ENTREPRENEURS
BY: SAEBANI HARDJONO
Candidate Doctor of Islamic Economics & Finance (IEF) TRISAKTI - Jakarta - Indonesia
Microfinance has become one of the most sustainable and effective tools in the
fight against global poverty. Islamic microfinance has the potential to not only
respond to unmet demand but also to combine the Islamic social principle of
caring for the less fortunate with microfinances power to provide financial
access to the poor.
Segala puji[2] bagi Allah, Tuhan semesta alam [3]
All the praises and thanks be to Allah, the Lord of the Alamin (mankind, jiin and all that
exists).
[2] Alhamdu (segala puji). memuji orang adalah karena perbuatannya yang baik yang
dikerjakannya dengan kemauan sendiri. Maka memuji Allah berrati: menyanjung-Nya
karena perbuatannya yang baik. lain halnya dengan syukur yang berarti: mengakui
keutamaan seseorang terhadap nikmat yang diberikannya. kita menghadapkan segala
puji bagi Allah ialah karena Allah sumber dari segala kebaikan yang patut dipuji.
[3] Rabb (tuhan) berarti: Tuhan yang ditaati yang Memiliki, mendidik dan Memelihara.
Lafal Rabb tidak dapat dipakai selain untuk Tuhan, kecuali kalau ada sambungannya,
seperti rabbul bait (tuan rumah). 'Alamiin (semesta alam): semua yang diciptakan Tuhan
yang terdiri dari berbagai jenis dan macam, seperti: alam manusia, alam hewan, alam
tumbuh-tumbuhan, benda-benda mati dan sebagainya. Allah Pencipta semua alam-alam
itu.
There is no proper equivalent to Rabb in the English language. It means the One and the Only Lord for
all the universe. Its Creator, Owner, Organizer, Provider, Master, Planner, Sustainer, Cherisher, and
Giver of security.
Surat Al-Fatihah which is As-Sab Al-Mathani (i.e. the seven repeadtedly recited Verses) and the Grand
Quran which has been given to Rasulullah (Sahih Al-Bukhari, 6/4474). It gives of two kinds:
1.
2.
Guidance of Taufiq and it is totally from Allah, i.e. Allah opens ones heart to receive the truth (from
disbelief to Beleive in Islamic Monotheism).
Guidance of Irshad through preaching by Allahs Messengers and pious preachers who preach the
truth, i.e. Islamic Monotheism.
Cited by Saebani Hardjono - Source: DR. Muhammad Muhsin Khan and DR. Muhammad Taqi-ud-Din AlHilali, (1996), The Noble Quran, Darussalam, Global Leader In Islamic Books.
Introduction
This presentation consists mainly with four different parts.
First, Islamic banking and the investment mode, and the Islamic bank practices in
Indonesia.
Second, microfinance and Islamic microfinance in general and an Indonesian context.
Third, the concept of Networks and the Financial & Societal Sector Institutions.
Forth, how Islamic microfinance develops and establishes different network
relationships,
To study Islamic microfinance in relation to the micro entrepreneurs based on the institutional
networking, especially in the case of Indonesia.
Method
In writing this paper author implements the method of literature study/review based on
available reference materials.
based transactions but the owner of capital and the entrepreneurs: sharing the result.
It differs from an interest-based system in which the risk is mainly borne by the entrepreneur.
We can call Islamic banking as participatory banking.
More than 70 Islamic banks and Insurance houses are rendering interest-free services in Asia,
the Middle East, the Far East, Africa and Europe and North American countries.
The Islamic Society of North America Canada (ISNA, 2000), has initiated Islamic banking
activities and started lending interest-free funds to their customers especially for
Islamic banks have emerge around the world: includes in North America Canada, Europe, Africa, and
Asia.
All countries a round the world, both in the North and in the South, need more venture capital. Loan
capital is available, particularly from industrialized countries but at high interest rates.
2001 - 2007: Islamic (sharia) banking in Indonesia was experiencing a high growth.
