The purpose of this study is to measure the impact of BMT on povertyalleviation in Bandung, as the capital city of West Java with the biggest population province in Indonesia. This study is incorporates income variables of micro-entrepreneur’s household, as well as the spiritual level indicator of micro-entrepreneur before and after they received financing from BMT. This is an impact assessment research. Any necessary information for this study will be extracted using empirical method. The primary data obtained through in-depth questionnaires in Bandung, Indonesia. The first object of impact assessment on this study is a group of micro-entrepreneurs that already using financing program from BMT one year or more, and second object is a group of micro-entrepreneurs that less than one year using BMT financing.To measure the impact of the BMT before and after financing on spiritual levels, this research using the pair-t test. The results of this study can be concluded that the number of poor micro-entrepreneurs in Bandung has been decreasing since they received BMT financing and BMT has influencing povertyalleviation among micro-entrepreneurs.
The findings of the Wilcoxon Signed Rank Test discover statistical significant improvement after financing on the value of annual sales, net income, business expenditure, household expenditure, and employment. The respondents also indicate minor positive effect on business activities and monthly household expenditures of food, education, and household utensils. In addition, based on the Head Count Index and poverty line set up by BPS in 2012, the findings importantly suggest that the financing contributes in reducing the percentage of poor respondents: from 44.4% before financing to 36.3% after financing. Further analysis based on Spearman Rank Order Correlation suggest that there are positive significant relationships between economic impact variables and productive assets, total loan received and total workers.
The problem faced by the Social department is a strong indication that KUBE has not been effective enough (Sitepu, 2016). The indication is expressed by a number of evaluation results conducted by various parties in a relatively long period of time. The latest results of the 2016 Puslitbang Research conducted in 8 cities (Binjai, Medan, Bandung, Bogor, Bekasi, Banjarmasin, Tomohon and Manado) showed that from 331 KUBE established in 2013, the active ones include 134 or 40.01 Percent (Pusat Penelitian dan Pengembangan kesejahteraan Sosial,2017). However, this figure is not good enough for two reasons: first, the quantity is relatively small, more inactive; Second, in quality, judging by the number of active members and the frequency of business transactions. Active KUBE limitation is to conduct business transactions at least 1 time in the last 6 months. The number of members involved at least 3 people. Of the 134 active KUBE majorities are active in the minimal sense, the frequency of low transactions and the members involved less than 10 people. Overall this means or shows that the KUBE condition is still not as expected, has not been able to realize the mission, increase family income. KUBE performance is not maximized due to 5 interrelated factors, namely: 1) the implementation process of KUBE formation activities has not done well; 2) there are no technical guidelines for the implementation of activities; 3) the quality of human resources for program programming and program beneficiaries is not sufficient (commitment and knowledge); 4) Control of activities has not been effective; 5) KUBE concept has not accommodated member aspirations. Overall the core of the problem is that poor people handling has not been done intensively tend to be simple. The findings of this study are in line with the evaluation conducted by other parties between 2003 and 2015 (Anwar Sitepu, 2016).
Cultural Aspects on the Islamic Microﬁnance: An Early Observation on the Case of Islamic Microﬁnance Institution In Bandung, Indonesia, Submitted to the committee of the second workshop on Islamic Finance: What Islamic Finances does (not) change, 17 March 2010 at the EM Strasbourg Business School, France organized by EM Strasbourg Business School and European Research Group.
An interest in the microfinance sector in Africa has been growing since the 1990s (Buckley, 1997). Buckley (1997) studied the microfinance sector in Kenya, Malawi and Ghana; the author concluded there is little evidence to suggest that microfinance brings significant positive impacts on the growth and development of entrepreneurship in these African countries. Years later, Basu et al. (2004) found that the number of entrepreneurs seeking microfinance assistance is relatively small compared to those seeking deposit services. Consistent with the findings of Buckley (1997), Van Rooyen et al. (2012) reported that microfinance in sub-Saharan Africa does not have uniform positive impacts on entrepreneurship development or povertyalleviation; in some countries, microfinance brings more harm than benefits. Van Rooyen et al. (2012) found that microfinance also brings negative impacts such as the exploitation of women or causing the borrowers’ children to drop out of school.
