ANY SETIANINGRUM discusses why Islamic
banking and financing products must be able to take a major role in the
development and strengthening of the small and medium-sized enterprises
in Indonesia.
Islamic banking in Indonesia provides financing to
small and medium-sized enterprises (SMEs) which are a mirror of the
economy of the majority of the people. Thus improving the welfare of
SMEs is a community effort. In the Islamic economic system, moral values
and ethics is an inherent value and it cannot escape the moral
responsibility and ethics. (full story here - 19-Oct-2011- Volume8.Issue41)
Indonesia has 51.3 million SMEs units which are the
majority of the businesses. The SMEs’ contribution to employment is 90.9
million (97.1%) and foreign exchange contributed to IDR183.8 trillion
(US$20.6 billion) (20.2%). The SME’s contribution to the GDP is about
IDR6.609 trillion (US$740 million) (55.6%) and its significant
investment value reached IDR640.4 trillion (US$71.7 billion) (52.9%).
If the SME sector is successfully handled, it will
form an economy with high quality, as supported by the real sector and
the broader community interest related to employment, income
distribution, reducing poverty, providing social stability as well as
creating a political economy of economic independence.
Since its establishment in 1992, the Islamic banking
industry in Indonesia has given more attention to the SMEs sector. The
financing allocated to SMEs by Islamic banks reached 70%, while the
conventional banks were about 10%-20%.
Despite the advantages, there are still many challenges and constraints in the financing of Islamic banking to the SMEs. Classic barriers faced by SMEs are capital, lack of mentoring and partnership, poor government policies and most of the SMEs are not bankable. By 2010, only 30% of SMEs have access to services of banks and other financial institutions.
Despite the advantages, there are still many challenges and constraints in the financing of Islamic banking to the SMEs. Classic barriers faced by SMEs are capital, lack of mentoring and partnership, poor government policies and most of the SMEs are not bankable. By 2010, only 30% of SMEs have access to services of banks and other financial institutions.
Constraints faced by Islamic banks in Indonesia are
the lack of human resources, limited types of products, networks and
technology, and the complexity of administration.
Support for the SMEs
In dealing with the various challenges, Islamic bank and the related institutions that support the SME sector have taken efforts to encourage the proper channeling of financing while strengthening the segment. Some of the actions taken are:
1. Investment banking approach
Conceptually Islamic banking should solve the difficulty of access of the SMEs to the banks, particularly those related to security. The investment banking approach should be taken as oppose to conventional banks. An investment banking approach is where the bank provides capital and technical assistance.
Conceptually Islamic banking should solve the difficulty of access of the SMEs to the banks, particularly those related to security. The investment banking approach should be taken as oppose to conventional banks. An investment banking approach is where the bank provides capital and technical assistance.
2. Feasible approach
Characteristics is of the strengths of the SMEs. Hence to promote a high level of competitiveness among the SMEs, one must have a different approach from conventional banks.
Characteristics is of the strengths of the SMEs. Hence to promote a high level of competitiveness among the SMEs, one must have a different approach from conventional banks.
We must see the potential and feasibility aspects of
the business as a primary consideration in the provision of financing,
and not from the aspect of whether the SMEs are bankable or not.
3. SMEs development strategy with linkage program
In addition to channeling financing directly through to customers of the SMEs, the financing by commercial banks and Islamic business units to the SMEs sector are also done with the linkage program, and include financing through the Shariah microfinancing board, people credit banks and Shariah financing people’s banks.
In addition to channeling financing directly through to customers of the SMEs, the financing by commercial banks and Islamic business units to the SMEs sector are also done with the linkage program, and include financing through the Shariah microfinancing board, people credit banks and Shariah financing people’s banks.
With this program, financing to SMEs can be conducted
more efficiently and effectively as community/local banks are more
aware of the characteristics of the SMEs’ customers in the neighborhood.
Islamic banks can enter the SMEs market directly and also keep the
lower classes to accommodate to the linkage program.
