A s c a r y a Managing Editor, Journal of Islamic Monetary Economics and Finance BANK INDONESIA 1
O U T L I N E 1.I N T R O D U C T I O N 2. ISLAMIC MICROFINANCE 3. BAITUL MAAL WAT TAMWIEL 4. BMT for SDGs in INDONESIA 5. CONCLUSION & RECOMMENDATION 2
1. INTRODUCTION Under current secular economic system, conventional finance is mainly commercial finance which excludes social finance. The objective of maximizing profit in commercial finance is mostly conflicting with the objective of triple bottom-line (outreach, sustainability and welfare impact) in social finance. Meanwhile, conventional commercial finance is inherently unstable (Summer, 2002), while triple bottomline in conventional social finance is impossible to be achieved (Zeller and Meyer, 2002) due to mission drift (Armendariz, et al., 2013) and commercialization (Hamada, 2010), so that the integration between conventional commercial finance and conventional social finance to achieve the wellbeing of the society is very unlikely. 3
1. INTRODUCTION Under Islamic economic system, Islamic finance is not only about commercial finance, but also covers social finance with similar objective to achieve falah (wellbeing and prosperity in this world and in the hereafter). Meanwhile, Islamic commercial finance is inherently stable (Aziz, 2010), while Islamic social finance could simultaneously achieve triple bottom-line (Ascarya, et al., 2015). Moreover, Islamic finance encompass Islamic commercial finance (such as partnership, real activities, governance and ethical), as well as Islamic social finance (such as zakat and waqf), which could addressed SDG s goals. 4
1. INTRODUCTION The idea of Sustainable Development Goals were inspired by the success of Millennium Development Goals (MDGs), which seemed to be uneven across regions and countries, especially the most vulnerable by virtue of their sex, age, disability, ethnicity or geographic location (Thakkar, 2015, p. 1). The goals of SDGs are to achieve a combination of economic development, environmental sustainability, and social inclusion (triple bottom line approach to human wellbeing), which are in line with the developmental motives of nations (Sachs, 2012, p. 2206). This short presentation aims to show that Islamic microfinance in Indonesia, could better addressed SDG s goals, especially in improving the wellbeing of the poor and micro enterprises. 5
O U T L I N E 1. INTRODUCTION 2. ISLAMIC MICROFINANCE 2.1 The Concept of Islamic Microfinance 2.2 Micro Enterprises in Indonesia 3. BAITUL MAAL WAT TAMWIEL 4. BMT for SDGs in INDONESIA 5. CONCLUSION & RECOMMENDATION 6
2.1 ISLAMIC MICROFINANCE Poor Clients Needs Working Capital Education, birth, marriage Death, asset protection Access to funds sent by relatives Old age Illness and other emergencies Microenterprise loans Save place to save Insurance Remittances and Transfers Pensions Loan for emergencies needs Microfinance Services Islamic microfinance can be viewed as a combination of microfinance and Islamic finance, so that it retains mainstream microfinance best practices and models, while modifying the conducts, products and services to make them comply with Shari ah, which promote justice, fairness and equity. Islamic microfinance can range from fully charity-based, a certain combination of charity-based and marketbased, to fully market-based models. Islamic microfinance provides a variety of Islamic micro-financial products and services to fulfill a variety financial need of poor and low income people which in accordance with Islamic teachings, including micro financing, micro saving, micro investment, micro takaful, qardh (free loan), bill payment, money transfers for a variety of purpose, and other newer form of financial services. 7
