The Role of Sharia Microfinance in SMEs Business Development
Erna Herlinawati, Riyandi Nur S and Amir Machmud
Universitas Pendidikan Indonesia, Jl. Dr. Setiabudhi 229, Bandung, Indonesia
Keywords: SMEs, Microfinance, Sharia and Business Development.
Abstract: This study aims to identify and analyze the development of SMEs after receiving financing from Sharia Micro
Finance Institutions. Business development measured by sales volume. The research method used descriptive
method by comparing business condition between before and after receiving financing. The population of this
study are the recipients of financing from sharia micro finance institutions with a sample of 30 people obtained
using simple ramdom sampling technique. The result of the research shows that the development of SMEs
business in Indonesia is 67.5 percent influenced by the role of Islamic microfinance institutions, especially in
financing, sdangkan the rest of 32.5 percent influenced by variables that are not examined This finding implies
that to improve the prosperity of SMEs can use financial institutions as a solution in overcoming financial
problems. In addition, the importance of government in disseminating the existence of Islamic microfinance
institutions to SMEs especially in the face of the era of competition.
1 INTRODUCTION
Microfinance is defined as an institution that provides
financial services. In other words, MFIs are
institutions that provide financial services for small
and micro entrepreneurs and low-income
communities that are not served by formal financial
institutions and have been market-oriented for
business purposes. (E Amalia, 2009).
In operation microfinance there are conventional
and sharia. Sharia based on the Qur'an and hadith,
while conventional based on interest. (A Machmud,
2010). In sharia economy BMT is a representation or
other form of microfiance which already exists, of
course run and adapted to the principles and values of
Islam. Thus, sharia finance institutions are financial
institutions which provides financing for micro
enterprises that are run on the basis of Islamic
principles, principles and values. Sharia microfinance
institutions that apply Islamic values will provide
benefits to the products and services offered to the
poor. Because the true Islamic economy is different
from the conventional economy that only focuses on
self-interest (maximizing personal satisfaction and
profit). Islamic economics has social values that seek
to help each other.
If we look at the reality of Indonesia's current
economy, more than 99% of business units are SMEs
and absorb about 97% of their workforce, as well as
its contribution to Indonesia's Gross Domestic
Product (GDP) of 57%. This is one reason why
Indonesia is spared the global economic crisis,
besides the high level of domestic consumption. In
other words, the MSME sector has a strategic role and
function in supporting and maintaining the stability of
the national economy. However, unfortunately this
MSME sector lacks support in terms of funds,
technology, and government support. One example is
the difficulty in obtaining financing because it is
struck by bank rules in giving credit through principle
5c (character, capacity, capital, condition, collateral).
(A Machmud, 2014, 2016).
SMEs play a significant part in economic growth
worldwide including in African countries. Studies
point out that in developed and developing economies
SMEs contribute on average 60% of formal
employment in the manufacturing sector (Ayyagari et
al., 2007). In Africa, SME sector’s total contribution
in job creation in manufacturing is about three-
quarters (Ayyagari et al., 2007). An important aspect
for SME sector development is access to finance
particularly from financial institutions. Le, Venkatesh
and Nguyen (2006) pointed out that the achievement
stage for any particular SME is to have adequate
access to external sources of finance. Firm-level data
collected by the World Bank show that shortage on
access to finance perceived to be one of the main
obstacles to doing business. Several studies have
revealed that financing is a major constraint for SMEs
to grow than for larger firms, mainly in the
230
Herlinawati, E., S, R. and Machmud, A.
The Role of Sharia Microfinance in SMEs Business Development.
In Proceedings of the 2nd International Conference on Economic Education and Entrepreneurship (ICEEE 2017), pages 230-233
ISBN: 978-989-758-308-7
Copyright © 2017 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

developing world (Beck et al., 2005; Beck et al.,
2006; Fatoki & Assah, 2011, Kira & He, 2012).
With the difficulty of the SMEs sector in
accessing financing to banks, especially micro-
enterprises, the initiative of strengthening
microfinance institutions (MFIs) becomes a central
and important issue in economic studies, how this
MFI can reach the poorest communities. The division
of poverty categories namely; a. Extreme poor, b.
Economically active working poor, c. Low income.
The role of the state in this case is necessary to create
regulations that can touch the underprivileged under
various means, one of which is to make strict
regulations for small and medium enterprises (SMEs)
and Micro Finance Institutions (MFIs). On the other
hand, the role of women in the sector of SMEs needs
to be considered and improved. In order to create
emancipation in the economic field, that women can
compete and equal with men so that gender becomes
biased. There is only the competent or not.
The study related to SMEs has been done by
researchers both in Indonesia and the world, the study
focuses on the problems of SMEs (Urata, 2000),
Small Business Empowerment Financial Aspect
(Machmud, 2009, E. Suprayitno, 2013, Wiku
Suryomurti, 2011). Study of SMEs with financial
institutions (Machmud, 2016). Nevertheless, the
study of SMEs related to Microfinance sharia is still
rare.
This study aims to examine, identify and analyze
the role of sharia microfinance institutions in the
development of SMEs. This finding is expected to be
an input for policy makers in formulating strategies;
UMKM development.
