Seminar on Islamic Finance:
MICRO FINANCE
Is Islamic MicroFinance a Promising Solution to Lift People Out of Poverty?
LAKSMI MUSTIKA NINGRAT
SENIOR ADVISOR INDONESIAN ISLAMIC MICROFINANCE
Jakarta, 27 NOVEMBER 2012
Source : Coordinator Minister of Economy, BI, BSM & ABSINDO
OUTLINE
 Part I : Back Ground
 Part II : Micronomics (Financial Inclusion =
Islamic Micro Finance)
 What is Financial Inclusion
 How does it contribute to economic
growth and poverty reduction?
 Part III : What We Should Do
 Part IV : Expectations
BACK GROUND
Fact and Figures
Some key facts of Indonesia:
– Population of Indonesia: 237 million
– GDP per capita: USD 3,508
– Banking industry holds more than 80% of financial sector assets
– 97.4% of banks accounts are less than IDR100 million (less than USD10,000)
– Number of commercial banks: 120
– Number of rural banks: +1.667
– Number of cooperatives: +71.000
– Number of islamic microfinance institutions: +5.500
Category
Population
Number of Loan Account
Number of Insured life
Insurance
Number of pension fund
participant
SOURCE : BI
Quantity
Percentage on
Total Population
237.641.326
37.929.527
15,96%
34.564.028
14,54%
2.817.997
1,19%
Public access on financial services is
relatively low that is reflected by (a) the
number of loan accounts which reach
only 15.96% of the population, (b) the
number of insured life insurance which
reach only 14.54% and (c) the number of
pension fund participants which is only
1.19 %
BACK GROUND
Financial Services : Comparison
No
1
2
Indicator
Indonesia
Malaysia
Thai
Phil
Brazil
Account at Formal Financial Institution
20%
66%
73%
27%
56%
Adults saving in the past year (using Formal Account)
15%
35%
43%
15%
10%
Adults Originating a new loan in the past year
(Formal Financial Institution)
9%
11%
19%
11%
6%
Adults With Mortgage
1%
13%
5%
4%
1%
Adults paying personally for health insurance
1%
16%
24%
5%
8%
Number of Bank Branch per 1.000 km2
7,71
6,18
11,59
15,69
2,33
Number of Bank’s Branch per 100.000 adult
population
8,32
10,48
11,16
7,69
13,76
Number of ATM per 1.000 km2
12,39
33,12
80,68
30,35
20,46
Number of ATM’s per 100.000 adult population
13,37
56,18
77,69
14,88
120,62
Financial Services Utilization*) (Percentage of Total
Population)
Banking Services Access**)
Source :
*) WorldBank Policy Research Working Paper, April 2012
**)IMF & WorldBank, 2010
BACK GROUND
ACCESS TO FINANCE IN INDONESIA
13.33%
60%
64.25%
Below
Poverty
Line
Living in
Rural
Area
99.91%
% MSME compare
to total business
unit
Without access
to bank
60-70%
MSMEs that
have not been
linked to bank
5
SOURCE : BI
BACK GROUND
Acoording Imam Al-Syatibi:
The purpose of Islamic Economic is the wealth creation and distribution
Al Muwafaqat Fi Ushul Al-Syariah, 2:8
God say:
“God have been created you from the earth (soil) and asked you to
create a prosperity on it (earth)” Q.S. Hud: 61
SOURCE : BSM
6
BACK GROUND
Islamic Economic
1. Prohibition of interest (riba): Conventional interest on loans or savings, as a fixed return
without sharing any risk, is not allowed.
2. Risk sharing: Because interest is prohibited, suppliers of funds become investors instead of
creditors. The provider of financial capital and the entrepreneur share business risks in
return for shares of the profit.
3. Money as “potential”‖ capital: Money is treated as “potential”‖ capital, which means that
it becomes actual capital only when it joins hands with other resources to undertake a
productive activity. Islam recognizes the time value of money only when it acts as capital,
not when it is “potential”‖ capital.