Poverty prevalence dates back to the existence of human being and today it has occupied foremost place on human development agendas of virtually all countries of the world. Islamicmicrofinance (IM) is becoming an increasingly popular mechanism for alleviating poverty, especially in developing countries around the world. The concept of IM adheres to the principles of Islam and is a form of socially responsible investment. In this perspective, many economists think that there is a common goal in Islam and microfinance which can be summarized in making people self reliant, enterprising and self respecting. A solution to achieve the target of poverty eradication is by practicing microfinance in an Islamic way. Islamicmicrofinance which involves Shari’ah-compliant way of financing and providing credit without collateral or any property for guarantee to the marginally poor for their business, is one of the most popular tools employed as part of a poverty reduction strategy, empowering and increasing the productivity of poor, giving social benefits to them in a sustainable way, and aiding economic development.
INKOPSYAH: Induk Koperasi Syariah is a parallel institution registered as a secondary-level cooperative since 1997, with a national office of 9 staff members in Jakarta. It functions as a wholesaler of funds from PNM and the Small Enterprise Development Fund PUKK (which receives contributions from the 5% profit share state enterprises have to devote to povertyalleviation and small enterprise development) and monitors the loans, but leaves TA in the hands of PINBUK. INKOPSYAH has some 500 primary level BMT-members registered with the MoC as cooperatives. To qualify as a member, total assets have to exceed Rp 500m. At the regional level, INKOPSYAH works through regional secondary cooperatives, Pusat Koperasi Kredit Syariah BMT (PUSKOP), which cooperate with PINBUK. The main function of the PUSKOP is to facilitate access of BMT to credit. They are also responsible for monitoring members and BMT that are non-members. As an example, the PUSKOP of Central Java employs 7 staff and funds its operations from fees from BMT for training and the sale of software; it also retains some margin on long-term loans (from the apex through PUSKOP to BMT), and from its ownership of five retail shops. At the end of September 2002 INKOPSYAH had total assets of Rp 2.6bn, with the major funding coming from PNM in the form of a 5 year subordinated loan of Rp 2bn at 19% interest p.a. In 2003 INKOPSYAH was instrumental in channeling Rp 15bn from PNM to BMT. It reports a good repayment performance and a profit of Rp 300m in 2003.
of rural agricultural farmers, he emphasized that productive activities shouldn’t be constrained due to the lack of financial resources and they must borrow to streamline consumption smoothing. The credit for starting village banking and credit unions could be given to Raiffeisen who established the first bank in Austria in 1886. The village bank movement, started by Friedrich Wilhelm Raiffeisen in Germany had reached around 2 million customer by the end of 1901. The Irish Local Fund, founded by Jonathan Swift in 1700s, was widely acknowledged in Ireland and reached around 300 local funds at the end of 1840s. Small loans on cheap interest rates were provided through (ILF) for a short span of time. In the early 18 th century, Wakefield instituted the movement of savings bank to lift poor children and their parents out of poverty trench (Roodman, 2012). The last decade of the 18 th century also marked the inauguration of the Peoples Credit Bank 4 and the Bank Perkreditan Rakyat in Indonesia (CGAP, 2006). Apart from informal credit sources, a range of diverse credit institutions was available in the field of microcredit lending. Domestic arrangement of credit cooperation had existed way before the inception of microfinance. For example, Rotating Savings and Credit Associations (ROSCAs) and Savings and Credit Cooperatives (SACCOs) are found across the world, e.g. Chit Funds in India, and BEE-SEE 5 in Pakistan, among others. Up until the early 1970s, the focus of
This study shows that Islamicmicrofinance has a significance role in povertyalleviation strategies. On the other hand, the product of conventional microfinance has been a fruitful impact in Muslim countries, but those products do not fulfill the requirement of all the Muslim clients. Integration of Islamic social values of caring for the less privileged with microfinance power to deliver financial services to the poor has the potential to cover the millions more needy people, many of them prefer Islamic products over conventional microfinance due to Interest (Riba). This research paper undertakes a case study of Esaar Microfinance Program of Helping Hand for Relief and Development, an Islamicmicrofinance program operating in Pakistan. After the critical financial