Islamic Microfinance and Sukuk:
A Propose Regulatory Framework
for Liquidity issue in Indonesia
1
BY
DR.RADITYA SUKMANA
HEAD OF MAGISTER SCIENCE IN ISLAMIC
ECONOMIC, AIRLANGGA UNIVERSITY,
SURABAYA, INDONESIA
Presented in Roundtable Discussion on Regulatory and
Supervisory Framework in Islamic Microfinance
March, 18-19 2014, Khartoum, Sudan
Map of Indonesia
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Notes (various sources):
1. Total Population 230 million
(2011)
2. % muslim = 88%
3. GDP per capita = $ 3464
4. Five biggest island:
1. JAVA
2. KALIMANTAN
3. SUMATERA
4. SULAWESI
5. PAPUA
5. Exchange rate (Rupiah-Rp)
USD 1 = Rp 11000
Empirical data about the microfinance ( dept of
cooperative-year 2010)
3
No
Indicator
Unit
Numbers of Unit
Unit
Numbers
Share
1
MSMEs
Unit
53,823,732
99,99
2
Micro
Unit
53,207,500
98,85
3
Small
Unit
573,601
1,07
4
Medium
Unit
42,631
0,08
Empirical data about the microfinance ( dept of
cooperative-year 2010)
4
Number of Labor
Person (unit)
Numbers
Share
1
MSMEs
Person
99,401,775
97,22
2
Micro
Person
93,014,759
90,98
3
Small
Person
3,627,164
3,55
4
Medium
Person
2,759,852
2,7
what are the most types of risks and challenges
facing microfinance in the country?
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 Human resources
 fair treatment for the commercial banks and to
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microfinance programs.
Risk appear from non business related issue such as
member of the family got sick, harmony within the family
mindset of the management staff and the owner or the
member
Many financial institution coming enter the microfinance
Liquidity issue In Islamic microfinance institution
Problem with Liquidity by IMFI
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 Linkage with Islamic bank high rate/margin
 Funds by Ministry  sustainability of program
 Alternatively, adopts the Sukuk instruments
Previous Study
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 sukuk mudharabah which has been applied in one of
the state of Malaysia namely Johor
 a municipal called Pasir Gudang (PG). In 1995 this
municipal wanted to raise fund to beautify the city.
 The local government then made use of the sukuk
mudharabah for that purpose with the tax revenue
stream as the underlying asset
Sukuk for Microfinance: Proposed Structure
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The process
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1 SPV, set up a profit sharing basis of mudharabah with the
investors. This means that the investors act as the rabbul maal
(parties which have excess funds) and SPV act as the
entrepreneur who will manage the funds.
2n3As a rabbul maal, investors contribute fund to be given to
SPV and receive sukuk certificate
4 The ijarah part will take place between SPV and Govt as the
owner of the asset
5 The govt asset is rented to the SPV.
6 SPV give rental fee (advanced payment) to the govt. This fee is
coming from the funds contributed by the investors.
7 During the leased period, the profit generated from the leased
asset will be managed by the SPV
The process
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8 The profit will then be given periodically to the investors as the profit form the partnership
(mudharabaha)
Basically, it requires eight sequence step in order for the sukuk to be implemented. These steps
cover from where the funds come from until the step where the fund is given to CBL like for
microfinance. However, this structure has not explained the main purpose of this study that is
how sukuk can support the liquidity shortage for Islamic cooperatives (BMTs) which deal with
Islamic microfinance.
The following is the process on the role of sukuk for microfinance:
9 The advanced payment received by government is to be given to CBL that act as lender of the
last resort for Islamic cooperatives.
10 The funds will then be distributed to the Islamic cooperative or BMTs.
11 As the price of the sources of funds is relatively cheap, BMTs will be more able to give lower
financing rate to the MSMEs. Moreover as the loanable fund increase. BMTs have more
opportunity to provide more financing
12 The profit from the businesses will be distributed between the MSMEs themselves as well as the
BMTs.
13 Profit portion for the BMTs will be divided by the BMTs themselves and the CBL. The payment
will be the profit portion for the CBL and this has been agreed upfront.
There are advantages on using this sukuk
structure:
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 It promotes sukuk as the alternative for the financing
as opposed to the traditional financing from Islamic
bank. The existence of the financing alternative will
give more option or choices for needed fund parties
to assess the risk and return that fit with their risk
profile
 This structure is to support the real sector which is
consistent with the nature of the Islamic finance. In
this case, sukuk is adopted to support the liquidity
shortage experienced by many Islamic cooperatives
There are advantages on using this sukuk
structure:
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 As the intention is to support the Micro Small Medium Enterprises
particularly micro enterprises via BMTs, the negotiated profit rate
given to the government (through CBL) can be designed to be very
minimum. The big portion of the profit goes to MSMEs and
certainly in the long-term MSMEs will grow faster.
 In many ijarah sukuk, there is a step of sell and buyback. Which
means government is selling the asset in which in the maturity date,
the government is buying back the same asset. This requires the
purchase undertaking and the ownership given by government is
beneficial ownership and not a full ownership. This beneficial
ownership remains the issue. Although majority has said that
beneficial ownership can be applied but still there are others who
oppose it. This structure attempt to get rid of the beneficial
ownership issue. This is because government is leasing (not selling)
assets to the SPV in which the government is receiving the advanced
payment in full at the beginning.
Conclusion
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 The paper aims to provide the regulatory framework
to create solution of the problem that has been in
existence in the development of microfinance.
Among various problems, the liquidity shortage is
the main problem which needs to be settled down.
This paper propose the use of sukuk to solve that
problem
 Thank You