HISTORICAL DEVELOPMENT OF ISLAMIC MICROFINANCE IN INDONESIA

Abstract

Microfinance sector has become one of the most popular strategies for poverty alleviation and developing microenterprises in both developing and industrialized countries, including the Muslim countries. In Indonesia, microfinance sector was considered as the backbone of the country’s economy in accommodating the role of the poor people in the structure of country’s economy, encouraging wider employment opportunities for them in accessing funds and providing the most affordable and simplest funds to develop their businesses and enhance their quality of life. Based on recent data obtained from the central Bank of Indonesia (BI), the performance of the cooperatives or microfinance sector in Indonesia during 2010 has reached approximately 51,3 million Rupiah (96.77%) of total micro enterprises compared to 3,23% for medium enterprises. Besides that, it has contributed 2,609 trillion Rupiah (55.6%) of total products and services based on Growth Regional Domestic Products (GRDP) and 183,8 trillion Rupiah (20.00%) of total foreign exchange. This achievement indicates the growing importance accorded to the microfinance sector as a tool of poverty alleviation and strategy to develop microenterprises in Indonesia. In this chapter we introduce the BMT institution model from Indonesia and its products and services as important vehicles in the grass root economics and financial system which might contribute to the national economy in attempting the poverty alleviation and abolishing the riba system and prohibited elements.