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2.0 Introduction 3.0 Argument 1 : Offer Syariah Compliant Finance 4.0 Argument 2: Increase the Performance of Islamic Banking and Finance 5.0 C. Argument: Risky and Costly to Implement Islamic Microfinance
2 3 5 7 9 11 13 14
6.0 Argument 3: Provide Financial Assistant for Low and Middle Income Groups. 7.0 Conclusion Reference
Islamic microfinance has become more popular among Malaysian. some institutions refuse the establishment of Islamic microfinance institutions.The Number of Islamic Microfinance Institutions in Malaysia Should be Increased.0 Abstract Recent years. Due to the demand of Malaysian for Islamic microfinance that cannot be fulfilled recently. 2 1. the number of Islamic microfinance should be increased. This and other results of the research will be discussed. It has been offered by Islamic Financial Institutions and also Non-governmental organizations. Somehow. The purpose of this academic research was to identify and discuss the reason for needs of increasing number of Islamic microfinance institution in Malaysia. the number of Islamic microfinance institutions in Malaysia still in a small number. . However.
It also sees the improvement in Islamic microfinance where the products of Islamic Microfinance also have been offered by some Islamic financial institution and NGOs. Recently Islamic banking and finance has grown rapidly and become popular in Arab countries such as Saudi Arabia. the number of banking and finance institution also keeps increasing to cater the needs of Malaysian. micro credit. This is why government put a serious effort in improving the performance of SMEs by introducing microfinance a long time ago. there are over 430000 micro enterprises in Malaysia. Qatar and UAE. if we compared to previous year. There is simple procedure and less documentation to make it easy to obtain and fast approval. Kuwait.The Number of Islamic Microfinance Institutions in Malaysia Should be Increased. we can say that Islamic .0 Introduction As a developing country. Malaysia has improve a lot in Islamic banking and finance sector. As at June 2009. most of the businesses in Malaysia are small and medium enterprises. there are around RM2 billion financing outstanding for microfinance. most of the banking and finance institution offer conventional microfinance. The duration for the financing mode also flexible which is from a month to 10 years. 3 2. it becomes popular even in Muslim minorities country such as United Kingdom. Microfinance offer micro saving. In Malaysia context. Islamic microfinance can be in many forms such as Ijarah (leasing). it is a beginning for Islamic microfinance as a substitute for microfinance. takaful (insurance) and so on. musyarakah (partnership). micro leasing and many more with a finance range from RM500 to RM50000. Besides. United States and Australia. From the increasing number of SMEs. Somehow. Malaysia already recognized as regional and global hub for Islamic Banking and finance and there is already a Malaysian scholar in Syariah Supervisory Board. So. murabahah (cost plus mark-up). So. Based on the data by Census of Establishments and Enterprises 2005 issued by the Malaysian Department of Statistics. wadiah (saving).
for further step I strongly agree that Malaysia should increase the number of Islamic Microfinance institutions in order to offer Syariah Compliant finance. For NGOs “Amanah Ikhtiar Malaysia” and TEKUN already offered Islamic microfinance. 3.The Number of Islamic Microfinance Institutions in Malaysia Should be Increased.0 Argument 1: Offer Syariah Compliant Finance . increase the performance of Islamic banking and finance and provide financial assistant for low and middle income groups. the numbers of them are still small. So. 4 microfinance institutions consist of Islamic financial institution and NGOs. However. Until now. from nine banks that offer microfinance four of them offered conventional based. two offered Islamic based and three banks offered both conventional and Islamic.
