Sharia Banks as an Alternative Source of Finance for SME

SHARIA BANKS AS AN ALTERNATIVE SOURCE OF
FINANCE FOR SMALL AND MEDIUM ENTERPRISES
IN INDONESIA (BAHASA INDONESIA)

Prepared by: Tika Noorjaya

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Scope of Study
􀂾 This report analyzes the principles and products of sharia banks, the development of
sharia banks in Indonesia, the constraints and problems faced by the sharia banks,
and their future prospects.
􀂾 In reference to the performance of sharia banks and their future development,
recommendations are proposed, so that it could be hoped that more and more small
and medium enterprises (SME) would be able to get financing from these banks.

Recommendations
􀂾 There needs to be a Law on Sharia Finance or sharia financial institution which goes
with sharia principles so that the opportunity for Islamic banks to provide funds
(including for SME) can become even greater albeit the relatively small capital at
present, because the rights and obligations of sharia banks and their customers differ
from the rights and obligations of conventional banks and their customers as they
share in profit and risk.
􀂾 The Government and Bank Indonesia needs to facilitate the creation of models of
cooperation between sharia commercial banks and BPR Sharia and other sharia
financial institutions; and the two institutions need to develop a money market based
on sharia principles which should to handle liquidity problems and expand sharia bank
networks.
􀂾 The Government needs to create access to funding agencies, which require the
practicing of sharia principles like Islamic Development Bank (IDB). Moreover, the
government needs to invite sharia banks from other countries to open their branch
offices in Indonesia, and develop cooperation with Malaysia and Brunei Darussalam,
in connection with the presence of Indonesian workers in those countries.
􀂾 Bank Indonesia needs to issue transparent and clear examples of standard
agreements used by sharia banks in their transactions with their customers so as to
increase the feeling of security and self-confidence of customers and sharia banks.
􀂾 Considering that people’s knowledge and understanding about sharia bank are still
inadequate, the Government and Bank Indonesia need to popularize the
characteristics, products and uniqueness of sharia banks in comparison to those of
conventional banks, by involving community leaders including religious leaders.
􀂾 Bank Indonesia’s study about people’s preference of sharia banks in Java needs to be
coupled with other research activities which are focused on pre-feasibility studies or
investment opportunity studies, mainly in large cities outside of Java where sharia
banks are not found.