4. Prohibition of speculative behavior: An Islamic financial system discourages hoarding and
prohibits transactions featuring extreme uncertainties, gambling, and risks.
5. Sanctity of contracts: Islam upholds contractual obligations and the disclosure of
information. In sales contracts, the product or service that is bought or sold must be clear
to both parties. This feature is intended to reduce the risk of asymmetric information and
moral hazard.
6. Sharia-approved activities: Muslims cannot profit from activities considered immoral. Only
those business activities that do not violate the rules of the Sharia qualify for investment.
7. “Short selling‖ is not permissible: Muslims are not allowed to sell what they do not own,
therefore, “short selling‖ is not allowed.
Source: BSM Research
7
BACK GROUND
Poor
Islamic Economic
At least, 4 billion people live on less
than $2 a day
Source: CK Prahalad, 2004.
The Fortune at The Bottom of The Pyramid
Source: BSM Research
Islamic Economic Institutions should
become the locomotive in flipping up the
economic pyramid
The flipped economic pyramid once
occurred in caliphate of `Umar ibn `Abd al`Aziz, where it was very difficult to find zakat
beneficiary (mustahiqq)
8
OUTLINE
 Part I : Back Ground
 Part II : Micronomics (Financial Inclusion =
Islamic Micro Finance)
 What is Financial Inclusion
 How does it contribute to economic
growth and poverty reduction?
 Part III : What We Should Do
 Part IV : Expectations
MICRONOMICS
Poverty Reduction
Social inclusion
(Access to Basic Services )
Promote empowerment
among the poor
(e.g., Health & Education,
Social mobilization)
Financial inclusion
Economic inclusion
(Access to Finance)
Expand the financial
capacity of the poor
Increase access to the
income generating
opportunities for the poor
(e.g., MSME development)
Without inclusive financial systems, poor individuals and small enterprises will have to rely on
their personal wealth or internal resources to invest in their education, become entrepreneurs or
take advantage of promising growing opportunities
10
SOURCE : WORLD BANK
MICRONOMICS
NEEDS:
•Asset Building
•Entry point for Formal
Financial Services
(saving)
Poorest
(Cluster 1)
•Asset Building & business start
up
•Start Accessing Broader Formal
Financial Services ( Saving,
Credit, remittance etc)
•Financial management &
Planning Skills
•Asset & income expansion
•Regular Access to Formal
Services
•Asset/life protection
(insurance)
Poor
(Cluster 3)
almost graduate
(still vulnerable)
Poorer
(Cluster 2)
with sources of
income
with limited
assets
•PKH (CCT program)
•Scholarship & school
operational assistance
•Jamkesmas (health assistance)
•Raskin (rice assistance)
SOURCE : WORLD BANK
Escape from
poverty
i.e. PNPM Program:
• Mandiri Rural-Urban, Revolving Loan
Fund (RLF)
• PISEW (regional infrastructure
development)
• P2DTK (enhancing the development
of underdeveloped region)
• KUR Program
(partial guaranteed
credit)
• KUBE program
(joint business
group program for
productive poor)
11
MICRONOMICS
SOURCE : WORLD BANK
MICRONOMICS
Islamic Finance Co.
2
Sharia Unit of Finance Co.