2008: The growth of Islamic banking is still able to enjoy high growth, given a climate
conducive in form of Indonesian macroeconomic conditions well enough, although not
a prerequisite for the development of the banking sector, including Islamic banks.
Indonesia's economic growth in 2008, in a global recession, still recorded a positive
growth of 6.1% which is supported by the improvement in private investment, public
The decline in inflation pressures and the strengthening of the rupiah giving space for
Bank Indonesia to gradually lower the BI rate in order to encourage the real sector.
For the banking sector, it suggests positive prospects for stimulating the real sector, especially in
the microfinancing.
Indonesia Islamic Banking Prospects
Indonesian Islamic (sharia) banking industry in 2009 still to enjoy the high-growth, i.e.
in the range of 38% with the establishment of new Islamic banks--is higher compared to
increasing number of customer accounts, and the amount of funded economy sectors.
Instead of macroeconomic conditions that are still conducive, micro factors in the banking
industry and Islamic finance also affect the acceleration of the development of sharia
banking industry, which includes:
o Planned opening of new Islamic banks
o Optimizing the business capacity of Islamic banks; and
o Support national Islamic financial environment,
includes
an
Islamic
microfinancing.
Completion of Tax Law perfection (VAT) at the beginning of the year 2008 also be a
gateway for the entry of new investors into the sector of national Islamic banking
Besides the prospects are affected by macro economic as described above, Karnaen A.
Perwataatmadja, and Hendri Tanjung deliver prospects in terms of internal factors which are
strengths for the development of Islamic banks, as follows:
1. The support of Muslims who are the majority population.
2. The existence of Islamic banks in accordance with the needs and expectations of people,
with the advantages as follows:
a. Encourage togetherness between the parties by sharing the risk: losses and profits.
b. Murabaha financing and bai bithaman can be done without physical collateral.
c. Financing mudaraba will not burden customers with fixed costs that are
determined in advance. Customer obligation is to share the results reasonably in
conform with agreements and business development.
d. Customers get yield subject to their performance and development of the banks
that are transparent to the customer in mind.
Provide free interest loans, called Qardul-hassan, which is distributed to the right
people, funds are collected from Zakat, Infak, and Alms, and cash waqaf.
g. No worry about the cost of money because the interest is not known.
h. Not charge interest, so more resistant to the negative influences of globalization
monetary turmoil.
i.
Competition among Islamic banks do not eradicate each other since they work in
a partnerships network with the motto fastabiqul khoirot.
Murabaha,
Bai-Muajjal,
Bai-Salam, and
Quard E-Hasan.
Mudaraba or (Capital Financing) is an Investment through self employed entrepreneur.
Musharaka or investment under partnership.
Murabaha is a cost plus sales on cash basis.
Bai-Muajjal is a cost plus sales under deferred payment.
Bai-Salam is an Advance Purchase or Hire-Purchase under Shirkatul Milk Ijara or leasing.
Quard-El-Hasan means an interest-free loan given to the needy people in a society.
In order to know Islamic banking procedures that all Islamic banks in many Muslim countries follow
to invest their funds under various modes of financing; a detailed description of each mode is given
below.
Mudaraba or capital financing: Under the Mudaraba mode or the Capital Trust
Islamic banks supplies the entire capital of the business and the customer gives his time and
expertise: a relationship between the supplier of capital and the user of capital. The bank and
the customer work together and share profits and losses [( Khoja and Ghuddah (1997)]
In essence is based on the concurrence of those who have capital with those who expertise to
earning halal profit (lawful) which will be divided between them in ratios agreed upon.
The investor is known as Rab-Al-Mal meaning the owner of the property and the
Musharaka means a profit sharing joint venture. The bank and the customer contribute
capital jointly.
They also contribute managerial expertise and other essential services at agreed proportions.
Murabaha means a cost-plus profit based financing [( Khoja & Ghuddah (1997)].
Islamic banks which undertake the purchaser of commodities requested by the customer and
then resell them on Murabaha to whom promised to buy for its cost price plus a margin of
profit agreed upon previously by the two parties.
