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THE PRACTICE OF SOCIAL ENTREPRENEURSHIP IN COMMUNITY

DEVELOPMENT WITHIN SHARIA BASED MICROFINANCE IN INDONESIA 1

Erwin Novianto 2

Abstract There has been a growing intention to adopt entrepreneurship within community development. CD indicates strategies and methods to link poor people within social, political, and economic sources. In this context, microfinance is proved to be an effective tool in freeing people from poverty and has helped to increase their participation in the economic and political process of society. However, as microfinance continues to evolve as a development strategy, more believes that it will only be successful if it is able to strike a balance between the two frameworks­­development and finance­­that underlie its practice. Social entrepreneurship brings innovative ways to balance the relationship of microfinance and its components with the broader development strategy to reach the poor. However, given the effort of such is debatable; the paper will examine how social entrepreneurship has been adopted specifically in sharia microfinance model. it is hoped that this paper will contribute toward; an understanding of how the teaching of Islam through its sharia principle in financial system become facilitating factors that promote social entrepreneurship in microfinance field and enriched microfinance model; an advancement of the field through understanding the process of innovation that might be able to be replicated in others context

KeyWord: Social entrepreneurship, Community Development, Innovation, Sharia, Microfinance

1 This Paper is presented in The First Indonesia Conference on Innovation, Entrepreneurship and Small Enterprise (ICIES 2009), July 22­23 ITB Campus, Bandung West Java 2 Erwin Novianto has become a social development practitioner since 1998. He completed his bachelor degree majoring in social welfare at Department of Social Welfare, Padjadjaran University. He received his master degree from Ateneo De Manila University, Philippine, majoring in Social Development.

Since 1998, Erwin worked in various national and international Non Government Organizations, and now is serving as assistant Director in Social Work Practice Resource Center (SWPRC). His experiences are building social development projects through facilitation, training and education program as well as business development for agriculture cooperatives and small enterprise, developing support program for social enterprise and social entrepreneurship, and building broad base sustainability program for NGO as well as developing partnerships with the business sector. His interest include; cooperative development. Social enterprise, social entrepreneurs, social innovation and social change

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1. INTRODUCTION

In recent years, there has been a growing intention to adopt entrepreneurship within the context of community development. Community development as “an embracing concept that concerns the improvement of the standard of living or quality of life within a community” (Thomas 2004) indicates strategies and methods to link services to low­ income, poor, and very poor self­employed people within social, political, and economic sources. In this context, microfinance is “proved to be an effective tool in freeing people from poverty and has helped to increase their participation in the economic and political process of society” (United Nations 1997). However, as microfinance continues to evolve as a development strategy, more believes that it will only be successful if it is able to strike a balance between the two frameworks­­development and finance­­that underlie its practice (Otero 1999). Social entrepreneurship brings innovative ways to balance the relationship of microfinance and its components with the broader development strategy to reach the poor.

The practice of social entrepreneurship in the development of innovative approaches in microfinance is critical for several reasons. First, social entrepreneurship offers a solution to the constraint of innovation in the field of microfinance because of “the widespread effort to defend existing approaches, or because replication is occurring using models that have not evolved.” The many failures of groups lending replication indicate the constraint for developing innovative microfinance model that suit to the characteristic of specific need of beneficiaries. Second, the practice of social entrepreneurship resolves ongoing controversy between reaching the poor and the sustainability of microfinance institutions that restrain the potentiality of microfinance as a compelling development approach. Third, the development of microfinance at present focuses too much on institutional building. Consequently, it tends to forget that the establishment of performance standards and other capacity­building interventions are important only if the focus remains on creating

microfinance institutions that can reach the poorest sectors in society and at the same time achieving financial sustainability. Fourth, social entrepreneurship brings about innovation by which institutional viability can be attained as an essential component for the advancement of many microfinance institutions (ibid).

The practice of social entrepreneurship in microfinance is exemplified by the Grameen Bank, which shows how entrepreneurial practice helps in coming up with innovations in the field of microfinance and thus in revolutionizing a community. The practice of social entrepreneurship enabled Mohammad Yunus to establish more than one thousand Grameen Bank branches since 1995. If social entrepreneurship is not applied to microfinance, Grameen would not have been able to expand so quickly, and the potential of micro credit might still be unseen today. As Bornstein (2004) has noted, “Fifteen years ago, the micro industry was made up of a handful of organizations. Today there are 2,500 micro­ lenders and 41.6 million borrowers, and micro credit has its own financing mechanism, consultants, and subspecialties.” 3

In Indonesia, microfinance has been accepted as a strategic tool for poverty alleviation. However, the progress of microfinance in Indonesia remains slow (Budiantoro 2005). Based on data from Gema PKM (The Indonesian Movement for Microfinance Development), not more than 10 million of the 41.8 million micro enterprises have been served by microfinance, or less than 25 percent of the total number of micro enterprises in Indonesia (Budiantoro 2005). Hence, the gaps between supply and demand of microfinance remain huge. Unclear government policy regarding the microfinance sector, lack of capital among microfinance institutions, and lack in capacity building are some of the major constraints for the advancement of the

3 See Journal of Microfinance (1999; www.microjournal.com)

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microfinance field in Indonesia (Budiantoro 2005).