For example. So. It is clearly stated that riba is forbidden and for those who take riba will be punished in the hereafter. Muslim Scholars have accepted the word riba means any fixed or guaranteed interest payment on cash advances or on deposits. the number of Islamic Microfinance institutions should be increased. though they were forbidden. Nowadays. interest gives burden to the borrower since the interest will be charged on the remaining amount of debt. It means the interest charge on interest and of course the total amount of interest that should be paid is high. to find the “halal” (permissible) product is compulsory. Basically. Muslims already realizes the important of Islamic financial institutions to serve the Muslims community. So. As a Muslim. most of the Muslims already switch from conventional to Islamic financial institutions. and that they devoured men's substance wrongfully. Islamic microfinance follows the Syariah rule since it is free from interest and free from uncertainty. every Muslim can have more confident on Islamic microfinance products that offer by Islamic Financial Institution. in the case of Grameen Bank in Bangladesh the interest is high which around 20% and it gives burden to the borrower. Even though conventional financial institutions that offer microfinance already well establish in Malaysia for a long period but nowadays. Malaysian can have a substitute and can choose either conventional or Islamic product.The Number of Islamic Microfinance Institutions in Malaysia Should be Increased. (4:161). 5 It should be best for a Muslim country like Malaysia to offer Syariah compliance finance based product to cater the needs of Muslim citizen. in order to cater the needs. So. The borrower ends up with a high debt that he/she take from . The Islamic financial institutions in Malaysia are supervised by Syariah Supervisory Board from Central Banks of Malaysia in order to make sure that it follows the Syariah rules and guidelines by Central Banks of Malaysia. We have prepared for those among them who reject faith a grievous punishment. In Al-Quran Allah said: That they took usury.
he/she should disclose the purpose of his/her loan.The Number of Islamic Microfinance Institutions in Malaysia Should be Increased. It is forbidden in Islam where Allah said: O Muslim. Islamic Microfinance also needs the borrower use the amount borrows for the permissible activity. Basically. Borrower cannot borrow the money for gambling or forbidden business.0 Argument 2: Increase the Performance of Islamic Banking and Finance . (3:130). do not devour Riba. it shows that Islamic Microfinance really follows the Syariah rule. In Islamic Microfinance. before the loan by customer has been approved by Islamic microfinance institution. Muslim will free from this elements where all the transaction between two parties are clear and accurate. 6 another bank to pay to Grameen Bank.” Other than that. The presence of excessive gharar makes a contract forbidden. So. 4. doubling and redoubling it and fear (the punishment) of Allah that you may be successful. Customer will be explained on the concept of Islamic microfinance and both parties should understand and agree with the contract. Another element that is forbidden in Islam is excessive uncertainty. So. gambling and so on. Mohammed Obaidullah said “Some degree of gharar or uncertainty may be acceptable in certain forms of contracts. wine. It is different from conventional financial institution where people can borrow money for forbidden activity like business in pornography. This situation shows that the interest gives burden to the borrower. the Islamic microfinance institution will be aware with the purpose of the borrowing.
then it will also give the profit to the institutions. It is also an interesting market niches that can create loyalty in their clients. For example. both parties will get the benefit. But. when the number of Islamic microfinance institutions increases it will improve the performance of banking and finance sector in Malaysia. a strong reputation and positive association with socially responsible values that will cause public trust where the bank also consider the low and middle income group for financial assistant. it will obtain long-term gains from enhanced the organizational value. Every month. During the rental. So. In 2000 it contributes 9. that person should pay the rental amount to the bank. Islamic financial institution should not exclude the poor people from being their customers but they have to be seen as an opportunity and a profitable market niche for Islamic Financial Institution.The Number of Islamic Microfinance Institutions in Malaysia Should be Increased.2% to GDP and increase to 11% in 2008. when a person chooses Islamic microfinance to have a machine for business by entering Ijarah (leasing) contract. It happens when people choose the Islamic Microfinance. by increasing the number of Islamic microfinance institutions it also can lead to increase the performance of Islamic banking and finance. I will focus on Islamic banking and finance since NGOs that provide Islamic microfinance are not profit based organisation and most of Islamic microfinance offer by Islamic financial Institution. So. 7 Besides. banking and finance institution contributes a lot in Malaysia Gross Domestic Product (GDP). At the end of lease period the person will be given an option either to buy the machine at nominal price. bank will buy the machine and the person can rent the machine on a certain period that both parties agreed upon. when Islamic Banking and finance promote and offer Islamic microfinance product. As we know. Other than that. the person can use the machine but the bank still own the ownership of the machine until the last period of rental. It is happen when . Islamic Microfinance institutions are not necessarily to be banking and finance institution but it also can be NGOs institution.