The bank agrees to purchase for a client who will then reimburse the bank in a stated time
period at an agreed upon profit margin. The mark-up price that the bank and the buyer agree
to is mainly based on the market price of the commodity.
The bank earns a profit without bearing any risk.
Quard E Hasan means an interest-free loan given by the Islamic bank to the needy people.
The practice of dealing with this sort of investment differs from bank to bank.
Quard E Hasan is normally given to needy students, small producers, farmers, entrepreneurs
and economically weaker sections of the society, who are not in a position to obtain loan or
any financial assistance from any other institutional sources.
The main aim of this loan is to help needy people in a society in order to, make them selfsufficient and to raise their income and standards of living.
Microfinance refers to finance services such as credit, savings, insurance provided for lowincome people or widely called economically active poor.
Microfinance emerged in the 1970s as social innovators to offer financial services to the
working poor - who were considered "un-bankable" because of their lack of collateral.
These tiny loans are enough for hardworking micro-entrepreneurs to start or expand small
businesses such as weaving baskets, raising chickens, or buying wholesale products.
Income from these businesses provides better food, housing, health care and education for
entire families, and most important, additional income provides hope for a better future.
States its goal that is simple to see poor people, especially the poorest and those living in
harder to reach areas, have access to microfinance and technology and as a result of access
to these services, move themselves out of poverty.
Envisions a world where the poor have broken the generational chain of poverty and lead
lives of respect, dignity and opportunity.
Collaborates with local organizations and allies around the globe to provide products and
services that allow them to:
1) reach deeper into poor communities with microfinance.
2) provide access to microfinance and technology services among the poor and poorest.
3) ensure they are moving out of poverty over time.
Their mission is to enable the poor, especially the poorest, to create a world without poverty.
In all its work, Grameen foundation embraces and draw inspiration from its core values are:
accountable for transparency and measurable results, including social and financial
performance;
partnerships with those who can advance the mission before acting alone;
respect, invest in and promote local social entrepreneurs and local ownership; and,honor the
voice, professionalism and integrity of all staffs and volunteers.
Microfinance in Indonesia
Indonesia is made up of more than 17,000 islands and is home to nearly 230 million people. Nearly
half the population lives under the $2.50/day poverty line.
The population are considered near-poor, living just above the poverty line.
The risk of a household falling below the poverty line is very high. Over 38 percent of poor
households in 2004 were not considered poor in 2003,
The countrys vulnerability to price shocks particularly increases in rice prices. Over 75 % of
the poor spend a quarter of their incomes on rice.
When rice prices increase, as they did in 2006, millions of people fall back into poverty.
Rural households account for about 57 percent of the countrys poor, and almost two-thirds of
poor households involved in agriculture, such as fishing and farming.
Urban poverty is on the rise and the conditions in urban areas are comparatively worse.
The islands of Java and Bali contain 59 percent of Indonesias population, and 57 percent of
its poornearly 140 million people.
Despite a continuous reduction in poverty rates over the last several decades, nearly half of
the population still lives below the $2.50/day poverty line.
The demand for microfinance services is immense. Despite the existence of over 50
thousands registered microfinance institutions, very few are targeting the poor and poorest.
More than 50 % of Indonesias entire opulation remains without access to formal financial
services.
Indonesia micro finance institutions can be divided into two categories, i.e., bank and nonbank sectors:
o
BRI (Peoples Bank of Indonesia) and BPR (Rural Bank), mostly private, belong to
bank sector.
While non-bank sector can be classified into two kinds: formal and non formal.
cooperative,
pawnshop, and
BKD/ rural credit association (Badan Kredit Desa ); is supervised by BRI on behalf
of BI (Central Bank of Indonesia). LDKP gets formal status as local governments
institution.
Non-formal micro finance institutions are carried out by NGOs and self-help groups.
98.5% business entity in Indonesia or 41.8 million of business units are in micro category,
Of which, less than 10 million of business units get finance services from formal market.
