Indonesian Muslims in statistics
It is no secret that Indonesia is currently the largest majority-Muslim country in the world. They have 85.65% Muslims out of its 265 million total population. That’s around 227 million Muslims with need of Halal commodity in their daily lives. In 2010, the Indonesian Statistic Center’s data showed 207 million out of 238 million of Indonesian are Muslims. That’s 20 million increase in Indonesian Muslim population within 8 years and the number will still grow in the future.
The State of The Global Islamic Economy Report 2015/2016 stated that Indonesia is the number one consumer of halal food products in the world. Indonesians spent around US$157 billion on halal food in 2014. In second position were Turks with US$ 109 billion and Pakistanis in third position with US$ 100 billion.
However, despite the staggering numbers, Indonesia hasn’t developed its Halal market to its full potential.
Indonesian Government on its Halal Market
The Indonesian government too realizes that there is an enormous gap between demand and fulfillment in Indonesia’s Halal market. So the opportunity is very high.
A look at the data and you will see that through 2014-2015, 1.2 million people searched for Muslim fashion, Hijab, head scarf, etc. However, it is a telling fact that only 10% of them managed to get to the products. Thus there is a huge potential for Halal products that is not being currently fulfilled by the existing online ecommerce platforms. This was also echoed by Mr. Rudiantara, The Minister of Communication and Information, at the The 2nd Indonesia International Halal Lifestyle Expo & Conference (INHALEC) at Balai Kartini Jakarta (19/10/2017).
To corroborate that statement, Google Trends’ data shows that people have increased interest in “Halal” topics as shown in the graph below.
The Market Potential
So which are the areas in Halal market where the potential is the maximum?
Indonesia Halal Lifestyle Center (IHLC) recorded 10 potential Halal business sectors that are growing in Indonesia. They are food, education, fashion, cosmetics, pharmaceuticals, media and recreation, travel, art and culture, health, and sharia financial industry.
In the year of 2016 alone, Indonesian Muslims spent US$ 170 billion on food and beverage, US$ 57 billion on cosmetics, US$ 254 billion on fashion, US$ 168 billion on tourism, and financial institution assets up to US$2.202 billion.
Indonesia’s potential as Halal producer
Cited from the official website of The Indonesian Ministry of Trade and Industry, Indonesian industry players are encouraged to enter the global Halal product market which is now worth more than US $ 1 trillion.
Most of the Halal industry players in Indonesia are Micro, Small and Medium Enterprises (MSME). They are facing many challenges that prevent them to participate fully as industry players in the Halal market. One of the challenges is the limited supply of raw material that complies to Halal criteria.
Another challenge is financing shortfall. MSMEs suffer from credit needs that are unfulfilled by the formal finance sectors. Since it is difficult to determine their credit risks and obtain collateral, banks often do not give out loans to MSMEs. Thus they must rely on their creativity and bootstrapping to develop their business and market their products. With the explosion of fintech players, especially P2P loan financing apps, there are news ways for small businesses to access capital and serve the huge Halal product market needs.
Down the Funnel
There are various embodiment of Halal market in Indonesia. For example, there’s 212 Mart, a sharia cooperative (Koperasi syariah) based retail chain mini market. They operate based on umat or membership, such as the principal operation of Koperasi. Since opening their first mini market in May 2017, as per August 2018 they have grown into 192 chain stores and 49,000 members.
There are also non-Koperasi based offline retail chain stores. One is Podjok Halal, which is an Islamic based convenience store. Another is Sodaqo, an Islamic minimarket that is not a franchise but their business is based on economy sharing concept.
Retail mini market is largest business in Indonesia. For comparison, in the Q3 2017 two Indonesia’s retail giants, Alfamart and Indomaret, each scored IDR360 billion and IDR1,190 billion respectively; or around US$27 million and US$89,534 million respectively (conversion rate at that time; US$1 = IDR13,291).
With the growth of internet users and ecommerce in Indonesia, there is a huge potential on Halal market in the country. And with internet, there’s virtually no boundaries to cultivate Halal market on a global scale. Apart from food, fashion, and cosmetics, there is also potential to develop travel and hospitality services as affluent Muslims are on the rise in recent years.
However, when talking about financial services, which all act of commerce will be connected to, I still see that the application of Halal is still in a grey area. When explained on paper, the current Halal based financial services are quite similar to what the non-Halal financial services are offering. This made many religious and practicing Muslims deter from using these conventional financial services. If this issue can be resolved, then the Halal market will become more exciting.
Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].