Kuala Lumpur on 19 July 2007.” From the keynote also we can see that Central Bank of Malaysia also welcome foreign investor to invest in microfinance sector and the flexibility has been given to enter on this industry. Given the objectives of financial inclusion. Zeti Akhtar Aziz's Keynote Address at the 11th Malaysian Banking Summit . it is hoped that foreign banks support this initiative given the flexibility that is being accorded to widen the outreach to segments of the economy which are currently underserved.000 micro enterprises. 8 customers can access diversified of products for low and middle income people in one Islamic Financial Institutions and they are very convenient and accessible.0 Counter Argument : Risky and Costly to Implement Islamic Microfinance . Of importance is promoting commercially viable microfinance ventures. but only 13% rely on financial institutions for funding. “there are at least 435. of course customer will loyal with those institutions since it provides useful products. greater flexibility has been provided for foreign banks to enhance their presence in non-urban areas. Governor Dr Dr. So."The Malaysian Banking Industry Reinvention and Transformation"In Malaysia at Nikko Hotel.The Number of Islamic Microfinance Institutions in Malaysia Should be Increased. Furthermore. In this connection. 5. when the Islamic microfinance becomes popular in Malaysia of course it will attract outsider investor to invest in Islamic Banking and finance since many foreign organizational also concern about the corporate social responsibility activity.
That is the reason why the number of microfinance and Islamic microfinance institution is still small. the business incur loss because lack of knowledge in managing business. The data from Amanah Ikhtiar Malaysia shows that every year around 4-5% of the loan cannot be collected. But the only question is when government should stop the funding since every year there are people that did not pay the loan. Some people said.The risk when we give a loan to the poor is high since the chances for them to not pay back the loan also high since they are poor. Sometimes. the NGOs will always get a subsidy from government and can cover the loss if borrower did not pay back the loan. banks and other institution. they are not using the fund in appropriate manner so they just end up with cannot pay back to the institution. to reach a develop country all Malaysian should be independent. So. 9 However. most of the low and middle income people are lack of knowledge and do not have a high education so they are not capable enough in financial management. For the Islamic banking and finance that is profit based organisation of course the banks also want to generate a high profit. by doing this Malaysian will depend on government too much and cannot be independent. Even the Islamic microfinance institution give the loan for business purposes it is hard to monitor the use of the fund. it sees that many institutions refuse to offer not only Islamic Microfinance but also microfinance due to high risk when give a finance assistant to the poor and it is costly. For a non profit based organisation like Amanah Ikhtiar Malaysia and TEKUN that offer Islamic Microfinance. Sometimes. Only the administrative and operational cost will be charge to the borrower to cover their cost. the institutions just incur a high .The Number of Islamic Microfinance Institutions in Malaysia Should be Increased. As we know. they are funded by federal and state government. when loan is given to help them in business. Besides. they lack the guarantees that can protect a financial institution against a loss risk. It is because. As a developing country.
0 Argument 3: Provide Financial Assistant for Low and Middle Income Groups. 6. to have Islamic Microfinance efficient and effective operational staffs are required to deliver a well done job and to make sure that all employees that work in this sector have a proper knowledge on Islamic microfinance. The Islamic microfinance institution also needs to hire an expertise in Islamic microfinance and it is costly. So. 10 administrative cost since the amount of borrowed just in small amount and all of them needs a proper document. it incurs a lot of cost while the cost that charge to the borrower is just a small amount. Besides. the training is needed and of course it requires a lot of fund. . So. it just gives a little profit to the Islamic finance institutions. When there are needs for more and proper documentation.The Number of Islamic Microfinance Institutions in Malaysia Should be Increased.