12
Finance Co. Offer Islamic
Prod
TOTAL
16
Islamic Life Insurance
3
Islamic Non Life Insurance
2
Sharia Unit of Life Insurance
17
Sharia Unit of Non Life
Insurance
Sharia Unit of Reinsurance
18
TOTAL
43
2
3
Islamic Com Bank
11
Islamic Windows
24
Islamic Rural Bank
155
BUSSINESS PLAYER
Finance
Companies
APEX for BPRS & BMT
Product: auto/motorcycles
financing
Insurance
Product :
microinsurance
Pawn Shop
Product : funds for startup/existing micro
business
Micro-Small
Enterprises
BUS/UUS Product
: microfinancing
Banking
2.380
Offices
SERVICES
Microfinance Institutions:
BPRS
Islamic Cooperatives (BMT) > 5,500
Conventional Cooperatives
(Financial Sector)
71,365
Conventional Cooperatives
(Total)
187.598
Zakat Fund Institutions
SOURCE : BI
>500
Cooperatives
Microfinance Institutions:
BMTs
Zakah Fund
Institutions
Empowerment
Programs
Poorest of the 13
Poor
MICRONOMICS
BUS/UUS
Products:
microfinancing
Banking
Microfinance Institutions:
Islamic Rural Banks
(BPRS)
Cooperatives
Microfinance Institutions:
BMTs
SOURCE : BI
Banking Profiles
Number of institutions: 11 Islamic Commercial Banks,
24 Islamic Banking Units, 155 Islamic Rural Banks
(1,820 total Rural Banks)
Assets ICB: IDR 149 tr (USD 17 bio) or 4% Market
share
Assets IRB: IDR 3.6 tr (USD 400 mio) or 6% market
share
Annuall Growth: 45–50% (ICB); 25–30% (IRB)
Total Customers: 9 mio (ICB); 684,167 (IRB)
Asset Volume
Number of IRB
< 1 Billion
3
1 up to 5 Billion
24
>5 up to 10 Billion
39
> 10 Billion
89
Total
155
BMT Profiles
Number of Institutions: More than 5500 BMTs
(Conventional Cooperatives 71.365 units)
Assets: IDR 3,5 tr (USD 389 mio)
Annuall Growth: 30 – 40%
Number of Employee: 5 – 10 (average)
Total members: 10 mio
Non-Performing Financing/Loan: 4-5 % (Modus)
Mostly initiated by group of people in particular
14
community; Islamic Mass Organization, Mosque Comm.
MICRONOMICS
BMT Operations
Source of Funds
Social Activities
as Baitul Mal
Zakah, Infaq, Sadaqa, Awqaf
Grant, Endowment, Non
Commercial Fund, etc
Beneficiaries/Customers
Needy People
EQUITY
MEMBERS
MICRO-SMALL
ENTREPRENUERS
(MEMBERS)
DONORS
APEX
Funding;
Wadiah, Mudharabah, Musyarakah
SOURCE : BI
Commercial Activities
as Baitul Tamwil
Financing;
Murabahah, Ijarah, Mudharabah,
Musyarakah, etc
15
MICRONOMICS
Ministry of Cooperatives &
Small Medium Enterprises
Regulations:
licensing
Cooperatives Offices of
Regional Government
Regulations:
supervision
TA, advocacy & Participation
in Policy Dialogue
Capicity Building & Other
Supporting Programs
The Lender of the
Last Resort
SOURCE : BI
Apex for Financing
MSMEs Projects
PUSKOPSYAH
Regional Associations
PT Permodalan
16
BMT Ventura
MICRONOMICS
How About Digital Economic ?
a
PC, Only 5 % penetration
Number of PC in Indonesia 12 Million Units
b
Internet, Only18,5% penetration
Internet Users 45,000,000 people
c
Mobile Phone no 5 in the world.
Mobile Phone 165,000,000 Mobile Phones
d
Face Book no 2 in the world.
FB Users 35,174,940 users
e
Size of ICT Market in 2011 IDR 220 trilions
Size of ICT Market in 2014 IDR 440 trilions
17
SOURCE : ASOCIO ICT SUMMIT 2011, YOGYAKARTA - INDONESIA
MICRONOMICS
Community Channel (BMT)







Face Book BMT
ATM
EDC
CDM
BMT Click
Mobile Money
KYC (Biometric – eKTP)
The Future of BMT (Low Cost Banking)
Outlet BMT Channel compared with Bank
SOURCE : ABSINDO
MICRONOMICS
ABSINDO Member Strength
Coverage
Nationwide
Member
Aproximately
BMT’s
5.500
Outlets
Over 22.000 outlets
Account Holders
Potentially over 22 million
SOURCE : ABSINDO
OUTLINE
 Part I : Back Ground
 Part II : Micronomics (Financial Inclusion =
Islamic Micro Finance)
 What is Financial Inclusion
 How does it contribute to economic
growth and poverty reduction?
