Indonesian bank BTPN Syariah had a long-term operational issue that needed to be addressed — but due to regulations disallowing this outfit from having any direct shareholding in non-banking entities, the inspired solution turned out to be to incorporate a venture capital (VC) subsidiary.
Director Fachmy Achmad explained the bulk of customers served by this 12th Shariah commercial bank in Indonesia were mom-and-pop shops in the suburbs and rural areas. With around five million of such clients across the archipelago, BTPN Syariah needed a more efficient technological platform.
Having identified potential third-party vendors to provide this technological solution, BTPN Syariah wanted to ensure continued development and support — which would ideally be achieved by the bank taking an equity stake in the chosen provider, without flouting banking regulations.
To further ensure Shariah compliance, the solution found was to make VC investments as a shared effort — which led to the incorporation of BTPN Syariah Ventura, Fachmy said at the recent Global Forum of Islamic Economics and Finance 2024 in Kuala Lumpur.
“With the VC channel, the bank could craft a more thorough and customized requirement to invest in rather than having to rely on whatever technological solution was on offer. That made us realize we could work towards a sustainable hybrid solution.”
According to Indonesia’s central bank strict regulations, written approvals are granted only for subsidiaries and outlets providing banking and financing-related services. BTPN Syariah Ventura received approval for equity investment as part of its VC operations.
With this VC investing in social commerce player Dagangan in June 2022, Fachmy said an online platform was developed for the bank to better reach its customers outside cities — where the communication infrastructure can be challenging.
Using a mix of human activity backed by the platform, Fachmy said Dagangan facilitated the bank to expand its services beyond just savings and loans to provide more financial support — allowing its clients to negotiate better terms with suppliers.
Unlike BTPN Syariah, checks found that no other Indonesian banks had as yet adopted this VC route of investing in third-party vendors to venture beyond their core banking operations.
Though this initial VC investment has not led to an increase in BTPN Syariah’s customer base as yet, Fachmy expressed optimism in that prospect, adding that internal reviews conducted by the Indonesian bank showed its customer base could rise to a potential seven million in the near future.
“We need to address another issue of physical cash movement, because this is still the preferred payment mode. Our VC company, BTPN Syariah Ventura, is evaluating several proposals to address this issue with viable in-house solutions rather than relying on external contractors.”
With a clear purpose for the Shariah VC subsidiary to support the bank’s operational needs, Fachmy said there is no plan yet to expand the investment mandate of BTPN Syariah Ventura. He said the bank’s focus remains on serving its banking customers first.