2.2 MICRO ENTERPRISES IN INDONESIA Number GDP Labor Export* Micro 55.856.176 98.79% 35.81% 99.859.517 90.12% 1.51% Small 629.418 1.11% 9.68% 4.535.970 4.09% 3.45% Medium 48.997 0.09% 13.59% 3.262.023 2.94% 11.48% Large 4.968 0.01% 40.92% 3.150.645 2.84% 83.56% MSMEs 56.534.592 99.99% 59.08% 107.657.509 97.16% 16.44% Source: Ministry of Cooperation and SMEs, 2012; * 2011 data. Micro Enterprises (ME) in Indonesia have always been playing an important role in Indonesian economy. After 1998 Asian crisis, especially in rural area, ME considered as a safety valve in the process of national economic recovery in enhancing economic growth, reducing unemployment rate and aleviating poverty. Number of ME accounts for 98.8% (or 55.9 million) of total enterprises in Indonesia in 2012. With its specialties especially with its low financial capital, ME could produce in the short-term process. Having simple management and huge unit volume scattered in the whole nation, brought about ME to have better resistant toward the fluctuation of business cycle. 8
O U T L I N E 1. INTRODUCTION 2. ISLAMIC MICROFINANCE 3. BAITUL MAAL WAT TAMWIEL 3.1 Baitul Maal and Baitut Tamwiel 3.2 BMT as a Sustainable IMFI Model 3.3 BMT as Agent of Holistic Financial Inclusion 3.4 BMT as Integrated Islamic Microfinance Model 3.5 Compare the Practice of IIMF Model by BMT 4. BMT for SDGs in INDONESIA 5. CONCLUSION & RECOMMENDATION 9
3.1 Baitul Maal wat Tamwiel (BMT) Baitul Maal Baitul Maal collects zakat, infaq, shadaqah, and waqf funds from their respective donor, i.e., muzakki (zakah), munfiq (infaq/shadaqah) and wakif (waqf). These funds subsequently are distributed to their respective recipients. Zakah can only be distributed to 8 groups of people (asnaf). Zakat could be used for recovery, empowerment and development programs of the recipients. 10
3.1 Baitul Maal wat Tamwiel (BMT) Baitut Tamwiel Baitut Tamwil collects fund from its members. Initial capital comes from its members, just like cooperatives. Meanwhile, voluntary deposits and safe keeping could come from members and nonmembers. When funding is short, BT could find it from external sources, such as Apex institutions, Islamic banks or foreign sources. Subsequently, BT could extend financing to its members customers mainly for productive purposes using various equity-based and debt-based Islamic contracts. 11
3.2 BMT as a Sustainable IMFI Model MFI MODEL Extreme Poor Active Poor Low MEs Med MEs High MEs SEs Grameen Rp0-1 M Rp1-5 M Coop-BMT Rp1-5 M Rp5-10 M Rural Bank Rp5-10 M Rp10-50 M MBU Rp10-50 M Rp50-100 M There are 4 (four) sustainable MFI model, including: 1) Grameen Model; 2) Cooperative-BMT Model; 3) Rural Bank Model; and 4) Micro Banking Unit Model (Ascarya, 2014). BMT (Grameen model as well as Individual model) is a sustainable IMFI model for the poor and Micro Enterprise ME (Ascarya, 2014). 12
3.3 BMT as Agent of Holistic Financial Inclusion Holistic Financial Inclusion (HFI) is an integration of social inclusion carried out by Baitul Maal division and financial inclusion carried out by Baitut Tamwil division under the scope of Shariah objectives (Ascarya, 2016). 13
3.4 BMT as Integrated Islamic Microfinance Mod. BM collects ZIS and waqf (including cash waqf) and deposits the cash funds in BT. BT could treat the cash waqf as Waqf Investment Deposits and/or Waqf Equity. Direct cash waqf of γ will be used according to the original contracts to build social waqf facilities, such as Islamic boarding school (Pesantren), Mosque, Orphanage House, etc. Indirect cash waqf of β will be invested in the real sector as intended initially, such as plantation, agriculture, farming, Islamic school, restaurant, convenient store, etc. meanwhile another indirect cash waqf of α will be used to extend micro-small financing to members and micro-small enterprises. To mitigate the credit risk, it will be covered by micro-small takaful (Ascarya, 2017). 14
3.4 BMT as Integrated Islamic Microfinance Mod. ASSETS Cash Islamic Bank Deposits Receivables (Murabahah, Qardh, etc.) Financing (Mudharabah, Musharakah, etc.) Islamic Microfinance Services Fixed Assets LIABILITIES Wadiah/Mudharabah Saving Deposits Mudharabah Investment Deposits Islamic Bank Financing Capital BMTs, prior to managing ZIS-Waf funds, generally have structural issues on low capital and low funding (or high financing to deposit ratio, which could reach more than 200%), so that they have limitation to expand and they rely on Islamic bank financing to meet their funding needs. In addition, asset-liability mismatch and liquidity issues (especially in certain period of times, such as the beginning of the school year, fasting, Eid Al-Fitr, etc.) are also some other ongoing problems of BMT without any real solution. 15