 Part III : What We Should Do
 Part IV : Expectations
WHAT WE SHOULD DO ?
National Strategy on Financial Inclusion
Vision
Mission
Source: BI
21
WHAT WE SHOULD DO ?
Financial Access to Bank and
Non-Bank Financial Institutions
Main Products
Fin.Education
& Customer
Protection
Mapping on
Financial
Information
Intermediation
Facilitation
Distribution
Channel
Supporting
Policy &
Regulation
Saving
Credit/Financing
Payment System
Insurance related to
Credit
Other financial
Services for MSMEs
Infrastructure
Remarks
:
On going Programn by BI
:
:
Program will be conducted by BI
Paralel program with other
institutions
outside of BI
SOURCE : BI
Financial Inclusion Framework
22
WHAT WE SHOULD DO ?
Strategic Target
Financial Education
The Improvement of financial
literacy on:
a. Banking products ;
b. Consumer Protection;
c. Financial management
Financial Eligibility
Policy and Regulation
Increasing the number of
eligible/bankable person or
SME’s
Preparing the regulation that
support financial access and
eliminating the various types
of barriers
Intermediation
Increasing the range of formal
financial system especially to
remote areas community
Source: BI
Distribution Channel
Increasing the financial
distribution channel in terms
of number and quality
23
WHAT WE SHOULD DO ?
Challenges Ahead
Problems
Identified
Lack of
Customer
Protection
Framework for
MFI Customer
Lower income
people is
categorized as
unbankable since
they can not fulfill
bank requirement
Source: BI
Pillars
Proposed Program
WHAT WE SHOULD DO ?
Challenges Ahead
Problems
Identified
Accelerating
Financial
education
Program
Banks and MFI
compete in the
same segment
Financial
services for
people in remote
are
SOURCE : BI
Pillars
Proposed Program
WHAT WE SHOULD DO ?
How Islamic banks, Finance & Bussiness
Institutions should take the role?
Islamic banks
Islamic mission
•
Islamic banks should implement its main
mission: wealth creation & distribution
Take opportunity optimally
•
Islamic banks is supposedly able to take
optimally these opportunities thru advancing
technology, innovating product scheme,
and creating new business models, etc.
Source: BSM Research
26
OUTLINE
 Part I : Back Ground
 Part II : Micronomics (Financial Inclusion =
Islamic Micro Finance)
 What is Financial Inclusion
 How does it contribute to economic
growth and poverty reduction?
 Part III : What We Should Do
 Part IV : Expectations
EXPECTATIONS
STRATEGY : TRIPLE TRACT STRATEGY
POVERTY
ALLEVIATION
DECREADING
UN EMPLOYMEN
INCOME GENERATION
EMPLOYMENT CREATION
JOB
GROWTH
GROWTH ACCELERATION
SAVING
PROFIT
Sub Apex - BMT
POOR PEOPLE
EQUITY
ASSISTANT
CAPACITY BUILDING
INSTITUTIONAL BUILDING
CHARACTER BUILDING
EQUITY BUILDING
Source : Prof. Gunawan Sumodiningrat modification
SYSTEM
WEALTH PEOPLE
EXPECTATIONS
GOVERNMENT (REGULATION & SUPERVISORY)
BANK-BANK
STRATEGIC PARTNER
APEX PROVIDER/IMPLEMENTOR
Financial Assistance
Apex
s
Financing Access
(Financing & Equity)
Arrangement
Technical
Technical
Assistance
Assistance
Management
Standardization
(SOP, ICT, Training)
165.000 Cooperatives & 5000 IMF
MICRO & SMALL ENTREPRENEUR
COMMUNITY
SOURCE : ABSINDO
EXPECTATIONS
APEX MFI
“An APEX Institution serves its
owner/members (MFI’s) to
strengthen their commercial
position, viability and future, sound
and profitable development”
(Cleman Wendland GTZ; 2004).