2 METHODS
The method used in this study is an explanatory
survey with data collection techniques through
questionnaires and interviews. The population in this
study is the SMEs receiving financing from
microfinance totaling 30 people. The data that has
been collected is then analyzed by using regression
analysis. Characteristics of female respondents as
many as 18 people and 12 men. The level of education
in general (93 percent) is educated to downward, up
to 7 percent of the above (D2, S1). The amount of
financing received ranges from Rp 1 million to Rp. 6
Million.
3 RESULTS AND DISCUSSION
Based on the results of the study, the SMES
performance is obtained before and after receiving
financing from microfinance as measured by the
profit earned. The results can be seen in the following
equation:
Y = -2,834 + 0,966 (1)
t hitung = 2,586,
t table = 2,160
r - 0,861
R2 = 0,675
Equation 1 shows that every 1 percent increase in
financing given to customers, then resulted in income
nasbah will increase by 0.966 percent. The value of t
is greater than t table, it means that statistically sharia
financial institution have a role in developing smes
business. The relationship between sharia micro
finance institution and SMEs development is
included in strong criteria. This is evident from the
value of r = 0.861. The size of the influence of
Islamic microfinance institutions to the development
of SMEs by 67.5 percent. This means that the
development of SMEs business in Indonesia is 67.5
percent influenced by the role of Islamic
microfinance institutions, especially in financing,
While the rest of 32.5 percent influenced by variables
that are not examined.
When a member has a high enough income, they
will seek to expand and expand their business in order
to further their business and want to earn higher
business revenues to propose even more financing.
Sharia microfinance institutions were established
with the aim of providing support for Micro and
Small Medium Enterprises (SMEs) in terms of
financial. Sharia micro finance institutions are
expected to reach SMEs who are difficult to access
the financing products of major banks. To that end,
sharia micro finance institutions provide financing
products for SMEs to be assisted in solving capital
problems.
Sharia microfinance institutions have several
financing products, namely mudharabah financing
products, musyarakah financing and murabahah
financing. Financing products are expected to run in
balance because it is very useful for the community.
In practice, however, most shariah microfinance
institutions still prioritize the implementation of
products that are considered safe and profitable.
Sharia microfinance institutions are expected to
prosper the community, but on the other hand Islamic
microfinance institutions are inseparable from the
The Role of Sharia Microfinance in SMEs Business Development
231

existence of business practices that take profit and
loss. Financing products that become a favorite of
sharia micro finance institutions are murabaha.
Murabaha financing is in great demand because the
risks are small and tend to be profitable. But on the
other hand, this financing only makes the customer as
consumer pengabis money because the money is used
for consumption. While mudharabah financing into
the product of sharia financial institutions that portion
less. Mudharabah financing does have a weakness of
risk level and less profitable. Whereas the financing
of mudaraba is very good if the financial institution
apply it to bridge micro entrepreneurs so that the
lower level economy is lifted up. For that in this paper
the author tries to describe the importance
mudharabah financing for sharia financial
institutions.
The government has a big role in developing
SMEs in Indonesia, because important policy makers
can only be done by the government. As we know
with SMEs in Indonesia today experiencing a great
competition with imported products circulating in
Indonesia. It will certainly make it more difficult for
SMEs to expand its business, because the products are
in the results of losing competitiveness with products
from abroad. This situation can not be allowed to
continue to continue, because it can affect the
condition of the Indonesian economy. This can
happen because SMEs contributes the largest GDP in
Indonesia. Steps that can be taken by the government
related to the progress of SMEs in Indonesia is
denhan apply some policies to protect SMEs,
including establish
a. Quota policy on products that will enter
Indonesia, This means that the products
produced by SMEs in Indonesia can reach the
market, because imported goods become less
due to restrictions. Establish
b. High tariff policy. So that the imported products
selling prices in the Indonesian market becomes
higher in comparison with overseas products.
c. Thus SMEs can still expand its business enable
SMEs in handling licensing places and
businesses, with a good bureaucracy SMEs can
easily get services related to licensing matters.
d. Provide proper facilities such as large
entrepreneurs, especially in terms of facilities,
for example strategic location strategic location
and other facilities (water, roads, etc.) SMEs in
developing their business, certainly require
capital.
e. This is a problem of SMEs, because in adding
money when having to borrow money to
commercial banks of course the process is long
and convoluted. So the role of Sharia
Microfinace F is very important in terms of
capital lending to SMEs with easy terms; prases
that are fast and not burdensome SMEs other
than the system of transactions using the system
of sharia.
4 CONCLUSIONS
Based on the findings that microfinance plays a role
in encouraging the development of SMEs business.
There is a difference in sales volume between before
and after receiving financing, & nbsp; Sales volume
after getting financing to be better when compared to
before getting financing, thus the financing provided
by Sharia Microfinance positively affect the volume
of business sales run by customers. These findings
imply that the Government is expected to be able to
provide financial institutions that can lend to small
businesses to grow. The bank is considered too
burdensome for the small business because of the
interest that is considered burdensome SMEs. It is
expected that the government reaches remote areas or
away from urban areas and provides socialization
about the importance of education, as there are still
many respondents who have low education level. An
entrepreneurship training is needed for small and
micro entrepreneurs, due to the need for a special skill
to make the business grow larger. With the holding of
the training then the business owner will be able to
manage his business better.
ACKNOWLEDGEMENTS
Thanks to the Directorate of Research and
Community Service, the Directorate General of
Higher Education, the Ministry of Research,
Technology and Higher Education as the grant
(Kemenristek Dikti) beneficiary grant.
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