3.4 BMT as Integrated Islamic Microfinance Mod. ASSETS Cash Islamic Bank Deposits Receivables (Murabahah, Qardh, etc.) Financing (Mudharabah, Musharakah, etc.) Islamic Microfinance Services Long-term Investments Fixed Assets LIABILITIES Wadiah/Mudharabah Saving Deposits Zakat/Infaq Saving Deposits Waqf Saving Deposits Mudharabah Investment Deposits Islamic Bank Financing Waqf LT Investment Deposits Waqf Equity Capital BMTs, after managing ZIS-Waf funds, slowly but surely have alternative source of funds from cash waqf (Waqf Long-Term Investment Deposits) that can replace the dependence of Islamic bank financing. The BMT may still has Islamic bank financing for emergency purposes, or for mitigating liquidity risk. The nature of cash waqf which continuously increasing and perpetual maturity, would make mismatch and liquidity problems of BMT resolved. In addition, cash waqf can also be placed as equity participation (Waqf Equity) which, in addition to low-cost funds, can also strengthen the capital structure of BMT and improve its ability to expand. Moreover, zakat and infaq in Zakat/Infaq Saving Deposit will improve the liquidity of BMT. 16
3.5 Compare the Practice of IIMF in BMTs IIMF Activity in Various Structure of BMTs (in Rupiah) No BMT Asset Zakat Infaq Waqf ZI/Asset W/Asset ISF/Asset (Bn) (Mn) (Mn) (Mn) (%) (%) (%) 1 NU Sumenep 95.24-17.7 00.0 0.02 0.00 0.02 2 Amanah Ummah 11.68 19.4 4.5 5.7 0.20 0.05 0.25 3 Manfaat 2.40 29.0 24.0 18.0 2.21 0.75 2.96 IIMF-1 0.81 0.27 1.08 4 Hudatama 40.00 500.0 300.0 1.25 0.75 2.00 5 Mardlotillah 19.65 23.8 29.7 10.1 0.27 0.05 0.32 6 Mustama 5.27 6.1 52.9 1.1 1.12 0.02 1.14 IIMF-2 0.88 0.27 1.15 7 Beringharjo 135.00 3000.1 202.0 2.22 0.15 2.37 8 L-Risma 103.00 115.7 201.2 1845.0 0.31 1.79 2.10 9 Surya Abadi 101.00 18.2 70.2 566.3 0.09 0.56 0.65 10 Bina I. Fikri 78.60 233.5 95.7 247.0 0.42 0.31 0.73 11 Barrah 37.48 90.9 749.5 80.7 2.24 0.22 2.46 IIMF-3 1.06 0.61 1.66 12 Tamzis 527.00 410.0 704.0 119.0 0.21 0.02 0.23 13 ItQan 39.04 253.0 1060.0 525.0 3.36 1.34 4.71 IIMF-4 1.79 0.68 2.47 Four IIMF models: 1) IIMF-1 where ISF activity is handled by Contact Person; 2) IIMF-2 where ISF activity is handled by a small unit of Baitul Maal; 3) IIMF-3 where ISF activity is handled by a division of Baitul Maal equal to its division of Baitut Tamwil; and 4) IIMF-4 where ISF is handled by separate Baitul Maal. There seems to be no relation between the structure of Baitul Maal and the ISF activity. The same can also be said for ZI and W activities of individual BMT. 17
O U T L I N E 1. INTRODUCTION 2. ISLAMIC MICROFINANCE 3. BAITUL MAAL WAT TAMWIEL 4. BMT for SDGs in INDONESIA 4.1 Islamic Finance and SDG Alignment 4.2 BMT and SDG Alignment 4.3 BMT and SDG Alignment 5. CONCLUSION & RECOMMENDATION 18
4.1 Islamic Finance and SDG Alignment Islamic Finance product Potential of financing sustainable infrastructure investments SDG s Addressed Financial Instruments Contracts Funds Equity funding - Mobilize resources to finance infrastructure development projects - Promote investment in climate change solutions - Funds health programs in developing countries - Finance SMEs and start-ups, contributing to more inclusive growth - Finance sustainable and affordable energy facilities - Build resilient infrastructure - Support sustainable agriculture - Invest in businesses related to renewable energy, sustainable fisheries, forestry, agriculture, health and education - Support financial inclusion of the poor through innovative business models, reducing poverty, inequalities, empowering women and promoting peaceful and inclusive society 3, 6, 8, 11, 13 2, 7, 9 3, 4, 7, 12, 14, 15 1, 5, 10, 12, 16 Insurance - Increase the resilience of individuals and businesses to catastrophes or disasters 11 19