There are problems of collateral when it comes to
linkage programs. These problems can be handled by developing a social
capital by empowering business groups and self-help groups.
4. SMEs development strategy with the cluster system
The cluster system is a development method by the SMEs linking the upstream (peasant farming) to the downstream (market/processing plant). The presence of clusters creates a synergy between upstream and downstream activities, or between a core activity (principal) to support activities.
The cluster system is a development method by the SMEs linking the upstream (peasant farming) to the downstream (market/processing plant). The presence of clusters creates a synergy between upstream and downstream activities, or between a core activity (principal) to support activities.
As a result, the supply of raw materials and
marketing outlets will accelerate efforts within the cluster dynamics,
including interactions with large businesses in the region .
There are several important things that must be considered as the basic requirements of a cluster:
a. There must be at least 50 small business units that perform similar activities.
b. Turnover of the business units in the cluster needs to be at least IDR500 million (US$55,991) per month.
c. There has been a touch of technology that enables the achievement of increased productivity.
a. There must be at least 50 small business units that perform similar activities.
b. Turnover of the business units in the cluster needs to be at least IDR500 million (US$55,991) per month.
c. There has been a touch of technology that enables the achievement of increased productivity.
The study is designed to determine and analyze the
program of development for business centers in enhancing the capacity of
SMEs, knowing that the development of SMEs in the business networks
have been implemented by the ministry of cooperatives and SMEs since
2002 until 2004. This suggests that the program has sufficient potential
to create new entrepreneurs.
5. Intermediary institution which does not rely on the debt system
Contracts with Islamic banks are in accordance with the conditions of the SMEs. If the SMEs are forced to follow the rates of interest, then it will encourage exploitation.
Contracts with Islamic banks are in accordance with the conditions of the SMEs. If the SMEs are forced to follow the rates of interest, then it will encourage exploitation.
The application of the sharing system on SMEs will be
pro-cyclical, if applied as opposed to the system of interest which is
anti-cycle.
Murabahah
contracts were the largest type of contracts used by Bank Umum Syariah
over the last five years with a share of 57.5% of the total financing as
of June 2009, according to statistics by Bank Indonesia. If the amount
is combined with contracts such as Istisnah, Ijarah and Qard, then the share is 63.8% of the total financing. Mudarabah and Musharakah financing in June 2009 amounted to 21.7% and 14.5%, respectively.
5. Promoting social philanthropy on the voluntary sector funds (Zakat, endowments, corporate social responsibility)
6. Synergy with governments, large corporations, Shariah microfinancing boards, SMEs, support financial institution guarantee institution, etc.
In the long run, Islamic banks should be better in dealing with the SMEs sector, so that business risk can be reduced and profits increased. SMEs’ empowerment through Islamic finance is fast becoming a flagship product, not only in Indonesia but also throughout the Islamic world.
In the long run, Islamic banks should be better in dealing with the SMEs sector, so that business risk can be reduced and profits increased. SMEs’ empowerment through Islamic finance is fast becoming a flagship product, not only in Indonesia but also throughout the Islamic world.
Partnership programs can be be realized by creating a
common market. It will give an added value and weight to the stability
and strengthening of the world economy in real terms. The world is
dominated with speculative activities in the financial markets which
only benefit the minority.
Conclusion
Usury-based economy and speculative activities in the absence of underlying assets have caused a disproportionate share of income as there is no real-added value that could be a fair judge in the transaction.
Usury-based economy and speculative activities in the absence of underlying assets have caused a disproportionate share of income as there is no real-added value that could be a fair judge in the transaction.
It is time to give more opportunities to the SMEs
sector to grow, evolve and become a world economic power base. Islamic
banking and financing products must be able to take a major role in the
development and strengthening of SMEs.
Any Setianingrum is the director at
Professional Sharia Consulting and an Islamic economist for science,
business and public finance. She can be contacted at
anysetianingrum@yahoo.com
.
Source : http://www.islamicfinancenews.com/listing_article_ID.asp?nm_id=24123 - Oct 19, 2011
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