The rest (>30 million),are mostly trapped into informal market called money lenders.
The interest rates charged by money lenders are so high (ranging from 20%-50% per month).
The Indonesian government indeed does not stay doing nothing to face this situation. Government has
implemented projects and programs, most of them with micro finance component. These programs
have wide scale and great outreach to the people.
There are 70 projects of government institutions (supported donors, with budget almost US
$300 millions) which have a micro finance component.
Different from many other countries in which micro finance is developed by NGOs, in
Indonesia micro finance development role is hold by government.
Furthermore, the interest applied is subsidized which results in negative impact or distortion
on micro finance (commercialization) industry.
Further, based on lessons learned from the best practitioners over the world, it was agreed that in
developing micro finance require 4 important following points:
1. reaching the poorest
2. reaching and empowering women
3. building financially sustainable institution
4. measurable positive impact
In Indonesia, micro finance approaches can be categorized into 4 kinds:
Micro banking.
Lingkage model
Financial mobilization is based on capacity of the poor (saving). It is also membership based,
of which membership and participation are crucial aspects. Some forms of institutions within
the communities are: self-help groups (SHGs), Credit Union (CU), Koperasi Simpan
Pinjam/KSP (savings and credit cooperative), etc.
2. Credit led microfinance
The main source of finance is not from saving mobilization of the poor but from other source
intended for the poor (credit). Therefore, considerable amount of fund is needed for the poor
through credit service, such as Badan Kredit Desa/BKD (rural credit association), Lembaga
Dana Kredit Pedesaan/LDKP (rural credit financing institution), Grameen Bank model, ASA
model, dll.
3. Micro banking
It refers to banking sector designed to conduct micro finance services. It includes BRI
(Peoples Bank of Indonesia) and BPR (rural banks). Moreover, BRI is acknowledged as the
giant of microfinance institution (Bank) in the world.
4. Lingkage model (self-help group and bank)
It is on the basis of operating the existing institutions, both informal social organization that
is often called Kelompok Swadaya Masyarakat/KSM (self-help group) and formal finance
institutions (bank). The two different natures of institutions are organized and linked based on
mutual symbiosis and benefits. Bank will get greater number of clients (outreaching), while
the poor can get access to financial support. In Indonesia, it is widely recognized as Pola
Hubungan Bank dan Kelompok Swadaya Masyarakat/ PHBK (Bank-Self-Help Groups
Linkage) in 1988.
Indonesia, eventually is often called as micro finance laboratory in the world, considering the
availability of various kinds of micro finance in the country and great need of development.
The objective of the forum is to build micro finance as industry to reach the poor widely.
No
Unit
Creditor
Credit
Saver
Saving
Institutio
n
BPR
2,148
2,400,000
5,610,000
BRI Unit
3,916
3,100,000
5,345
400,000
29,870,00
0
480,000
Rp9,254,000,000,0
00
Rp27,429,000,000,
000
Rp380,000,000
Badan
Kredit
Desa
KSP
Rp9,431,000,000,
000
Rp14,182,000,000
,000
Rp197,000,000
1,097
665,000
na
Rp85,000,000,000
USP
na
LDKP
35,21
8
2,272
1,300,000
Pegadaian
264
16,867
Rp1,157,000,000,0
00
Rp334,000,000,00
0
No Savings
BMT
3,038
1,200,000
Credit
Union &
NGO
TOTAL
1,146
397,401
Rp531,000,000,00
0
Rp3,629,000,000,
000
Rp358,000,000,00
0
Rp157,697,252,00
0
Rp157,000,000,00
0
Rp505,729,317,82
3
54,44
4
9,479,268
na
Rp28,951,623,569
,823
na
No Savers
na
293,648
36,253,64
8
Rp209,000,000,00
0
Rp188,014,828,88
4
Rp38,656,394,828,
884
Only less than 25% of micro enterprises can be served through micro finance institutions. Actually,
there are some constraints to develop microfinance in Indonesia. The most problems, such as:
1. Legal and regulatory framework
2. Wholesaler of microfinance
Micro finance is becomes burning issue in Indonesia.