Aside from constraint mentioned above, microfinance institutions face the challenge of reaching the poorest of the poor through innovative products and services without compromising their viability. The main process of social entrepreneurship lies on the creative process of looking at specific conditions of the communities and coming up with different strategies that suit the needs of the local people. Innovation in microfinance institutions should then take into consideration the socio cultural practices and belief of the communities concerned for successful implementation. In this regard, the Sharia financial institution is one of the innovations developed in the microfinance field to reach out to the majority of Moslems in the country.

The Sharia financial institution was set up in the 1990s by Majlis Ulama Indonesia (MUI, or Indonesian Ulama Council), together with the Moslem entrepreneurs in the country. Along with the establishment of the first Islamic Bank in Indonesia (Bank Muamalat Indonesia or BMI) in 1992, Sharia­based microfinance was also developed through the so­called BMT (Baitul Maal WatTamil) in 1993. By 1998, a total of 2,470 BMTs had been established in the country. However, serious problems, such as lack of professionalism and poor training among the staff, as well as the low level of institutional capacity, forced over half of the BMTs to close after a short period of time. 4 In West Java alone, only eight out of thirty­two BMTs established in 1996 by the MUI are still operational (Pikiran Rakyat, January 2003). Thus, improvements in the existing model are needed.

Furthermore, the attempt to reach the poorest segment of community that might not be served through conventional BMT model

4 See Ashoka Foundation website: www.ashoka.org/fellows/multiple Research. cfm .

drive the innovation of micro finance by using the Zakah fund. The model for that purpose, developing unique membership systems and microfinance approached that enable the people to save and pay back their loans. These innovations were developed in the spirit of social entrepreneurship by looking at the problems and the solution differently.

Despite there are little knowledge available on how is harnessed in the microfinance field, more so about the extent by which social entrepreneurship has changed the microfinance field. Knowing the process of social entrepreneurship, the people involved in it and the effects of this practice can enable the practitioners of microfinance to meet the credit needs of its poorest clients. Thus, this study aims to demonstrate how social entrepreneurship coming to play in the implementation of the models of BMT and microfinance base on Zakah and to assess the contribution of social entrepreneurship in changing the existing process of the Sharia­ based microfinance. It will do so by examining how social entrepreneurship is adopted by Daarut Tauhiid Foundation and a Sharia Microfinance (BMT Mardhotillah) in Bandung, West Java.

2. LOCATING SOCIAL ENTREPRENEURSHIP IN SHARIA PRINCIPLES WITHIN MICROFINANCE APPROACH

2.1.Toward a definition of social entrepreneurship

Robert and Woods (2005) define social entrepreneurship as an “activity in the social sphere drawing on the principles of conventional entrepreneurship” and making a “connection between an opportunity for social change and entrepreneur.” The other definition proposed by Robert Enterprise of Development Fund (Pelchat 2004);

“Social entrepreneurship is the application of innovative management and program development strategies in an effort to address critical issues facing society. Individual who engage in social enterprise, often referred to as social entrepreneurs, drawn upon

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the best thinking in both the business and nonprofits worlds in order to advance their social agenda” 5

Hence, Grenier (2003) identifies two common understanding of social entrepreneurship­­“one emphasizing organizational process (social enterprise), and the other is focusing on individual, and innovation and risk taking (the social entrepreneur).” Despite these two distinct understanding, two leading experts in the field, Dees (social change) and Boschee (social enterprise) incorporate the different beliefs and identify at least two major components of social entrepreneurship (Lubbering 2004): (1) the social mission and purpose of the venture; and (2) the real social impact that is generated.

Rosengard (2004) identifies three main types of social entrepreneurship, as follows:

1. Public sector and nonprofit reform resulting in significant social impact,

2. Commercial enterprises that are non conventional by being both profitable and creating positive social impact, and

3. Community­based catalyst for social transformation.

All three types of social entrepreneurship have two key elements, first is the creation of value added through the innovative exploitation of opportunity, and second is the focus on the improvement of collective welfare. Furthermore, Social entrepreneurship did not evolve in a vacuum but within the framework of political, economic, and social change. Two changes that have had a significant impact are the “blurring of traditional sectoral boundaries” between public, private, and voluntary sectors (Rees 1991, 2) and the need for new approaches to social problem solving that incorporate intersectoral collaboration (Johnson 2000). Implicitly, there is a need to create spaces for new forms of collaboration “to promote, facilitate and invest in more effective approaches to social investment” (Rees 1999, iii). In this context, a new generation of “social entrepreneurs” is

5 See www.redf.org/fag intro.htm

emerging and driven by an innovator committed to using a market­based approach in solving social problems. However, it is important to understand the definition of each of the following three sectors in which the entrepreneur can operate (Thomas 2004).

1. Private sector, also known as business or profit sector. This refers to the sector of the economy and entrepreneurial activities that focus on profit making to create wealth for the owners or shareholders.

2. Public sector, also known as government or state sector. This refers to the economy controlled by the government and entrepreneurial activities that focus on satisfying governmental policies.

