Islamic charity based micro-finance: lessons from Indonesia

Abstract

This paper provides the basic concept and implementation of the use of Islamic charity for microfinance initiatives in Indonesia. Using case study approach, this paper will evaluate the sustainability and the outreach of three institutions, including Baitul Qiradh Baznas, Baitul Maal Mualamat Indonesia, Baitul Maal Beringharjo. Data was collected using a survey of 270 questionnaires from clients and non-clients and conducted nine interviewed with the four fieldworkers and five senior managers. Data will be analyzed using both quantitative and qualitative approach.The findings indicated that each institution demonstrated its capability to enhance its funding collections. The increasing amounts of funds collected by institutions can be correlated with the success of the institutions in adopting innovative fund raising strategies and promoting empowerment programs. However, the problems of limited community supports, high operational cost and low repayment rate are also significant affecting institutional sustainability. The study’s findings also point out a lack of participation by the poorer in ICBM programs. Some factors that can contribute to the lack participation are institutional clients selection policy, self exclusion and selection mechanism. This research will add to literature calls for increased empirical evidence of the benefits of utilizing Islamic charity in microfinance.This study will also contribute to the further development of micro-finance by providing an alternative micro-finance model that may work in more efficient and effective ways for the poorest.