High-Level Policy Meeting on Micro finance and Rural Finance in Asia (26-28 Feb 2004 in
Yogyakarta) 13 central banks of Asian countries and related ministries from Afghanistan,
Bangladesh, Cambodia, India, Laos, Malaysia, Nepal, Pakistan, Philippine, Sri Lanka,
Thailand, Vietnam, and Indonesia formulated strategies and policies to support micro
financing sector.
Micro finance is believed as effective and strategic instrument to alleviate poverty. Komunike
Yogyakarta 2004 statement that really promoted micro finance was declared.
Islamic Microfinance
experience of the Grameen Bank initiated by Nobel Prize winner Mohammed Yunus.
The Muslim- majority countries, such as Indonesia and Pakistan, have a vibrant microfinance
industry; approximately 44 % of conventional microfinance clients worldwide reside in
Muslim countries.
Yet, conventional microfinance products do not fulfill the needs of many Muslim clients. Just
as there are mainstream banking clients who demand Islamic financial products, there are also
one -- and even the less religiously observant may prefer Sharia compliant products.
Islamic finance has boomed in recent years; but what has hit the headlines is big money that is
law.
Some microfinance institutions (MFIs) have stepped in to service low-income Muslim clients
who demand products consistent with Islamic financial principlesleading to the emergence
less fortunate with microfinances power to provide financial access to the poor.
Unlocking this potential could be the key to providing financial access to millions of Muslim
poor who currently reject microfinance products that do not comply with Islamic law. Islamic
microfinance is still in its infancy, and business models are just emerging.
2007s global survey on Islamic microfinance, CGAP (Consultative Group To Assist the Poor)
collected information on over 125 institutions and contacted experts from 19 Muslim countries as
such:.
Estimated the global outreach of only 380,000 customers and accounts or 0.5% of total
microfinance outreach.
Islamic microfinance is very concentrated in a few countries, with the top three countries:
Indonesia, Bangladesh, and Afghanistan, accounting for 80 percent of global outreach.
Total assets of Islamic financial products is estimated at US$500.5 billion (The Banker 2007) and the
Islamic finance industrys 100 largest banks have posted an annual asset growth rate of 26.7 %,
outpacing the 19.3 % growth rate of their conventional counterparts (Kapur 2008).
Discovering Islamic Microfinance
There are numerous small enterprises, some of remarkable ingenuity in solving their technical
problems in a difficult environment, but all facing one core problem: lack of access to credit.
Mudarabah: the bank carefully selected highly profitable large enterprises, invested in
them and shared the profit, gaining in some cases up to 80 per cent.
Murabahah: the bank bought e.g. machinery and sold it to its customers, to be repaid
in instalments with a fixed mark-up, not much different from conventional credit.
Any type of speculative lending would have been against Islamic law.
Then there was qard al-hasan: charitable microcredit without any profit-sharing or mark-up
and the only type of unsecured lending permitted under Shariah. This represented only an
insignificant proportion of the bank's portfolio and reached but a small number of clients.
Comprising some 6,000 formal and 48,000 semi-formal registered microfinance units
There is hardly an institutional type of microfinance that is not found in Indonesia. One of the
most successful microfinance models worldwide, the reformed Bank Rakyat Indonesia (BRI)
units, were designed by Harvard Institute for International Development (HIID), early 1980s.
Islamic finance in Indonesia, the largest Muslim country, has evolved since around 1990,
mainly in response to political demands from Muslim scholars and organizations.
The first Islamic cooperatives were established in 1990, followed by rural banks in 1991 and
the first Islamic commercial bank in 1992.
In 1998, Bank Indonesia gave official recognition, as part of a new banking act, to the
existence of a dual banking system, conventional and Islamic, or shariah-based.
