Abstract
This paper aimed to identify the implementation of micro finance in sharia rural banks in West Java province, Indonesia. Furthermore, this study attempted to investigate issues found and the solution to them. Six out of 13 sharia rural banks in West Java, Indonesia were selected to be the subjects of the study. The selected banks were claimed to be able to represent urban and rural areas of the bank location. In addition, several experts and practitioners in related fields were also invited to be interviewed and attend a Focus Group Discussion (FGD). Based on the results of the study, it was found that the sharia rural banks found funding resource to be their ultimate issues in dealing with micro finance causing the shift in selecting customers from all people from low social class to those with fixed income. In addition, sharia rural banks also faced a tough competition with conventional banks, sharia banks, and sharia business units in having micro finance activities. There have been several efforts made to increase the quality of implementation of the micro finance yet the support from the government is still low. It is expected that the government creates such an effective system so that micro finance run by the sharia rural banks can be more effective.
Highlights
An inclusive business model, micro finance for instance, is proven to be able to enhance the economic potentials of developing countries (Husaeni and Dew, 2019), Indonesia is included
The implementation of micro finance in six rural banks in West Java which are the samples of the study uses four types of akad namely musharakah, mudarabah, murabahah, and ijarah
All of the akad types are in agreement with the fatwa from the National Sharia Board (Dewan Syari’ah National, DSN) under the supervision of Indonesia Ulama Council (Majelis Ulama Indonesia, MUI). Such akad schemes as qard al-hasan, murabahah, and ijarah have the potentials to be managed for the finance for the poor. In the meantime, such participating schemes as mudarabah and musharakah have the potentials for the main purpose of micro finance since the scheme is able to fulfill the needs of risk distribution of micro businesses (Rahman, 2010)
Summary
Micro finance for instance, is proven to be able to enhance the economic potentials of developing countries (Husaeni and Dew, 2019), Indonesia is included. The scheme of sharia micro finance is proven to have moral and ethical attributes which are effectively able to motivate micro businesses to develop. Both sharia banking and micro finance have close relationship since there are some elements of micro finance that can be synergized with the purposes of sharia banking (Rahman, 2007). Policies made properly will be able to help the society have access to financial institutions (Allen et al, 2012; Siddique et al, 2020)
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