The average fintech startup founder faces a taxing to-do list: raise seed funding, scope out a user base, recruit talent, build something people will actually use. For the Indonesian entrepreneur, the Muslim-majority market presents an additional hurdle: build an app that is compliant with Islamic religious law, or Sharia.
New fintech startups must present themselves before the Indonesian Ulema Council (Majelis Ulama Indonesia, or MUI, in Bahasa Indonesian), composed of religious clerics from across the archipelago, for Sharia certification, in order to reach Indonesia’s 220 million Muslim users, who generally seek out products that fit their faith.
MUI shapes much of Indonesian life. The body has conducted halal audits on household products, verifying that milk, moisturizer, and instant ramen meet strict religious criteria. Its fatwa commission also regularly intervenes in the moral life of Indonesians, promulgating headline-making rulings on homosexuality and secularism. Since the late 1990s, when Indonesian politics began a turn toward Islamic conservatism, the council’s influence has grown, according to Syafiq Hasyim, a Jakarta-based scholar of MUI and the political economy.
Now MUI is using its policing power to shape a new sector of Indonesian society: consumer technology. In November 2019, Vice President Ma’ruf Amin declared the “Shariatization” of the economy — i.e., the growth of digital financial services catering to Muslim users — a priority for the country’s development. Indonesian Muslim consumers currently spend $224 billion annually. When fintech companies build platforms for these users — whether peer-to-peer lending apps, mobile money services, or online stock-trading portals — MUI acts as the arbiter of their religious legitimacy. MUI’s National Sharia Council (Dewan Syariah Nasional, or DSN) issues certificates that verify platforms are compliant with Sharia. The chairman of DSN just happens to be the vice president himself.
To earn a certificate, new startups must adhere to the council’s combined 154 fatwas, a rule book for anyone attempting to build Sharia fintech. New fatwas are added every year on digital finance topics that now include commodities trading online and cryptocurrencies. In the certification process, MUI’s religious scholars become embedded in the early evolution of a company’s digital products, their background not in software engineering or UX design but the traditions and teachings of Islam.
In Sharia, for example, charging interest, or riba, is strictly prohibited. Sharia promotes charitable financial dealings and labels interest and guaranteed profits inherently unjust. Instead of a conventional credit model, Sharia lending platforms operate according to mudarabah. Under this model, rather than a lender extracting a profit from a borrower, the borrower and lender enter a more equitable contract. For a small-business loan, for example, the lender receives a predetermined share of profits but must also share in the losses, since the borrower has invested labor and knowledge in the business. This model underpins a host of peer-to-peer lending apps targeting Muslim users in Indonesia.
For Sharia stock trading, MUI mandates, under Fatwa No. 80, that traders invest only in halal companies. Online stock trading platforms like MNC Trade Syariah vet all potential listings accordingly, removing any that deal in gambling, alcohol, or pork products.
For some companies, compliance is more of a challenge. Take LinkAja. Launched in June 2019 and currently serving 45 million registered users, it’s one of the country’s largest mobile money services behind leaders like GoJek’s digital wallet GoPay and OVO. Customers can send, store, or receive electronic money on the LinkAja app.
Late last year, the company announced it was building the first Sharia mobile money product in Indonesia, a digital wallet for Muslim consumers to be called LinkAja Sharia Services. Standard LinkAja app users would be able to go into their settings and switch to a parallel platform built for Sharia compliance. But before they even created a prototype, LinkAja’s team knew they needed to consult MUI.
Most Islamic fintech companies have an appointed head of Sharia, a taskmaster who manages the compliance process. At LinkAja, that person is Widjayanto Djaenudin. While he had no experience in Sharia technology per se, he spent more than a decade at Telkomsel, Indonesia’s largest telecoms operator, developing mobile products for the unbanked. His task at LinkAja was to liaise with MUI and guide the company through its certification process, a challenge, considering the tenuous status of Sharia scholarship on mobile money apps.
Some clerics have argued that digital wallets are a form of haram, a term for practices forbidden by Islamic law. The digital-only cash-back rebates and other discounts with partner retailers commonly found on these apps are considered, by some clerics, a form of interest payment between businesses — riba in disguise. MUI has ruled sending and storing money in digital wallets acceptable, but only under strict terms.
After conducting a rigorous product-proposal review, MUI appointed a three-member supervisory board to Djaenudin’s team well-versed in the nuances of its rulings. The board included Anwar Abbas, chairman of an Islamic reformist organization in Southern Java’s Yogyakarta and author of a national bestseller promoting the vice president’s “Shariatization” worldview, The Ma’ruf Amin Way. “They are all Sharia experts,” said Djaenudin. “They gave us guidance and consultations about the product.”