This led to the establishment of a second Islamic Commercial Bank (ICB) and, until
December 2003, of eight Islamic Commercial Banking Units (ISBU) (out of a total of 138
commercial banks, comprising a total of 299 banking offices), with a continuing upward
trend, reaching 3 (ICBs) and 19 (ICBUs) in December 2005.
The growth pattern of Islamic rural banks has been quite different. After an initial period of
growth until 1996 when they reached a total of 71, their number almost stagnated during and
after the financial crisis, reaching 78 by 1998 and a mere 84 by 2003 (out of a total of 2,134
rural banks), and 92 by December 2005.
The first Islamic cooperative was established in 1990. Rapid expansion started after 1996, as
a result of promotion by Center for Micro Enterprise Incubation (PINBUK), a nongovernment organization (NGO), and continued throughout the financial crisis, but stagnated
after 1999 at around 3,000 and then declined to less than 2,900 as of 2003 (out of a total of
some 40,000 microfinance cooperatives).
Islamic cooperatives: Start in 1990, rapid expansion after 1996, stagnation in 1999,
in 1998.
Indonesia gives insight into the development of Islamic microfinance because of its dual
conventional/Islamic microbanking system, which includes both conventional rural banks (Bank
Perkreditan Rakyat or BPRs) and Sharia-compliant rural banks (Bank Perkreditan Rakyat Syariah or
BPRSs).
BPRSs are privately owned and are regulated and supervised by Bank Indonesia. They are
licensed to offer banking services (loans and savings facilities, but no payments services) in a
district area only. As of December 2006, there were 1,880 BPRs and 105 BPRSs.
BPRSs are more socially oriented than BPRs. Their mission statement calls for supporting the
community and, in particular, microentrepreneurs. They also have strong links with
The market leaders in Islamic finance in Indonesia are the commercial banks. During the
reporting period, 1991-2003, they focused on medium- and large-scale finance.
Since BI gave official recognition in 1998 to a dual banking system, conventional and Islamic
banks, interest in Islamic microfinance that has spread among commercial banks, inspired by
religious concerns and fuelled by low rates of non-performing loans.
Islamic commercial banks, as of 2003, accounted for a mere 0.74 per cent of total assets of
the banking sector. However, during 2001-03 the share of Islamic commercial banks has
increased from 0.17 per cent to 0.74 per cent and stood at 2.19 per cent in December 2005.
Most remarkable is the difference in performance between conventional and Islamic commercial
banks in relative terms:
The Islamic banks lend more of the funds deposited, with a loan-to-deposit ratio
(LDR)/financing-to-deposit ratio (FDR) of 97 per cent compared to 54 per cent of the total
commercial banking sector;
Their gross non-performing loans ratio (NPLR) is persistently lower, and the improvement of
their performance is faster than that of conventional banks after the financial crisis.
The different of small and cottage industries (SCI) as well as financing organizations (FO) of
similar nature are grouped and institutionalized into different SCI systems and Financing
Systems.
The theoretical model is also used to carry out a comparative study as to how financing
organizations under different financing system differ from each other while lending funds
towards SCI owners under different SCI systems.
Therte are four components of different SCI systems and financing systems. ( DR Nurul Alam).
These components are:
nature of organization,
market organization,
employment systems and
authority and control systems.
Accordingly to Whitley (1992b) a comparative analysis of the business system is the systematic
study of these configurations and as to how they become established in markets.
The Islamic financing system is seen as a financing business system of its own, with a foundation
based on religion, having its own rules governed by the Islamic laws. These rules differ from those of
other financial systems.
There are three different financial systems such as :
A similar arrangement is also done to institutionalize different rural-based small and cottage
industries.
Different small and cottage industries (SCI) of similar nature are thus, grouped into three different
systems, such as:
Different financing organizations and small and cottage industries under different Financing Systems
and SCI Systems are regarded as economic actors acting within these organizational fields.
These four major componenets of financial institutions:
Concepts of Janssons (2000) network institutional model was also taken into consideration for
developing this theoretical frame of references.
Network institutional model [Jansson (2000)] highlights network relationships between the
multinational corporations (MNC) in India and major external parties in the product/services market
like:
customers,
intermediaries,
competitors and
suppliers.