examination of Esaar Microfinance shows that it is providing services for all living below the poverty line including the “extremely poor” and Interest free loans can be used as a powerful tool against poverty. Yet Loan portfolio growth of Esaar Microfinance declines with the sharp decline of equity growth over the last six years that might pose some constraints on its financial stability in future. This challenge could be overcome by combining Islamicmicrofinance with NGOs (Non Government Organization), NPOs (Non Profit Organization) and RSPs (Rural Support Programs) with the specialized resource mobilization institutions and capacity building centers will enhance the financial stability of organizations and will be supportive of achieving the targets of providing Islamic microfinancial services to the poorest of the poor under the umbrella. It will also help to uplift the living standard of people and ultimately contribute towards the economic development and enriched prosperity of the country. References
It is commonly asserted that MFIs are not reaching the poorest in society. However, despite some commentators’ scepticism of the impact of microfinance on poverty, studies have shown that microfinance has been successful in many situations. According to Littlefield, Murduch and Hashemi (2003, p.2) “various studies…document increases in income and assets, and decreases in vulnerability of microfinance clients”. They refer to projects in India, Indonesia, Zimbabwe, Bangladesh and Uganda which all show very positive impacts of microfinance in reducing poverty. For instance, a report on a SHARE project in India showed that three-quarters of clients saw “significant improvements in their economic well-being and that half of the clients graduated out of poverty” (2003, p.2). Dichter (1999, p.26) states that microfinance is a tool for poverty reduction and while arguing that the record of MFIs in microfinance is “generally well below expectation” he does concede that some positive impacts do take place. From a study of a number of MFIs he states that findings show that consumption smoothing effects, signs of redistribution of wealth and influence within the household are the most common impact of MFI programmes (ibid.). Hulme and Mosley (1996, p.109) in a comprehensive study on the use of microfinance to combat poverty, argue that well-designed programmes can improve the incomes of the poor and can move them out of poverty. They state that “there is clear evidence that the impact of a loan on a borrower’s income is related to the level of income” as those with higher incomes have a greater range of investment opportunities and so credit schemes are more likely to benefit the “middle and upper poor” (1996, pp109-112). However, they also show that when MFIs such as the Grameen Bank and BRAC provided credit to very poor households, those households were able to raise their incomes and their assets (1996, p.118).
Sudan has faced many macroeconomic problems that have created a difficult business environment for small firms and micro enterprises. However in a study conducted by Ibrahim shows that these businesses have nevertheless played a major role in generating employment opportunities and increasing the family income of people of modest means. He evaluates the contribution of the informal sector, craft workshops and productive families, all of which have benefited from Islamic financing, especially since the 1990s. This has helped significantly with povertyalleviation, and there is much potential for this type of small and micro business support to be extended in the Sudan as well as elsewhere in Africa and the developing world more widely. Indeed, Ibrahim suggests that the profit and loss sharing techniques used for Islamic financing can be extended to interest-based banking. 18
IslamicMicrofinance which involves -compliant way of financing and providing credit without collateral or any property for guarantee to the marginally poor (too poor to have access to banks) for their business, is one of the most popular tools employed as part of a poverty reduction strategy, empowering and increasing the productivity of poor, giving social benefits to them in a sustainable way, and aiding economic development. However, in Somaliland it still remains fairly the same effect over the years due to misconceptions in -compliance, the institutions lagging behind and the like. This study determined the role of the Islamicmicrofinance in povertyalleviation efforts in Somaliland and how this role can be enhanced. It was intended to establish and recommend Islamicmicrofinance and its principles that could raise poverty reduction and economic development in the country. This was in view of the fact that conventional microfinance that charges the prohibited interest cannot be used by and for the Somaliland population which are 100% Muslims.
