Founded in 2014, Blossom Finance was first intended for Muslim entrepreneurs in the United States. The microfinancing platform connects investors with small businesses using mudarabah, a shariah-compliant profit-sharing agreement. But founder Matthew Joseph Martin soon realized that the startup, backed by investors like Boost VC and Tim Draper, was serving a relatively niche market in the States. So he started researching markets with large populations of Muslim people. Indonesia emerged as the best choice.

Southeast Asia is already home to a thriving fintech scene, where Grab, GoTo and Sea have built super apps that encompass financial services, and startups like Xendit, Akulaku and Dana (to name a few) have raised hundreds of millions of dollars for payments, banking services and other financial tools. Indonesia and Malaysia, in the heart of Southeast Asia, are among the countries with the largest Muslim populations in the world.

These factors are proving fertile ground for establishing and growing fintechs that focus exclusively on Islamic finance, offering products and services that follow shariah law. Among other things, this forbids accruing interest, speculation and financing non-halal products like pork, tobacco and alcohol.

According to the World Bank, Indonesia has the most Islamic fintech companies in the world – perhaps fitting, since it’s also the most populous Muslim-majority country in the world with about 231 million Muslims.

Some notable Islamic fintech companies include peer-to-peer lending platform and digital bank Hijra (formerly known as Alami), online bank Bank Aladin, LinkAja, which is backed by Telkomsel and Bank Mandri, the largest bank in Indonesia in terms of asset loans and deposits.

Gojek’s GoPay is also partnered with the Indonesia mosque council to allow users to make zakat, or obligatory alms giving, online.

Meanwhile in Malaysia, where 61.3% out of its 33.6 million inhabitants practice Islam, fintech companies that focus on Islamic finance include crowdfunding platform Ethis Ventures, P2P lending platform MicroLAP PLT and investment platform Wahed, which is the only shariah-compliant robo-advisory platform in the country. Funding Societies, the SoftBank Vision Fund II-backed SME digital lending platform, recently launched a shariah-compliant financing product there, and now offers it as the default product to all its Malaysian customers.

Shariah law calls for a different approach to financial services, and conventional banks are also launching products for Muslim customers. Along with the growing number of Islamic fintech startups digitizing the process, Islamic-compliant services are becoming accessible to more people.

Profit sharing instead of debt

The seed of Blossom Finance was planted when Martin was running a project in the U.S. enabling people to buy Bitcoin. He ran into a receivables problem, and the usual way to finance cash receivables is to get line of credit or receivables financing from a bank. As a practicing Muslim, however, Martin couldn’t use conventional loans. But he also couldn’t find any other options in the U.S.

“Quite naively, I thought there are plenty of Muslims who own businesses, surely they face the same problem,” he said. “They must have a solution. So what is the solution?”

After learning more about the principles of Islamic finance, Martin launched Blossom Finance, a platform that connects investors with microbanks, which in turn disburse shariah-compliant financing to microbusinesses. Headquartered in Delaware, Blossom Finance hosts investors from primarily the United States and Europe, but all of the microbusinesses it serves are in Indonesia.

After initially soft-launching in the U.S., the Blossom Finance team realized that the market there for Islamic finance was very small, said Martin. They started looking for a bigger market, and landed on Indonesia because of the financial inclusion challenges facing micro and small businesses.

Other reasons Blossom Finance chose Indonesia over other countries with large Muslim populations included its relative political stability, Martin said. It also has a strong baseline infrastructure for operating businesses with primarily foreign capital.

“There’s already been over the past two decades prior to us arriving tons of amazing work,” Martin said. “A lot of the groundwork was already there and we were able to come in and operate as a connector where there are inefficiencies, and a lack of capital. We were able to bridge that lack of capital using a technology solution. All that underlying infrastructure for the last mile of serving the microbusinesses was already there and we were able to tap into it.”

Investors on Blossom Finance’s platform pool their money into funds, or cooperatives, which are then managed by microbanks. The microbanks disburse the financing to microbusinesses to purchase inventory and other things they need. All losses and profits are shared pro rata, Martin explained. If an investor’s capital is 1% of a fund, they can expect to receive 1% of its profits, or absorb losses at the same rate.

What makes Blossom Finance’s microfinance platform shariah-compliant is its use of murabaha contracts instead of traditional interest-charging loans. For example, when a microbusiness, like a corner store, needs to buy inventory like beverages or snacks, they go to one of the co