Concept of Syariah Microfinance

Syariah microfinance institutions or Syariah MFI are  financial institution that providing financial services to micro-enterprises and low-income communities, based on syariah or islamic economics constitution. The purpose of this such programs are :

• The poor / micro businesses can obtain financial services (savings and loan) that is suitable to develop the business and the welfare of his family.
• Rural economy can grow faster.
• Poor families as members of Islamic Microfinance Institutions (MFIs) have benefited from the excess income.   
• Supporting business opportunities / new jobs in rural areas.
• Opening the growth of an entrepreneurial spirit.
• Build a sense of solidarity among fellow citizens.
• Build a disciplined saving habits.    

Syariah Microfinance Institutions ( in bahasa its called LKMS ) consists of variousinstitutions such as BPRS (Islamic Micro Credit Banks), BMT (Baitul Mal Wat Tanmil),and Syariah Cooperative. That three institutions has close relationship and influence eachother and closely related to other Islamic institutions greater.
Here are some explanations about the BPRS, BMT and Syariah Cooperative :

•  BPRS (Bank Perkreditan Rakyat Syariah)

BPRS is a bank transaction systems using conventional means but based on Islamic principles. The form of payments to commercial banks and rural banks can be form of Limited Liability Company (the Company), Regional Corporations and Cooperatives. BPRSyariah operational mechanisms are subject to BI regulation No. 6/17/PBI/2004 . In this rule Syariah BPR efforts are: 

Raise funds from the public in the following ways:

•  Savings based wadi'ah or mudaraba principle;
• Time deposits based on the mudaraba principle;
• Other forms that use wadi'ah or mudaraba principle;

Channelling funds in the following ways:

• Buying and selling in the activity using the principles of murabahah, isthisna andsalam;
• Lease transactions grounded in the principle of Ijarah;
• Funding for results based on the principle: mudaraba, and Musharaka;
• Funding is done on the principle qadrh 

Perform transaction does not violate laws and principles of Islamic banking.

• BMT (Baitul Mal Wat Tanmil) 

Definition of BMT in language is Baitul Maal and Baitul  tanwil. Baitul Islamic financial institutions which have major activities raise and distribute funds ZISWAHIB ( zakat, infak, shadaqah, waqaf dan hibah) without seeing gains (non profit oriented ). Baitul tamwilincluding Islamic financial institutions in the informal activities and operationally accountprofits (profit oriented). The main activities baitul tamwil is to collect funds and distributeto members in return for results or system that is based mark-up/margin sharia. 

The background of the BMT establishment  is as follows:

1. People that considered not bankable (so hard to get funding, if any costly sources of funds)
2. To give an empowerment and business development through mosques andMuslim surrounding communities.

• Syariah Cooperative

Implementation of Islamic pattern based business started in 2003, as many as 26 KSP /USP-Cooperative Sharia. Then increased to 100 KSP / USP Islamic cooperative in 2004.2007 is expected to reach 3000 number of cooperative Islamic sharia units. Cooperativeenhancement continues to increase, until the end of 2010 more than 4,000 cooperatives in the community, which is scattered in all parts of Indonesia. 

Syariah Cooperative Implements some aspects in carrying out its activities in order toserve its members, as well as aspects of the balance principle, the principle of justice,principles togetherness . 

• For example in production where production in the cooperativeproduces something that can be utilized by its members or the public, the banking arrangements in this regard has been implemented principle of justice.

All banks, Islamic financial services cooperatives and Islamic financial services unitallowed to raise funds from members and the community in the form of savings deposits,time deposits in mudaraba financing, Musharaka, murabaha, salam, istisna, ijara andalqadr. In addition to the activities of financial cooperatives also allowed running thecollection and distribution of zakat, donation, and the charity to people in need and worthy.Include also waqf which is managed separately. 

The Types of Akad in Islamic Microfinance

Contract (akad) is a legal act that involves two or more parties, which perform the agreement. Islamic Doctrine emphasize that all transactions are carried out by two or more parties, should not be distorted and should be in line with the Sharia (Islamic law). Islamicfinancing agreement contracts are divided based on several criteria, they are:

1.       Based on the principle of deposit or savings (Depository)

-          A-wadi'ah
Wadi'ah represent deposits of goods or funds to another party who is not the owner for security purposes.

2.       Based on the principle of profit sharing (profit sharing)

-          Al-Musyarakah (Partnership)

Al-Musyarakah is a partnership agreement between two or more parties to a particular business in which each party contributes funds or charity with an agreement that the benefits and risks will be shared in accordance with the agreements.

-          Al- Mudharabah (Financing Trust, Investment Trust)

Al-mudaraba is a business cooperation contract between two parties where the first party (shahibul mal) provides the entire (100%) of capital, while others become managers. Mudaraba business profits are divided according to the agreement set forth in the contract, while if the loss is borne by owners of capital loss was not due to negligence of the manager. If the loss was caused by fraud or negligence of the manager, the manager should be responsible for the losses.

-          Al-muzara'ah (Harvest-Yield Profit Sharing)

Al-muzara'ah is the processing of agricultural cooperation between landowners and tenants where the landlord gives to the tenants of agricultural land to be planted and maintained in exchange for a certain portion (percentage) in harvest.Al-muzara'ah often synonymous with mukhabarah. There is little differencebetween the two as follows. Muzara'ah: the seed of the land owners, whilemukhabarah: seeds of tenants.

-          Al-Musaqah (Plantation Management Fee Based on Certain Portion of Yield)
Al-Musaqah is a simpler form of muzara'ah where the tenant is only responsible for watering and maintenance. In return the tenant has the right to a certain ratiofrom the harvest.

3.      Based on the principle of Buy-Sell (Sale and Purchase)

-          Murobahah

In Shariah economic institute an existing transactions are sale and purchase transactions / murobahah. This transaction enables the buyer to make an offerwhile the price of the Cooperative as the seller has the right to determine the initialprice. With the agreement of both parties, the goods desired by the buyer can beobtained by cash payment system / cash or credit.

4.      Based on the principle of Rent (Operational Lease and Financial Lease)

-          Ijarah

Ijarah is a transfer of rights to the goods and services for the wages paymentwithout being followed by the transfer of ownership the item itself, in other wordsijarah is taking advantage of an item with the replacement of a certain amount ofrent wages.

5.      Based on the principle of Services (Fee-Based Services)

                  This principle covers entire service non-financing which given, such as :

-          Wakalah
Wakalah means representing or submit any work or business to another person to act on behalf of people who represent the problem and specified time.

-          Kafalah

Kafalah means shifting the responsibility of someone who is guaranteed withadhering to the someone else's responsibility as a guarantor

-          Hawalah

Hawalah is the transfer of debts from people who owed to others who obliged tobear it.