The purpose of this paper is to discuss the potential role of the institution of Waqf in povertyalleviation. Poverty is a complex, multi-dimensional phenomenon that has captured the attention of numerous scholars and agencies globally. The social role of the Islamic financial sector can be best exemplified by providing finance to the poor to increase their income and wealth. This paper will explore on how microfinance can be provided on Shariah compliant basis through Waqf model. This research also reviewing the development of the integrated Waqf based Islamicmicrofinance which aimed to provide solutions to reduce poverty. An integration of Waqf-based Islamicmicrofinance (IWIM) model is proposed to address all the practical challenges of microfinance faced in Muslim communities. In this model, microfinance is practised in compliance with Shari’ah to address the multi-dimensional aspects of poverty and empowering the poor in order to enhance the socio-economic development and hence the well- being of the Ummah. With this aspiration, the IWIM model aims to tackle the challenges related to the scarcity of capital, inadequate human resources, absence of proper Takaful programs and project financing in an integrated approach. However, Waqf based microfinance still may be facing some problems should be addressed which related to credit risk, moral hazard, and economic viability.
Self- help groups (SHGs) play a major role in povertyalleviation in rural India. A growing number of poor people (mostly women) in various parts of India are members of SHGs and actively engage in savings and credit, as well as in other activities (income generation, natural resources management, literacy, child care and nutrition, etc.). The S/C focus in the SHG is the most prominent element and offers a chance to create some control over capital, albeit in very small amounts. The SHG system has proven to be very relevant and effective in offering women the possibility to break gradually away from exploitation and isolation.
Poor people living mostly in rural areas is still heavily dependent on agriculture. Most commercialize agriculture by small farm size and move around. Therefore, they generally have low incomes. That is why the dependence of the poor on the farm indicated by the high proportion of poor people working in agriculture sector. During the period 200-2004 largely poor population (52% in 2000 and 59% in 2004). The poor workers in the industrial sector decreased from 14% in 2000 to less than 6% in 2004. In absolute terms the number also declined from 5.4 million in 200 to around 2.0 million people in 2004. This decrease is mainly due to two factors : 1) a substantial contraction in the industrial sector and 2). The quality of human resources decreased because of the inability of people to continue their education and skills training needed by the industrial sector. Working poor services sector increased from 25% in 2000 to 27% in 2004. Poverty Based on the Poverty Gap Index
IWE may be defined as the set of moral principles that distinguish what is right from what is wrong (Beekun, 1997) in an Islamic context. The ethic is originally based on Qur’an, because Qur’an is the guardian for Muslim in all sphere of life. The IWE emphasizes cooperation in work; and consultation is seen as a way of overcoming obstacles and avoiding mistakes. It also stresses on creative work as a source of happiness and accomplishments. Hard work is seen as virtue and those who work hard are more likely to get ahead in life. Both IWE and protestant work ethics place considerable emphasis on hard work, commitment, and dedication to work, work creativity, avoidance of unethical method of wealth accumulation, cooperation and competitiveness at the work place (see Yousef, 2001).
More recent studies have examined the impact of non-farm income on income inequality in developing countries (Adams, 1994). The findings reveal that certain types of non-farm activities have an inequality-decreasing effect. Other studies have also focused on revenue generated from forests; amount of forest products harvested and export figures at national level. Other studies have revealed that some of the poorest are disproportionately dependent on forestry income (Reddy and Chakravarty 1999, Jodha 1992). To majority of people in rural arrears, forests are their habitat and satisfy practically all their needs. Forest products enable poor people to secure a living during adverse conditions, and obtain fodder for livestock and fuel for cooking. Forests therefore, provide direct means of survival to poor segment of the rural population. The poor have less land and hence are dependent on forestry for a greater share of their total income (Arnold, 1998). The dependence is measured not only by the products they provide, but also by the non-tangible services they offer. However, the total contribution of forests and trees to poverty reduction is difficult to quantity. Those who collect them, with the amount collected varying according to seasonality, access and options, consume a significant proportion of forest products. Most of the available information is descriptive and often extremely situation specific. While studies on fuel wood or specific forest products have been conducted, censuses and surveys do not usually include information on household-level use or activities for a more complete range of forests products (Byron and Arnold, 1999). It is estimated that one quarter of the world’s poor depend directly or indirectly on forests for their livelihood (World Bank, 2000b) although the nature of the dependence vary greatly (Shepherd, Arnold and Bass, 1999). Forest contribution to livelihoods thus encompasses income from agriculture (shifting cultivation), as well as income from forest products. Forest-related income include revenue from sale of crops or livestock for which forest nutrients or fodder were essential (Shepherd, Arnold and Bass, 1999). By this way, forests act as reserve or safety net, providing both subsistence and income in times of crop failure, shortfall, and unemployment or other emergency or hardship, or to meet exceptional needs. The foregoing study, therefore, examined the various ways in which forests help to alleviate rural poverty for people living in a forest environment. This paper is limited to discussing the role played by forests in alleviating rural poverty in Kenya. Several measures of poverty have been suggested.
