Islamic Finance

Microfinance disbursement to accelerate in Indonesia with third Islamic bank for People’s Business Credit

JAKARTA – Bank Negara Indonesia (BNI) Syariah will disburse 700 billion rupiah ($47.33 million) in microfinancing to around 7,700 debtors through its 68 branches across Indonesia this year, Iwan Abdi, its networks and retail business director told Salaam Gateway.

The state-owned bank has disbursed 2.5 billion rupiah to 16 debtors since it was appointed as the third Islamic bank to disburse People’s Business Credit (KUR) microfinance on Wednesday (September 2), after BRI Syariah and Bank NTB Syariah.

KUR loans are disbursed for investment or working capital for MSMEs. The loans carry lower interest or profit rates than the commercial market, only 6% per annum compared to around 16.5%. The government subsidizes the difference of around 10.5%. As of July 30, 93.53 trillion rupiah in micro loans were extended to 2,741,383 debtors, equivalent to 53.1% of this year’s target of 198 trillion rupiah ($13.39 billion). The target was increased from 190 trillion rupiah, according to a spokesperson at the Coordinating Ministry for Economic Affairs. More than 40 banks have been appointed to disburse the funds.

BNI Syariah will disburse its portion of 700 billion rupiah equally to micro businesses and small enterprises. Micro businesses can borrow up to a maximum of 25 million rupiah ($1,700) and small enterprises up to 500 million rupiah ($33,800).

Priority sectors include agriculture, plantation, fishery, poultry, trading, restaurant, manufacturing, logistics, and communication.

“With the 6% per annum profit rate, debtors can propose financing of up to three or five years based on murabahah. The margin is very affordable for debtors,” said Iwan.

“We aren’t completely new in this segment since we’ve disbursed micro loans before but with commercial (higher) interest in the past. This year alone, we have disbursed micro financing of 1.53 trillion rupiah to 12,254 debtors as at June and we expect to disburse up to 1.63 trillion in total this  year,” he added.

Jamil Abbas, head of financial inclusion at the national Islamic finance and economy committee KNEKS told Salaam Gateway the appointment of BNI Syariah to disburse KUR microfinance is expected to have a significant impact on the value of Islamic microfinance disbursed by Islamic banks. Currently, Islamic microfinance disbursed by banks is under 1% of the total value of bank micro loans.

Part of Jamil’s responsibility is to facilitate the work of Islamic banks to support the MSME segment to boost the distribution of wealth more evenly and reduce disparity, he said.

“This is in line with Shariah values to improve the wealth of people equally,” he said.  

The financial inclusion head also expects Islamic banks to move beyond murabahah to use more of the risk-sharing contracts musharakah and mudarabah.

“What’s important is to use the right aqd for the right purpose. Trade financing or asset financing, for instance, should use murabahah but business or enterprise financing should use mudarabah or musharakah to motivate both lender and borrower towards profits.”

(Reporting by Yosi Winosa; Editing by Emmy Abdul Alim

*Corrections were made: The name of the bank was corrected to Bank Negara Indonesia Syariah and not Bank Nasional Indonesia Syariah

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