SOURCE : ABSINDO
EXPECTATIONS
……APEX MFI
• APEX is a Central for MFI (Micro Finance
Institution)
• Integrated system comprising of social
network microfinance, mobile payment
solution, core switching for finance, groups
of MFI which enable distribution of funds to
the saving account holder, transaction
between account holders, and payment for
utilities and other services.
SOURCE : ABSINDO
EXPECTATIONS
No
Function
Institution
Explanation
Analog
1
SRO
Apex
Internal Regulations for its Member
BI, LPS,
OJK
2
Saving Guarantee
MFI-SG
IDR 25.000.000,- Maximum
LPS
3
Mismatch Liquidity
Apex
SWM from Apex Member
LPS, BI
4.
Settlement
Apex
Virtual Clearing Systems
BI
5
Payment Systems
eMF
Card & Mobile Payment Systems
BI
6
Wholesaler
Apex
Donor Funds like World Bank
BI
7
Linkage Program
Apex/creditor
Funds from Creditor
BI
8
Credit Biro
Apex
Credit Information Center/Call
Center
BI
9
ICT
eMF
Back Office/ Centralized Data
Center
BI
10
Rating Systems
eMF
System Rating (ICT Base)
BI
11
Management Services
Apex
SBU Training (Certif), SOP, ISO etc
BI
12
Supervision/MONEVA
Apex, eMF
MONEVA to member (exclude FS)
OJK
SOURCE : ABSINDO
EXPECTATIONS
BMT UGT, Pasuruan – East Java
Asset IDR 287 bio (USD 25.5 mio)
33
EXPECTATIONS
Islamic Creative Economics
To the Community : Creative Micronomics
should become the locomotive in
flipping up the economic pyramid
UU No. 20/2008 ttg UMKM
Big Coy/Conglomerat :
Omzet/pa > IDR 50 B
Asset > IDR 10 B
BIG COY :
Net Assets/pa
> 10 B
Sales Volume
> 50 B
MIDDLE COY :
Net Assets/pa
> IDR 500 M s.d 10 B
Sales Volume
> IDR 2,5 B - 50 B
SMALL COY :
Net Assets/pa
> IDR 50 M s.d 500 M
Sales Volume
> IDR 300 M - 2,5 B
MICRO ENT :
Net Assets/pa
Maximum IDR 50 M
Sales Volume
Maximum IDR 300 M
BIG
COY
± 4,52 thou
± 120,25 thou
= 0,24%
Small Coy :
Omzet/pa from IDR 200 M - IDR 1 B
Asset until IDR 200 M
SMALL
COMPANY
± 2,02 mio = 4,05%
MICRO ENTERPRISES
SOURCE : RUU No. ../2008 ttg UMKM (Kep Sidang Paripurna DPR)
Kekayaan Bersih = total nilai kekayaan usaha (asset) – total nilai kewajiban,
tidak termasuk tanah dan bangunan tempat usaha.
Hasil Penjualan = hasil penjualan bersih (netto) dari barang dan jasa dlm 1 th buku
0,01%
Middle Coy
Omzet/ pa from IDR 1 B - IDR 50 B
Asset from IDR 200 M - IDR 10 B
MICRO
MIDDLE
COY
=
Micro Enterprises :
Omzet/pa until IDR 200
M
Asset until IDR 50 M
± 47,70 mio = 95,70%
SOURCE : MODIFICATION FROM UMKM DATA 2007, BERITA RESMI STATISTIK No. 28 BPS 2008
UU No. 9/1995 ttg Usaha Kecil
PP No. 32/1989 ttg Pembinaan dan Pengembangan Usaha Kecil
Inpres No. 10/1989 ttg Pemberdayaan Usaha Menengah
34
INDONESIAN TODAY (2012)
RICH COUNTRY
POOR PEOPLE
INDONESIANTOMORROW (2045)
RICH & SUPER POWER COUNTRY
WEALTH &ETHICAL