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Why is Growth of Islamic Microfinance Lower than its Conventional Counterparts in Indonesia?

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  • MASYITA, DIAN

    (Senior Lecturer and Researcher at the University of Padjadjaran)

  • AHMED, HABIB

    (Professor of Sharjah Chair in Islamic Law and Finance)

Abstract

The aim of this paper is to examine the demand factors for microfinance services in Indonesia consisting of the understandings, perceptions and preferences of 581 micro finance institutions (MFIs) clients of four MFIs— two Islamic (BMT and BPRS) and two conventional (BRI and BPR). The results show that MFIs clients’ preferences are driven by economic (low interest rates, low collateral and size of loan) and non-economic factors (such as quality of services variables; easiness, speed, nearness, payment method and loan officers’ profile). The results also indicate that BRI, a conventional MFI, is ranked the most competitive according to these factors, followed by BPRS (Islamic rural banks), BPR (conventional rural banks) and BMT (Baitul Maal wa Tamwil). The survey also identifies the gaps in which Islamic MFIs should fulfill in enhancing their roles to reduce unemployment and poverty.

Suggested Citation

  • Masyita, Dian & Ahmed, Habib, 2013. "Why is Growth of Islamic Microfinance Lower than its Conventional Counterparts in Indonesia?," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 21, pages 35-62.
    • Handle: RePEc:ris:isecst:0014
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    References listed on IDEAS

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    1. Ahmed, Habib, 2002. "Financing Microenterprises: An Analytical Study Of Islamic Microfinance Institutions," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 9, pages 28-64.
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    2. Purwanto & Ina Primiana & Dian Masyita & Erie Febrian, 2018. "Social Outreach Model and Efficiency in Sharia Micro Finance Institution: Literature Review," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 104-122.
    3. Rahajeng, DIAN, 2013. "The Role of Islamic Banking System as the Milestone towards Indonesia Micro Economy Development," MPRA Paper 50465, University Library of Munich, Germany.
    4. Jiguang Wang & Bing Ran, 2019. "Balancing Paradoxical Missions: How Does Microfinance Rebuild a Sustainable Path in Poverty Alleviation?," SAGE Open, , vol. 9(2), pages 21582440198, June.

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