There are so many factors in the society system influencing the lending and borrowing system.
This system consists of:
political,
legal,
government,
family clan,
religion, and
country culture
How the influence of each of those factors can be seen as the diagram below.
rice centers (rural or village area) to the business centers. [Martokoesoemo (2001:83)].
BPRs, which is originally as market bank; established before the banking deregulation
package on October 28th, 1988, remain situated as close as possible to markets (urban
to the growth of rural banks in urban areas as close as possible to the business centers.
The unbalanced distribution of MFIs on some islands in the country is rooted in them using
location as a key strategic factor for their future business success where Sumatra, Java, and
Bali are favorite places for MFIs, since they are considered to have business growth centers.
Java Island dominates Indonesia in terms of the number of MFIs, and particularly the BPR.
> 70% of total BPRs operate in Java. Out of the 2,228 BPRs, 71.7% are on Java and 28,3%
In Central Java, there are 4,939 or 13.6% total KSP and USP. Central Java, which has an area
of 32,564 km2 or 1.7% of the area of Indonesia and a population of 32 million (5.1%), has
nature of BPRs locality can be traced from their ownerships, offices, and branch offices.
Local investors, private or local government, own most of the BPRs. The reason is simple; they know
more about their hometowns and their future prospects. The nature of BPRs locality is also
determined by rules and regulations.
Islamic Microbanks/Rural Banks (BPRS) in Indonesia
During the 15-year period 1989-2003, the total BPR sector had grown to 2,134, comprising 2,050
conventional BPR and 84 BPRS.
The development of Islamic micro bank has almost come to a standstill after a promising
start in the early 1990s.
BPRS grew at an overall average of 12 per year during the 6-year period, 1991-96, when
their number had reached 71. When the Asian financial crisis hit Indonesia, 1997 and 1998,
their growth slowed down to less than 4 per year.
During the following five years, 1999-2003, their net growth almost stagnated, averaging 1
per year: 7 were newly established, 2 were closed at the beginning of 2004. Their total
number was 84 in December 2003 (down to 82 in February 2004).
The average growth rate of the conventional BPR during the 15-year period was 137
institutions per year--compared to only 6.5 BPRS per annum during a 13-year period.
Conventional rural banks have thus grown more than 20 times faster than Islamic rural banks per year.
Moreover, average assets of BPRS amount to only 38 per cent of the assets of conventional BPR;
during 2001-2003, total assets of the BPRS grew (nominally) by 70 per cent, compared to a growth
rate of 173 per cent of the total BPR sector.
Network then can be viewed from various relations that are built among the various actors in society,
such as:
Network consists of relations that act as a bridge between two sets of: persons, objects,
events, or nodes.
Network can be divided into three different group such as formal, social, and business
networks [Johannisson et.al. (1912)].
In the modern business, inter-organizational relationships enable firms to meet the challenge
of modern business of simultaneously achieving economy in production (Hkansson, 1993).
Relationships furthermore provide firms with an identity, which sets the direction of future
development.
The improvement of industrial activities and the development of the same depend on good
network relations among interested groups within and outside the organization.
Interorganizational network emerges as the actor forms a relationship with the outside or external
source.
Intraorganizational network is an internal networks or is a link or relation that builds among the
individual actors within the organization.
Personal Network
Personal network is a relation between persons that is based on both social and business activities.
"Personal Networks are constituted by relationships based on trust and thus established through an
elaborate learning process, encompassing both the joint history of the parties involved and their
assumed future (Johannisson & Gustafsson, 1984)."
The personal network of entrepreneurs and their small firms/ventures combine social and business
dimensions .
This network may be divided mainly, into two types, such as:
business network,
on which excessive research studies have been carried out [Johannisson (1990), Aldrich, (1976), Cook
& Emerson (1984), Anderson & Carlos (1976)],.
Industrial Networks
Industrial activities are mainly concerned with the production of goods and distribution of the same to
the end consumer in the society.
