As has been discussed across a variety of literature, Islamic finance was established with the aim of improving people’s lives: known in Islamic jurisprudence as the concept of Maslahah. One of the most important things in the context of Maslahah is for poor people to have access to Islamic financial services. In this situation, the existence of Islamic microfinance, including microTakaful, becomes very important.
The aim of microTakaful is essentially to help Islamic microfinance institutions to reduce their credit risk. Hence, the performance of microTakaful depends on the performance of these institutions. Therefore, microTakaful operators have to collaborate with Islamic microfinance institutions. This collaboration is called the Partner Agent Model (PAM). This model allows the institutions to deduct funds from the financing given to the client for their microTakaful contribution. In others words, the client will not receive the full financing amount as a partial deduction has been made which represents payment for participating in the microTakaful scheme. In this case, the institution is acting as the agent for the microTakaful operator. This collaboration basically benefits all parties. A practical example of how this model operates well is represented in the Indonesian Islamic banking industry. Although the market share of Islamic banking is still small (less than 5% of total banking assets), the growth of this industry is immense, recording 30% annual growth. In June 2012, Islamic banking assets were IDR155 trillion (US$12.95 billion) while in June 2013 they stood at IDR218 trillion (US$18.22 billion).
Looking at the sectors financed by Islamic banks in Indonesia, it further strengthens the argument that microTakaful is important. In June 2013, the micro, small and medium enterprise (MSME) sector and the non-MSME sector received financing of IDR103 trillion (US$8.61 billion) and IDR67 trillion (US$5.6 billion) respectively. The fact that Islamic banks focus predominantly on the MSME sector is in line with the nature of Islamic finance which is to support the real sector and empower MSMEs. This also suggests that the Islamic banking industry has a promising future in Indonesia.
Dr Sutan Emir Hidayat is the assistant professor at University College of Bahrain and Dr Raditya Sukmana is the head of Master Degree Program in Islamic Economics at Airlangga University, Indonesia. They can be contacted at
[email protected]
and
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.