in the company. This phase functions as an opportunity for the entrepreneurs and TNF to get to know one another and for the business model to be put to the test.
During the second phase, TNF continues to offer support through increasing investment sizes, and a business coach is matched with each enterprise to offer support.
In phase three the enterprise is formalized – business coaches help the entrepreneurs obtain licenses and fulfill the requirements that correspond with such status, including capital requirements, formal bookkeeping, and tax payments. Formalizing helps the enterprises gain access to larger business loans, and TNF recommends enterprises to banks to access this capital. During phase three TNF receives a stake in the enterprise.
During phase four, along with the repayment of any outstanding loans, this stake is sold back to entrepreneurs or their business partners. This capital then goes towards supporting other TNF entrepreneurs.
TNF is operating as a 16 month pilot, making roughly 100 investments. The program is open to any kind of enterprise, so long as the business idea convinces the TNF committee it is worthy of funding.
Islamic finance in Indonesia has the potential to grow tremendously. Between 2008 and 2012, Islamic finance assets in Indonesia tripled, increasing by an average of 31 percent annually. The Masyarakat Ekonomi Syariah (Islamic Economic Society), a Jakarta-based non-profit organization, forecasts that Islamic finance assets in Indonesia will increase by 15 percent during 2016. And this growth might gain steam. Current regulations restrict foreign investors to owning a maximum of 40 percent of Islamic banks in Indonesia, but financial authorities are considering raising this ceiling.
We’ll look forward to following the roll-out of TNF in the months ahead. And if these Islamic finance forecasts are realized perhaps we’ll be seeing much more than a (promising) pilot in this Sharia-compliant mobile loan space very soon.
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