SHAFAQNA – Muslims represent almost a quarter of the world’s population. A recent Deloitte study says Asia is home to more than 1.05 billion Muslims, or about 62 percent of the global Muslim population. As such, Asia has seen a bit of action in the Islam-focused startup space.
In July, Indonesia’s Muslim fashion ecommerce firm HijUp bagged a second round of seed funding at seven figures from Fenox VC, 500 Startups, and Emtek. Other local startups like Blossom Finance offer Islamic micro-financing in Indonesia using bitcoin. Trip on Halal, a travel guide for Muslim food lovers, recently entered Malaysia’s MaGIC accelerator. Earlier this year, Dustin Craun, founder and executive editor of faith-based media Ummah Wide, shared his list of the world’s 11 most innovative Muslim startups.
However, these companies likely represent just the tip of the iceberg for what the Muslim digital economy could become in the future.
The global digital economy was worth an estimated US$1.9 trillion in 2014 based on ecommerce and digital ad spending, according to a report from Thompson Reuters and DinarStandard. Muslims represent an increasingly important consumer base with their value to the global digital economy estimated at US$107 billion in 2014. That number is projected to grow to US$277 billion over the next six years.
However, the industry has a few caveats to sort out before an Islamic digital revolution can fully take place in Asia. These provisos are challenges unique not to founders who just so happen to be Muslim, but instead for businesses that target a Muslim audience or attempt to incorporate the faith into their company DNA.
Investors are cautious
For any startup to be successful, it needs to be part of an ecosystem where investors are active. It’s a little more difficult for Islam-based tech startups, however, as many western investors don’t fully understand the religion, and therefore approach it with caution.
Furthermore, until recently, there has been a lack of data about the global opportunity for Muslim tech. Talented digital entrepreneurs in the space have historically struggled to secure funding from VCs in countries within the Organisation of Islamic Cooperation.
Fazil Irwan Som, head of World Islamic Economic Forum Youth Network Initiative recently helped organize an event in Kuala Lumpur that brought together Muslim startups and global investors. Fazil believes current support structures do not help Islamic tech startups go from ideation to seed and series A maturity stages.
“It is only when they reach series A, then the VCs will come in and say: ‘Okay now you’re ready, I can fund you.’ Fazil told the media. He added, “The biggest problem in the Muslim world is the lack of exposure, and number two, we lack economic options […] the Muslim world isn’t poor, we actually have some of the richest men in the world, but that money does not actually go to the people. It doesn’t go back to the society. It goes to the western markets, where they invest in big money and all of that.”
Advertisers need to be educated
Experts warn Islam-focused founders not to bank too heavily on advertising as a revenue model. While this is a rule that can apply to most startups, it seems to hold especially true for Islamic ones. Some say mainstream advertisers are often deterred by negative perceptions about Muslim audiences, and are unfamiliar with best practices on how to market to the group.
Islamic branding agency Ogilvy Noor says, “There is no doubt it can be a sensitive segment to approach. But if approached with sufficient knowledge of and empathy for Muslim consumers themselves and the values they hold closest to them, we believe that the potential rewards more than justify the risks.”
From a segmentation perspective, the firm says the challenge brands are facing today is to avoid alienating the traditional Muslim consumers who will remain the bedrock of the community, while also updating engagement to find relevance in the lives of a new young Muslim society.
Fragmented markets and unstable governments
Building tech products for a global Muslim audience is also an elusive vision because different countries and societies have their own sets of idiosyncrasies. Different countries and governments equal different languages, a variety of cultural nuances, a range of socioeconomic standings, and different degrees of religiosity.
Indonesia, for example, is the largest Muslim-majority nation in the world. It’s also one of the most moderate in terms of religious practice. “Less than 10 percent of financial products in Indonesia are shariah-compliant despite being 90 percent Muslim. That’s a problem, and for a startup, that’s an opportunity,” says Matthew Martin, founder of Blossom Finance.
According to him, however, there are still many other obstacles to overcome in Muslim-majority emerging markets. “Corruption and social justice is an impediment in many Muslim majority countries,” he explains. “Take Pakistan, for example — there’s a huge Muslim population there, but there’s a lack of security and rule-of-law that is a real concern for entrepreneurs and investors.”