Spiritual Intermediation in Islamic Microfinance: Evidence from Indonesia
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International Conference of Integrated Microfinance Management (IMM-16) Spiritual intermediation in Islamic microfinance: evidence from Indonesia Besse Wediawati1,2,*, Rike Setiawati1,2 1Doctoral Program Management, Padjadjaran University, Bandung, Indonesia & 2Department of Economics, Faculty of Economics and Business, University of Jambi, Indonesia *Corresponding author: [email protected] improve the financial literacy of sharia in Indonesia and ABSTRACT improve public access to IMFI. Islamic microfinance is the integration of the two forces Keywords – Islamic microfinance, spiritual that are growing rapidly, namely Islamic finance and intermediation, spiritual practice, spiritual education, microfinance. Therefore, not only has the dual mission spiritual Training as conventional microfinance (financial and social intermediation), Islamic microfinance also has a spiritual INTRODUCTION mission (spiritual intermediation) as a manifestation of Islamic principles which is based and a real Islamic microfinance (IMFI) has become one of the differentiator compared to MFIs. important financial instrument in the Islamic world to alleviate poverty by providing microfinance services to This study is the first empirical study to explore and the poor and even to the poorest (1,2,3). This is possible establish the concept of spiritual intermediation of for Islamic microfinance because it combines two of the Islamic microfinance (IMFI) towards the concept of fastest-growing sector, namely microfinance and Islamic triple mission of MFI (i.e. financial, social and spiritual finance. Microfinance provides financial access for the intermediation). The study used a qualitative approach poor while Islamic finance providing Islamic moral with qualitative interviews and focus group discussions values that care about the lives of the poor (4) to 32 administrators, managers and field staff of 12 Baitul Maal wattamwil (BMT) in the city of Jambi and Islamic microfinance uses a different approach than Kendari. conventional microfinance (MFI), which provides interest-based transactions so as to drag the clients into The result shows that there is a spiritual intermediary debt, while IMFI provides asset-based transactions by conducted by BMT in the form of spiritual practice, embracing the principles as taught by the Qur'an and the spiritual education and spiritual training. Spiritual Hadith such as: 1) the principle of partnership practice is done in two forms of activities, 1) the daily (ta’awun):, 2) the principle of expediency (maslahah):, behavior of the individual/staff in accordance with 3): the principle of justice (Adl and ridho), 4) the Islamic principles as exemplary forms and then into the principle of balance (tawazun): and 5): the principle of corporate culture, and 2) the behavior of the organization universality (rahmatan lil’alamin). IMFI prohibit the in accordance with Islamic principles (Sharia following principles: 1) Usury (riba); 2): the transaction compliance). Spiritual education and spiritual training that is uncertain and speculative (maisir); 3): transaction have been programmed by BMT, although spiritual whose object is not clear (gharar), 4): transaction whose education is still done on a limited scale, incidental, and object is prohibited (haram), 5): transactions that cause adapted to the conditions and needs of BMT. Spiritual injustice to the other party (dzalim)), 6): the practice of training, however, has not been done at all. This is due to hoarding (ikhtikar) (5,6) the lack funding, expertise and network. Therefore, a planned effort and synergy needs to be done by IMFI These principles prevent structural destruction of micro and all stakeholders, especially the Syariah economic finance institutions due to the emphasis on factors of community (MES) to strengthen this spiritual mission, ethical, moral and social to promote equality and justice so that the mission as a whole held together with for the prosperity of the community (7). Many studies financial and social mission. This can ultimately have proven that IMFI have positive impacts in terms of © 2016. The authors – Published by Atlantis Press 0155 International Conference of Integrated Microfinance Management (IMM-16) poverty reduction, increasing household income (8), practices (tarbiyah), deeply understood and practiced children's education, and business development (9), an correctly (kaffah) by all IMFI’s stakeholders. IMFI does increase in sales, business expenses, net income, not only in accordance with the Shari'a in all products, household expenses, also an increase in the volume of processes and activities, but also must be considered as products (10) and creating job opportunities (11). However, such by their clients (25) some empirical studies have shown that with all that advantages, IMFI has not shown an impressive Table 1: Summary of the conceptual research on the performance both in terms of outreach and financial importance of spiritual development in IMFI sustainability (12,13). CGAP survey in 2007 showed that in Bangladesh - a country with a range of MFI in the world Empirical studies that discuss religion or faith in MFI is with nearly eight million borrowers – the outreach of still very limited 15. Similarly, empirical studies that IMFI was only 1% or approximately 100,000 clients, discuss spiritual intermediation in the MFI/IMFI has while in Syria and Indonesia, respectively, only by three never been done. It is caused by two things: 1) Muslims percent and two percent of the total micro credit schollar discusses spirituality more as a ritual or outstanding in 2006 (4). There are two things that cause religious-based activities, 2) most of the literatures use this: 1) internal side: IMFI is not fully able to practice languages other than English, such as Arabic, Indonesia, Islamic principles by accommodating all Islamic Malaysia or Persian 14. This study was conducted to fill financial instruments. IMFI only offer one or two this gap, with the purpose to explore all spiritual Islamic financial products. 70 percent of the products activities undertaken by IMFIs and then build a spiritual offered are trading scheme, namely murabaha and Good intermediation concept based on previous studies. A muajjal, while cooperation schemes such as profit loss Spiritual Intermediation term used in this research, in sharing mudharaba or musyaraka tend to be avoided order it can be universally used by various microfinance- because it is considered as high risk(14). Additionally, based religious/faith, does not only apply to Islam but IMFI often charge a higher fee for the borrower due to also to other religions such as Christianity, Judaism, economies of scale problems (6), 2) the External side, the Hinduism or Buddhism. In this study, the term spiritual low-level of Muslim understanding about Islamic is more oriented toward the Islamic religion in finance, also low social piety of Muslim society, can be accordance with the object of this study. an obstacle to IMFI. METHOD The survey results from OJK (Indonesian Financial Services Authority) in 2013 shows that the Islamic This study used a qualitative approach and an literacy rate of Indonesian people are still low, while exploratory research in accordance with the purpose of social piety level of Islamic countries (OIC) is at number exploring and establishing the concept of spiritual 139 out of 208 countries surveyed, including European intermediation. The object of this study is all IMFIs and American countries. Indonesia, a country with a shaped Baitul Maal wattamwil in the city of Jambi majority of Muslim population, only ranks at 140 (15). (Sumatera Island) and Kendari (Sulawesi Island), Thus, it gave rise to various negative stigma in society totaling to eight units and four units, respectively. that IMFIs are no difference with MFIs (16) Selection of these two cities is based on the condition of their BMT which is experiencing growth phase. The manifestation of low-level of Islamic financial Interviews were conducted with the BMTs 36 literacy and social piety can be seen from the preferences administrators, managers and field staff as informants. of the Muslim community who prefer MFIs based on Data were collected through qualitative interview economic factors (low interest rate, small collateral, and techniques and Focus Group Discussion. The study was the size of the loan) and the non-economic factors conducted in May to July, 2016 (quality of service, ease, speed, closeness, the methods and profiles of loan officers), than relying on religious RESULTS factor (17). In relation, several studies (18,19,20,10,21) highlights that IMFIs as a result of the integration of Based on the results of qualitative interviews and focus Islamic finance in microfinance, not only has two group discussions, BMT performs various activities functions: social and financial intermediation, which is related to spiritual intermediation. To see the intensity of known as a dual mission or double bottom line (22,23), but implementation, these activities are classified into the it also has a spiritual function (24). This function is useful following criteria: 1) not programmed; 2) programmed; for fostering people based on sharia principles and © 2016. The authors – Published by Atlantis Press 0156 International Conference of Integrated Microfinance Management (IMM-16) 3) not implemented; 4) implemented; 5) not monitored absence of external agencies that contribute to it. and evaluated; 6) monitored and evaluated. In Jambi,