Microfinance has its antecedent in Bangladesh with the commencement of Grameen Bank project in 1974. Grameen Bank, usually referred to as Rural Bank was started by Muhammad Yunus, a Professor of the University of Chittagong (Bangladesh) in 1976. The bank mainly targeted rural women for its credit programmes. It introduced group lending strategy called social security to make credit available to the poor, usually denied by traditional banks due to the lack of physical collateral. Group lending operates through the principle of joint liability whereby the members of the group monitor the loan disbursement and payment. Default of a member implicates other members and the later pay from the joint resources to avoid future denial of loan to other members. This system especially aims to empower women and give them the opportunity to participate in household decisions. With the latter's success, several developed and developing countries adopted the concept of micro financing. For instance, on September 17 1987, Amanah Ikhtiar Malaysia (AIM) was inaugurated with the main aim of reducing poverty and increasing income of Bumiputera and Malays in particular, through microcredit called Ikhtiar financing scheme for poor households in rural areas.
As indicated in Table 4, the result predicts that a proportionate increase in Microfinance loan leads to reduction in Income by 0.476. Likewise, an increase in assets by one unit would lead to reduction in Income by 0.408. These anomalies can be explained by the obnoxious conditions given by Microfinance Institutions (MFIs) to their creditors by compelling the latter to make compulsory savings and installment payments from the first week of the loan approval. This has generated controversies between the loan beneficiaries and the practitioners. Loan without moratorium may not assist the debtors in increasing their income and acquiring assets particularly, the new entrepreneurs who have not acquired many assets before taking the loan. Unless the profit margin is high, Microfinance loan may not benefit those who are new in the business. This result is consistent with Coleman (1999) that concludes that village bank loan in Northeast Thailand had little impact on the rural poor that took the loan.
The cross-section estimation shows the positive impact of microfinance on povertyalleviation at the macro level. The larger impact of the percentage of female borrowers has been observed in multidimensional poverty. The impact of the number of active borrowers and gross loan portfolios is much higher than that of any other explanatory variable included in the analysis. We also find that the key variables of our analysis remain negative and statistically significant after including the regional dummy. Results for regional dummies show that East Asia and the Pacific, Eastern Europe and Central Asia, Latin America and the Caribbean, and the Middle East and North America have negative and statistically significant coefficients with reference to South Asia at a 5% level of significance. In the meantime, Africa has a positive coefficient although statistically insignificant, suggesting that in Africa, the effect of MFI activities on poverty is not great. Table 8 shows the impact of microfinance on poverty in terms of head count ratio and poverty gap using level data of explanatory variables instead of log variables. The different columns represent the estimation showing the microfinance activities effect with and without regional dummies on poverty. In all specifications, the results are statistically significant but magnitudes are relatively small. Table 9 shows the microfinance effect on three dimensions of poverty: living standard, health and education. We use a log-level model for this estimation. The cross-sectional regression shows a significant impact of microfinance activities on these three dimensions of poverty. Table 10 demonstrates the cross-sectional regression interaction between poverty and legal status of MFIs and region. The estimated coefficient shows that a higher number of female borrowers can decrease the poverty head count ratio. Table 12 shows the cross-sectional regression for instrumental variables used to remove the simultaneous equation problem from our model. Our main objective with the instrumental variable estimation is to remove or solve the problem of endogeneity of the microfinance activities and poverty incidence. The coefficient of the number of active borrowers is negatively and statistically significant at a 5% level, overcoming the heteroscedasticity with and without regional dummies. We conduct three tests: an F test for weak identification, Sargan’s test for over-identification, and an under-identification test. We observe from these tests that we fail to reject the null hypothesis, which is that our instrument has no correlation with the error term. Table 11shows the validity of our instruments; if we use only one instrument - legal origin - we observe that poverty reduces the impact of the number of active borrowers.