4.2 BMT and SDG Alignment Islamic Social Finance Potential of financing sustainable programs and investments SDG s Addressed Zakat Infaq, sadaqa, hibah Waqf Social Waqf Productive - Consumptive program of zakat to provide basic needs (food, clothing, housing, education, healthcare, etc.). - Productive program of zakat to provide Qardh micro-financing to develop ME. - Support social inclusion of the poor, empowering women and promoting peaceful and inclusive society. - Support consumptive and productive programs of zakat - Build resilient social infrastructure - Build resilient infrastructure, school, hospital, Islamic center, city park, cemetery, etc. - Invest in businesses related to renewable energy, sustainable fisheries, forestry, agriculture, health and education, as well as Invest in resilient infrastructure. - Promote investment in climate change solutions. 1, 2, 3, 4, 5, 6, 8, 10, 12, 16, 17 3, 4, 5, 6, 7, 8, 9, 10, 17 3, 4, 5, 6, 7, 8, 9, 10, 11, 17 3, 4, 5, 7, 8, 9, 12, 13, 14, 15, 16, 17 20
4.2 BMT and SDG Alignment Islamic Commercial Finance product Micro-Funding Micro-Financing Funds IMF Services Potential of financing sustainable infrastructure investments - Support financial inclusion of the poor through innovative business models, reducing poverty, inequalities, empowering women and promoting peaceful and inclusive society - Support the quality of health, education, life - Finance MSEs, contributing to more inclusive growth - Finance sustainable and affordable simple/appropriate technology and energy facilities - Support sustainable agriculture, farming, fisheries, trade, simple manufacture - Invest in businesses related to renewable energy, sustainable fisheries, forestry, agriculture, health and education - Support commercial and social transactions - Support cash-less payment system SDG s Addressed 1, 5, 10, 12, 16 2, 3, 6, 7, 8, 9, 11, 13 3, 4, 7, 12, 14, 15 11 Micro Takaful - Increase the resilience of individuals and businesses to catastrophes or disasters 11 21
4.2 BMT and SDG Alignment ISF: Zakat, infaq, sadaqa, waqf. ICF: Micro-Funding. ISF: Infaq, sadaqa, waqf. ICF: Micro-Funding. ISF: Zakat, infaq, sadaqa, waqf. ICF: Micro-Financing,. ISF: Infaq, sadaqa, waqf. ICF: Micro-Financing,. ISF: Zakat, infaq, sadaqa, waqf. ICF: Micro-Financing, Micro-Takaful. ISF: Waqf. ICF: Micro-Financing. ISF: Zakat, infaq, sadaqa, waqf. ICF: Micro-Funding, Micro-Takaful. ISF: Zakat, infaq, sadaqa, waqf. ICF: Micro-Financing, IMF-Services. ISF: Zakat, infaq, sadaqa, waqf. ICF: Micro-Financing. ISF: Zakat, infaq, sadaqa, waqf. ICF: Micro-Funding. ISF: Waqf. ICF: Micro-Financing, IMF-Services, Micro- Takful. ISF: Zakat. ICF: Micro-Financing. 22
4.2 BMT and SDG Alignment ISF: Waqf. ICF: Micro-Financing. ISF: Waqf. ICF: Funds. ISF: Waqf. ICF: Funds. ISF: Zakat, waqf. ICF: Micro-Funding. ISF: Zakat, infaq, sadaqa, waqf. ICF: - 23
4.2 BMT and SDG Alignment 24
O U T L I N E 1. INTRODUCTION 2. ISLAMIN MICROFINANCE 3. BAITUL MAAL WAT TAMWIEL 4. BMT for SDGs in INDONESIA 5. CONCLUSION & RECOMMENDATION 25
5.1 CONCLUSION BMT is a unique Islamic microfinance in Indonesia which plays an important roles as: 1) sustainable IMFI model providing financing and other IMF services to the poor and MSEs; 2) agent of holistic financial inclusion (HFI) combining social inclusion and financial inclusion to alleviate poverty and improve the wellbeing of the poor and MSEs; and 3) integrated Islamic commercial and social finance (IICSF), which could better achieve triple bottom-line of SDGs, including economic development, environmental sustainability, and social inclusion, especially for the poor and MSEs in the rural area. Zakat, infaq, sadaqa and waqf can play the role in achieving GOAL 17 Revitalize global partnership for sustainable development. 26
5.2 RECOMMENDATION BMT can be replicated in other countries to achieve triple bottom-line of SDGs, including economic development, environmental sustainability, and social inclusion, especially for the poor and MSEs in the rural area. Islamic social finance, including zakat, infaq, sadaqa and waqf, should be emphasized, developed and given appropriate attention to catch up with the development of Islamic commercial finance. Government must take its role in developing and mainstreaming Islamic social finance in the country. 27
Khalil Bendib, January 2009, Source: http://euraktiva786.wordpress.com/2009/06/17 Wallahu a lam ascarya@yahoo.com 28