Industrial network is based on actors/entrepreneurs relationship in various processes from the stage
of:
Industrial network is a relationship that takes place among all actors that are involved in making the
industrial functions efficient and effective.
A network is defined as a model or metaphor, which describes a number, usually a large number, of
entities, which are connected.
In the case of industrial as opposed to, say, the entities are actors involved in the economic processes
which convert resources to finished goods and services for consumption by end users (Axelsson and
Easton (1994).
In an industrial network, there are actors/entrepreneurs at several levels [Johansson & Hkansson
(1993, p.24, cf.) Axelsson & Easton (1994)].
There are five characteristics of actors/entrepreneurs:
(1). Perform and control activities,
(2). Develop relationship through exchange process,
(3). Activities on control over resources,
(4). Goal oriented (i.e. the general goal of actors is to increase their control over network), and
(5). Differential knowledge about activities, resources and other actors in the network.
Network Model
Different networks may have different aspects of linkage (Janssons, 1999), such as:
purpose,
types and
structure
Instrumentality is defined as purposive action, i.e. organizational units are assumed to make
conscious, intentional decisions to establish linkages for example exchange of products to
Microfinance system and micro enterprise system i.e., are connected and promoted by networking,
among each others, through a group of micro entrepreneurs as i.e., may be established by a five
members each.
Each group then appoints their group leader who will then make a Team
Team of five leaders who then appoints Team leader
Team leader who will communicate to microfinance institution/Islamic bank, to get loan.
In the society, there is Social exchange which is related to three different social factors such as:
individual attributes,
social group and
cultural group.
A social network consists of social tie or relations and characterized by social norms, based on
culture, family, relatives and friends and acquaintances (Anderson & Carlos (1976).
Social network can also be defined as a relationship that enables one to collect
Business activities normally originate from the exchange of goods and services. Social exchange
theory is based on individuals or organizations, considered as unitary actors. The author (1987 p.
150) further reports,
It is the basic assumption in exchange network analysis that individual actors behavior reflects
the structure of network.
The Islamic banks in the microfinancing very much relly to the role of the social network, consists of
religious groups, social leaders, and local leaders, to get information, support and entrust before the
banks lend the loan to the borrowers. It is known as the Network Triangle, that can be framed up as
below.
microfinance:
Financial Institutions such as Grass-root Level (GL) System, Season-Based (SB) System, and
Semi-Mechanised (SM) System.
The relation between Islamic banks and customers in the Islamic microfinance system is very close,
personal, and deep.
The banks supervisors using networking and personal approach to the religious group to tap any
necessity information of the customers: i.e., their habit and their dayly life activities.
To get the efficient and effective in collecting an information concerning the distribution of loan and
saving prospect, banks promote to the customer to make a group of five and appoints their own leader.
Every five of leaders then they have been asked to make a Team and appoints one of the memebers as
a Team leader. This system has been institutionalized among the customers which is lender and
borrower relation then established.
We can see here clearly that Islamic banks have initiated and promoted of networking in the
Islamic mirofinance to the entrepreneurs to built relation, intra or inter organizational.
The members become fammiliar each other and the role of religious group, social leaders, an
local leaders becomes emerge.
Trust, participation, and the religious value as the underlying back bone of the relation will
tightening this networking to achieve the goal for every member.
Islamic banks hold as a center role of networking, influencing, and promote a better
networking in the microfinancing and entrepreneurs activities.
Conclusion
Islamic banking in the microfinance system is holding a center role in developing the
among each others, through a group of micro entrepreneurs established by each member.
The Islamic banks in the microfinancing very much relly to the role of the social network,
consists of religious groups, social leaders, and local leaders, to get information, support and
entrust before the banks lend the loan to the borrowers. It is known as the Network Triangle.
.Jakarta, November 15th, 2010
SAEBANI HARDJONO
Candidate Doctor of Islamic Economics & Finance (IEF) TRISAKTI - Jakarta - Indonesia
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Saebani Hardjono