Sustainable conventional and Islamic microfinance models for micro enterprises

Abstract EN

The role of micro enterprises (MEs) in Indonesia after the 1998 Asian crisis, especially in rural areas, was considered a safety valve in the process of national economic recovery, both in enhancing economic growth and reducing the unemployment rate.

MEs have always faced difficulties in accessing loans or financing from the banking industry (conventional as well as Islamic) for a number of reasons.

This study aims at evaluating several existing models of conventional and Islamic microfinance for MEs in Indonesia to find the best existing microfinance model to support sustainable rural development.

The results show that the best conventional Grameen model is Koperasi Mitra Dhuafa; the best Islamic Grameen model is KUBE Sejahtera No.

21; the best conventional rural bank model is BKK Purwodadi; the best Islamic rural bank model is Amanah Ummah; the best conventional micro-banking unit model is BRI Unit; and the best Islamic micro-banking unit model is BSM Warung Mikro.

The overall best micro finance institutions (MFIs) are Koperasi Mitra Dhuafa (cGrameen), BRI Unit (cMBU) and UGT (BMT).

Moreover, the best financing program is offered by KUBE (iGrameen), the best social-development program is provided by KUBE (iGrameen), the best MFI performance is by Amanah Ummah (Islamic Rural Bank) and the best outreach is carried out by BRI Unit (cMBU).

The most important sustainability criteria are: (1) Aid Independence (MFI Performance); (2) Coverage (Outreach); (3) Savings Program (Social Development Program); (4) Profitability (MFI Performance); (5) Risk Mitigation (Financing Program); (6) Social Services (Social Development Program); (7) Pick-Up Service (Financing Program); and (8) Average Financing (Outreach).

Finally, the Cooperative- BMT model, which is operated more as a social business institution, is the most balanced sustainable model.