3 principles guide Bank Aladin Syariah in tapping Indonesia’s customer segments

Within a year, the digital sharia bank got past low penetration to record 1.7 million customers and now targets multiple times growth by end-2023.

In a country where Islamic bank penetration hovers at a mere 6-7%, Indonesia presents a vast landscape of opportunity for Bank Aladin Syariah. With over 77% of the adult population remaining unbanked and underbanked, the digital Islamic bank sees not only a chance to align with Islamic principles but also to fulfill the longings of the masses for accessible banking services.

As they embark on their mission, Bank Aladin Syariah aims to revolutionize the financial landscape by bringing Islamic banking right at the fingertips of every Indonesian and guided by three principles.

Streamlining the process

“First, there are segments in the market whose needs have not been met properly, especially micro, small, medium enterprise (MSME) and household players who often make transactions in small nominal amounts and loan penetration is still low, less than 20%,” said Bank Aladin Syariah President Director Dyota Marsudi told Asian Banking & Finance in a recent interview.

Banks adopt the principle of efficiently serving customers as a means to address the persistent issue of high unbanked and underbanked populations, particularly by streamlining the customer onboarding process that previously necessitated branch office visits.

Dyota said they recognize the challenge posed by limited operational hours at branch offices, which hinders customers from even the simple task of opening an account.

Bank Aladin Syariah, for instance, acquired its mobile banking license from Bank Indonesia at the end of 2021. “We want to make it easy for customers to open their accounts from anywhere as long as they have a good internet signal,” Dyota said.

Digital sharia banking

The second guiding principle is that the Bank Aladin Syariah positions itself as a digital sharia bank where not many digital banks in Indonesia follow sharia compliance.

 Internally, the bank has followed sharia principles. These provisions follow regulatory rules such as the Financial Services Authority (OJK) and the Sharia Supervisory Board.

“Our approach to customers in this case is to provide what they need. We provide product offers that customers already have or don’t have access to with a comparison of products they already know from conventional banks. For example, in providing financing,  we can use  a murabahah contract where the bank buys the goods for the customer and the bank earns a good income margin. At the same time, in terms of payment, the customer is given the flexibility to make payments in installments,” Dyota explained.

Strong offline presence

Third, the bank provides a strong offline presence to provide convenience especially for customers who are conducting banking activities for the first time. Bank Aladin Syariah has also collaborated with one of the largest minimarket retail chains in Indonesia, namely Alfamart, which has more than 18,000 outlets across Indonesia.

“We want to be present in locations where people usually do transactions offline, namely minimarkets like Alfamart. So individual customers and MSMEs do not need to sacrifice time, effort and distance because Alfamart's operations are also longer in terms of opening hours and not as busy as branch offices,” said Dyota, who previously served as Senior Executive Director of Investments at Vertex Ventures (Temasek’s VC arm).

Strategic partnerships

The cooperation between Bank Aladin Syariah and Alfamart is diverse. Alfamart, which is publicly listed as PT Sumber Alfaria Trijaya Tbk. is  one of the investors of Bank Aladin Syariah and participated in Bank Aladin’s Right Issue in mid-2022.

From the customer’s side, there are customer acquisition, in-store promotions, and Aladin Bank cash deposit and withdrawal services at all Alfamart outlets throughout Indonesia.

From the employee side,  Alfamart employees can access their payroll throughBank Aladin Syariah accounts,  and participate in member-get-member campaigns. The bank has also launched payroll financing for Alfamart employees.

Meanwhile, from the supply chain and Alfamart partners side, the bank provides invoice financing and working capital financing for Alfamart suppliers, franchisees and contractors.

“Alfamart is our strategic partner, especially for targeting middle to lower income customers who have never accessed banking before or have limited access l,” said Dyota.

Growth and targets

After a year of operation, Bank Aladin Syariah, which was formerly known as Maybank Syariah, recorded significant growth. As of 31 December 2022, the bank recorded a total of 1.7 million customers since the launch of the application in early 2022.

Then, in Q1’23 the bank recorded more than IDR1.6 trillion ($107,4m) in outstanding financing and more than IDR1 trillion ($67,18m) in customer savings and deposits.

“For this year, we are targeting growth of multiplier times what we have achieved in 2022,” Dyota said.

He added that the bank’s strategy to achieve profitability is to continue to grow financing portfolio, expand deposits and CASA balance, as well as managing cost efficiently.

“For example, if we plan to receive multiple income in the future, that is definitely a profit because the cost for people, for example, is unlikely to increase multiple times as well as in technological aspects where the spending will not be as high as in earlier years Maybe spending on marketing can go up, but the bank is a highly regulated institution and has the clearest plan for profit,” Dyota said.