Starting in November 2019, shortly after the vice president’s Shariatization initiative, Djaenudin was required to brief these scholars on market research, product testing, and the ins and outs of engineering every month. MUI’s supervisory board would share their insights and ensure the technological infrastructure of the app followed MUI’s rulings.
An MUI fatwa issued in 2017 was of particular concern to Djaenudin. Fatwa No. 116 begins with verses from the Quran published in both classical Arabic script and Bahasa Indonesian. “O you who have believed, when you contract a debt for a specified term, write it down. And let a scribe write it between you in justice,” reads one verse. They are followed closely by quotations from books of hadith, records of the sayings of the Prophet Muhammad: “Do not sell gold for gold, and do not sell silver for silver, except in case of like for like.”
These threads of theological precedent are woven together to create a set of rulings reinterpreting classical verse for the new digital economy. According to the fatwa, these Quranic lines have a specific implication for fintech: floating funds must be housed in certified Islamic banks. Contracts between all parties — users, banking institutions, or the app itself — must be grounded in Sharia contract law. Any promotional campaign cannot include riba.
The supervisory board had other suggestions for LinkAja’s parallel Sharia platform, Djaenudin told Rest of World. The new version of the app embedded a zakat payment feature, a form of religious tithing and worship performed through charitable donations, customarily amounting to 2.5% of one’s total savings. After the board signed off on the feature, LinkAja partnered with 240 MUI-approved charitable institutions and 1,000 mosques nationwide to launch the zakat feature. Months of vetting culminated in a full audit of LinkAja’s operations at its Jakarta headquarters by MUI.
According to Widjayanto, LinkAja paid a $300 (4 million rupiah) charge to MUI for its Sharia certificate, which lasts three years, including a $20 transportation fee for the auditor.
LinkAja Sharia Services launched on April 14, just one week before the start of Ramadan. In its first month, it saw 100,000 user registrations. Djaenudin credits the MUI Sharia certificate for this first wave of customers. Most Indonesians prefer to use a Sharia-branded service, even if few understand the particulars of riba or mudarabah, according to LinkAja market research. “From the customer’s perspective, as long as they see the halal logo or Sharia certificate from a trusted body, which is MUI, it gives them clearance and trust,” said Djaenudin.
For Indonesian fintech entrepreneurs hoping to establish their Sharia credentials, the MUI certificate has become the gold standard. Ronald Yusuf Wijaya, the founder of two Sharia-compliant crowdfunding startups, converted to Islam while building his business. “It’s been almost nine years, and I’m learning all of this from the day I started my business,” he said. Wijaya is chairman of the Indonesian Sharia Fintech Association (AFSI), a trade association that lobbies on behalf of this burgeoning pocket of the Indonesian economy. Since converting, Wijaya has successfully navigated MUI Sharia certification with both his companies. “Some customers, they ask, ‘Are you certified, or are you just Sharia?’”
For most Sharia fintech startups, MUI certificates are not only commercially advantageous but legally required by the Financial Services Authority of Indonesia (OJK), the state financial regulator. Other areas of the Sharia digital economy, like halal e-commerce and umrah sites, travel-booking platforms for Islamic pilgrimages, do not require this certificate.
Dr. Ir. H. Nadratuzzaman Hosen, vice chair of DSN MUI, told Rest of World that MUI is a passive actor in the development of new apps — waiting idly for companies to seek its approval rather than imposing fatwas on companies as a theocratic regulator.
Still, in recent years, clerics have shown interest in other forms of consumer technology. After the terrorist attacks in Christchurch, New Zealand, last year, the MUI’s fatwa commission launched an investigation into whether PlayerUnknown’s Battlegrounds, a multiplayer online shooting game that may have inspired the terrorist, was haram.
But the council has very little technical expertise, according to Hasyim, the MUI researcher. “They do not know about technology; their task is only to find Islamic legal justification.”
In January of this year, when reports circulated that MUI clerics were considering a haram ban on Netflix Indonesia for streaming content that violated Islamic pornography laws, Abbas, one of the clerics who helped certify LinkAja, asked a local outlet, “What is Netflix?”
MUI often invites experts to join the conversation, tapping scholars from public universities to step in and assume supervisory roles or offer presentations to the council during the issuance of new fatwas. “They are ulama (clerics); they don’t want to invest a lot of their energy to talk about technology,” said Hasyim.
While clerics may know very little about what makes a fintech platform tick, MUI is increasingly molding Indonesia’s next generation of consumer technology products. As the vice president’s Shariatization strategy shapes new fintech startups in the Indonesian market, MUI’s rule book will guide these innovations. Even when LinkAja broke new ground as the first Sharia-compliant mobile money platform in the country, embedded in the DNA of the app was Fatwa No. 116 and the fingerprints of three Sharia clerics.