it will be easier for them to access this opportunity in improving their economic status. By giving the low and middle income people a financial assistant. So. There are many prove of the successfulness of microfinance in helping the economy of low or middle income people. it will help them to improve their standard of living. In Bangladesh for example. For those who help people who are needy will be reward in the hereafter.788 villages giving a total of Tk. So. it shows the successful of this bank in introduce microfinance to help the poor. 8589. So. To 368. Eradication of poverty. As October 2006. Islamic microfinance institution should not focus on making profit only.360 clients and the recovery rate is 99%. As an Islamic institution. by increasing the number of Islamic microfinance institution in Malaysia. the Islamic financial system should also reflect these objectives of Islam. Islamic Bank Bangladesh Ltd introduce Rural Development Program (RDS) and it has been operated since 1996 until now to finance small and medium enterprise. Islamic financial institution can implement the method used by Amanah Ikhtiar . Besides.7 mill. Besides. 11 But. it should refer back to the objective of Islamic Financial Institution where it very concern on the maslahah (benefit) of the Muslim community. For a small business. they always hire their family. socio-economic justice and fair distribution of income are among the primary goals of Islam and should be main features of an Islamic economic system. Most of Malaysian businesses are small and medium industries and they need more financial assistant to improve their business. relatives and friends and it will help other parties also and it will reduce the unemployment rate of Malaysian. it will improve their businesses status and it will open a job opportunity to other parties.The Number of Islamic Microfinance Institutions in Malaysia Should be Increased. For example. RDS operated from 116 branches covering 7. by giving needy people financial assistant. there are many ways to reduce the risk of people not paying back the loan.
So. Islamic financial institution also can identify the background of borrower to make sure that they did not have a bad reputation like bankruptcy or did not pay loan to other institution before this.The Number of Islamic Microfinance Institutions in Malaysia Should be Increased. Every customer that requires the loan should have a saving account in the Islamic financial institution. Another step that Islamic microfinance institution can take is by giving an asset or goods instead of cash. Other than that. If customer cannot pay back the loan then it can be cover by the saving account. 7. the misuse of fund will not happen. So. 12 Malaysia. it can reduce the credit risk.0 Conclusion .
the number of Islamic microfinance institutions in Malaysia should be increased. So. Furthermore. then Allah is All-Knowing of it. it can increase the performance of that institution since Islamic microfinance also give profit and good name to the institutions.” (2:273) Reference . And whatever of good things you give. You shall recognize them by their countenance – they do not beg people importunately. The unaware consider them wealthy because of their restraint (from begging). In Alquran Allah said: “(Charity is) for the poor who are restrained in the way of Allah. and are unable to move about in the land. There are many successful story of Islamic microfinance institution in other country that can be use as benchmark. Besides. It is our responsibility to help them by giving a financial assistant. Malaysia should increase the number of Islamic microfinance institutions especially in rural area so that it will be accessable for needy people. by increasing the number of Islamic Microfinance institutions. it is must for every Muslim to only use the permissible products except when it is “darurah”. 13 In order to cater the needs of Muslim citizen in Malaysia.The Number of Islamic Microfinance Institutions in Malaysia Should be Increased. Muslims are taught to have sympathy with the poor and recognize that the poor have rights over them. to make sure that every Muslim got their rights. As a Muslim. If there is no single microfinance institutions that offer Islamic microfinance in that area then it is permissible for people to use conventional practices.
Surah An-Nisa’: 161 Al-Quran. An Introduction to Islamic Microfinance. D.gov.org/ Dusuki. . M.microcapital. September 24).org: http://www.bnm.ORG STORY: Exclusive Interview On The Current State Of Microfinance In Malaysia And Challenges Facing The Sector: Observations From The Assistant Governor Of Bank Negara Malaysia. (2008).). Retrieved July 21. Role of microfinance in poverty alleviation. 2010. (2010).The Number of Islamic Microfinance Institutions in Malaysia Should be Increased. Retrieved August 24. Humanomics: International journal of systems and ethics . 14 Aditya Geonka. Obaidullah. Southeast asia's credit revolution from moneylenders to microfinance. A. (Ed. &. W. Jeddah: Islamic development bank. Y. (2009. New York. 814. from Microcapital. NY: Routledge. (2007. (2008). Al-Quran. MICROCAPITAL. M. C. from Central Bank of Malaysia: http://www. Surah Al-Baqarah: 273 Central Bank of Malaysia. Surah Ali’-Imran: 130 Al-Quran."The Malaysian Banking Industry Reinvention and Transformation". Governor's Keynote Address at the 11th Malaysian Banking Summit . Obaidullah. July 19). (2008).my/ Chong. 2010. New Delhi: IBF Net (P) Limited. Banking for the poor: The role of islamic banking in microfinance initiatives.
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