Ali Rama, A PhD Student at Business School University of Aberdeen and Lecturer at UIN Syarif Hidayatullah
Professor Klaus Schwab, founder and executive of the World Economic Forum, has introduced the Forth Industrial Revolution or 4IR, a name for the ongoing technological revolution that is affecting the way we live, work and relate to one another. The 4IR is fundamentally different to the previous industrial revolutions; it is characterized by a range of new technologies that fuse the physical, digital and biological spheres that affect human life, which has never been experienced before (Schwab, 2016). Moreover, it is disrupting almost every industry and bringing transformation to entire systems of production, management and governance.
The Islamic economy – consisting of economic sectors whose core products and services are structurally affected by Islamic ethics and law – has established an increasingly important footing in the global economy (Global Islamic Economic Report, 2019). The sectors are halal food, fashion, Muslim-friendly travel, cosmetics, pharmaceuticals, Islamic-themed media and Islamic financial services. According to the 2019 Global Islamic Economy Report, global Muslim consumers spent US$2.2 trillion in 2018 in the food, pharmaceutical and lifestyle sectors. The number is expected to reach $3.2 trillion by 2024, while Islamic financial assets are forecasted to reach $2.5 trillion in 2018.
Islamic economic sectors are emerging amid economic transformations driven by the new technological revolution. The emergence of technology breakthroughs such as artificial intelligence, robotics, the internet of things, peer-to-peer finance, blockchain, big data, quantum computing, e-commerce, cloud storage and open banking will unequivocally reshape the operation and business models of industries in the Islamic economy. However, the adoption of technological innovation in the industries will lead to efficiency, productivity and market penetration. The integration of technological innovation into the operation and business models of the Islamic economy is driving the Islamic economic revolution 4.0.
Indonesia, with its large Muslim population and status as the sixteenth-largest economy in the world, is primed to be a global player in the Islamic economy. The country is considered a “hidden treasure” by Professor Jonathan Wilson (2013) and a “sleeping giant” of the global Islamic economy by Sutan Emir Hidayat, a director of the National Islamic Finance Committee (KNKS). Indonesia’s market potential is still largely untapped in the Islamic economy.
The ecosystem for supporting Islamic economic business activities in Indonesia has shown a substantial improvement. Indonesia’s ranking in the Global Islamic Economy Indicators list has moved from tenth place in 2018 to fifth place in 2019 (State of the Global Islamic Economy Report 2019/20). In addition, according to the Global Islamic Finance Report (GIFR) 2019, Indonesia is now a “leading country” – the highest score in Islamic Finance Country Index – in terms of its leadership and potential in global Islamic finance.
The Indonesian Islamic economic sectors should benefit from the digital revolution. Therefore, the 2019-2024 Halal Economy Master Plan highlights the digital economy as among the four fundamental strategies for making Indonesia a major player in the global halal economy by 2024. The plan stresses the importance of the digital economy, including e-commerce, online marketplaces and digital finance, in supporting the Indonesian segment of the Islamic economy.
For example, the KNKS and two of Indonesia’s largest e-commerce start-ups, Tokopedia and Bukalapak, have formed a joint partnership to establish a halal marketplace, which specifically accommodates halal transactions (Hidayat, 2019). The development of an electronic halal payment system for the daily needs of Muslims is in high demand. In response to such a need, the app LinkAja is in the process of becoming a shariah-compliant digital payment platform and electronic money source.
The Islamic social finance sectors can develop blockchain technology in their operational management. Blockchain is a distributed, decentralized and public ledger. This technology is better than traditional ledger systems, namely because it is peer-to-peer, distributed, cryptographically secured, add-only, and consensus-based.
The World Zakat Forum (WZF) 2019 in Bandung, has highlighted the importance of the digital technology in optimizing the global role of zakat in reducing poverty and strengthening the social community. The forum moved to implement blockchain technology to optimize the management of the zakat institution. The adoption of digital platforms in zakat management for zakat calculation, collection and distribution was also recommended.
The development of Islamic fintech in Indonesia has had a substantial increase. The 2018 Islamic Fintech Report found that Indonesia was home to 31 out of 93 Islamic fintech start-ups globally. These fintechs are dominated by business and consumer financing. The fintech revolution has brought a distruptive shift to Islamic financial sectors, leading to automation, distermediation and decentralization.
Islamic crowdfunding for example has the potential to cause disruptive innovation, particularly for traditional financial intermediaries, including Islamic banks. It has recently emerged as an alternative to more traditional sources of funding for entrepreneurs, start-ups and small and medium-sized enterprises (SMEs). The complexity of financing enterprises through Islamic banks may drive the switch to crowdfunding.
However, the rise of Islamic crowdfunding should be seen as complementary to the existing Islamic-finance ecosystem. Islamic crowdfunding could be a solution for unmet financing demand, mainly from SMEs. The Word Bank Group (2017) reported that the total financing gap for SMEs in developing countries is estimated to be $5.2 trillion, which is equivalent to 19% of the gross domestic product (GDP) of the 128 countries.
Ethis Indonesia is one of the first Islamic crowdfunding operators to provide funding for social housing development projects across Indonesia. Kitabisa.com is another example of Islamic crowdfunding that aims to channel philanthropic funds to the development of social projects. (lrf/sam)
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