Small Medium Entreprises (SMEs) is one of the Indonesian economy’s backbones. It gives a high contribution to GDP for above 50% annually (Rakornas Kemenkop, 2013). The same arguments expressed by the president Joko Widodo in his speech at the US-ASEAN summit last February,2016. He said that there were about 88.9 to 99.9 percents of business in the form of SMEs in Asean. In addition, SMEs sector can absorb the workforce to 97.2 percent in asean (metrotvnews.com, February,17 2015). It is no doubt, given at the time of the crisis in 1998 when a group of businesses or other businesses out of business, the SME sector still could survive it is because SMEs do not rely use financing from the conventional bank n financing their business. The eleventh-policy of government put SMEs as a potential sector in boostin Indonesian Economy. However, there are obstacles in developing SMEs. From the three obstacles existing-marketing, capital, and management-, marketing is the most crucial problem among them.
In response to this problem, the government issued a funding program for SMEs through business credit (KUR). The program is intended to improve the access of SMEs from bank. Currently there are seven national commercial banks and 13 commercial banks distributing KUR (cnnindonesia.com,February 2 2016). The implementation of this program in conventional financing couldn’t be extended to SMEs in rural area. The difficulties in financing due the possibility of interest rate rises caused by inflation and the requirement difficulties also the high rates are the crucial existing issues faced by SMEs. Moreover, the distribution of micro credit finance is still largely concentrated in Java.
During the development of Islamic financial sector, it offers a solution through Islamic financing, called as profit-loss sharing principle. The principle is considered to be safer for financing. In case of loss, the loss will be borne by the stakeholders together. the number of Islamic microfinance institutions either in the form of Baitul Maal wat tamwil (BMT) or people’s bank financing sharia (SRB) are growing in many regions facilitating the distribution of funding to local communities to build and develop their business. Other advantages of financing through the Islamic microfinance institutions is their coaching program for SMEs.
SME sector is an influential part in the Indonesia economy. Therefore, the government continues to encourage the growth of SMEs in Indonesia. In dealing with the major problems of financing of SMEs, it will be better use the Islamic finance with the principle of profit-loss sharing.
Written by Ari Setiawan (Staff of Research and Development Department)
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