3. Voluntary sector, also known as third, social, or nonprofit sector. This refers to the economy, which is nonprofit and which relies heavily on voluntary support to survive.

Leadbeater (1997) expands the scope of entrepreneurship to include sources of potential innovation of the social entrepreneur. He asserts that, first the public sector, by encouraging decentralization and devolution of its power, creates more space for the voluntary sector to get involved in the social system in more innovative ways. Second, the private sector, in response to the growing demand of social responsibility, promotes partnership with other sectors and opens up opportunities for new arenas of social innovation. Third, the voluntary sector develops an innovative edge by which civic initiatives emerge through the deployment of entrepreneurial skills in tackling social problems. The blurring boundaries among sectors and the potential sources among the sectors that create the venue for social entrepreneurship have to be perceived as a hybrid form of social entrepreneurship. The purest form of social entrepreneurship is a dominant part of the voluntary sector owing to its primary social mission and purpose (Lubbering 2004; Thomas 2004). This researcher recognized, for purpose of the study, both voluntary and private sector as the

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context for social entrepreneurship through which the social entrepreneur discovers and exploits opportunities to achieve his social mission and purpose.

2.2. Microfinance as a tool for community development

Microfinance as development tools has become a key mechanism to reach the poor people through “the provision of financial services to poor and low income households without access to formal financial institution” (Conroy 2003). The term, microfinance, used to indicate a broad range of financial services in contrast to the term “micro credit,” which focuses only on one aspect of financial services. The Asian Development Bank (ADB) confirms the definition of microfinance as “the provision of a broad range of financial services such as deposits, loans, payment, services, money transfers, and insurance to poor and low­income households and their micro enterprise” (ADB 2000 cited in Conroy 2003).

The provision of microfinance services encompasses a diverse array of financial institutions (Foreman 2003). It ranges from formally regulated institutions, such as banks (commercial, rural, postal, cooperative), development banks (state owned and private), finance companies, building societies, credit unions, pension funds, and insurance companies; to semiformal institutions that may not be formally regulated but licensed and supervised by some government agencies, such as savings and credit cooperatives, credit unions, employee savings funds, village banks, registered self­help groups, and NGO’s; and informal institutions characterized by the absence of any formal regulation and supervision, such as rotating savings and credit associations, no registered self­help groups, commercial money lenders, pawn brokers, traders, shopkeepers, NGOs, friends, and family (Cornford 1998).

Moreover, Conroy (2003) identifies five different models among microfinance institutions in developing and developed countries. The first model is a Grameen Bank model that has been applied in many countries

in a wide variety of settings. The Grameen Bank model requires careful targeting of the poor through a mean test by group and intensive fieldwork by staff. Groups usually consist of five members, who guarantee each other’s loans. Some compulsory savings are imposed with limited voluntary savings.

The second model is the village bank, which is widely replicated in Latin America and Africa. Typically, an implementing agency establishes individual village bank with between thirty and fifty members, and provides capital (called “external account”) for lending to individual members. Individual members repay for a weekly interval over sixteen weeks, at which time the village bank returns the principal with interest to the implementing agency. Savings accumulated in the village bank can be loaned out to members (the “internal account”). The village bank carefully plans its internal account so that it can become an autonomous institution after three years.

The third model is the credit union (CU). The CU is less structured than the village bank and the Grameen Bank. The CU is owned and managed by its members. It mobilizes savings and provides loans for production purposes. The membership is more likely heterogeneous than that of the Grameen Bank. Generally, the CU has an apex body that promotes primary credit union and provides training while monitoring its financial performance. A fourth model, based on the self­help group (SHG), is somewhat similar to the village bank, although less structured. SHGs have around twenty members with similar income levels. Their primary principle is to lend membership savings while also seeking external resources. The terms and the conditions of the loan are decided democratically among members of SHGs. Many SHGs are promoted by NGOs, which function as intermediaries linking up with ether a financial institution or a funding agency. This model, mainly practiced in Indonesia, is what might be called the “rural financial system approach.” This approach has strong support from NGOs and other community­based entities, and operates through regulated financial institutions from

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the national to the local level. This approach provides rural financial services backed up by a regulated environment.

The five models described above show common microfinance features, namely, the use of the group mechanism to ensure repayment, low­income or poor households as beneficiaries, flexible terms of loan and payment, and the use of informal relations between microfinance institutions and their client. These have made microfinance instrumental in providing access to the poor and in helping them move out of poverty.

However, the microfinance approach also has weaknesses in reaching the poor (Fernando 2004). First, microfinance services are hard to sustain. The poor recipients, more often than not, have no means to service the credit. As Robinson (2001 cited in Fernando 2004) has pointed out, ”Poor household[s] living in small, isolated communities in areas that lack basic infrastructure and markets may be unable to use credit in any way that would enable them to repay [the] loan principal and interest.” Moreover, not a few microfinance institutions find it difficult to keep a balance between their low­cost operation and the expansion of their development goals. A recent survey shows that a poverty­focused program committed to achieving financial sustainability covered only about 70 percent of its intended full cost (Micro Bank Bulletin, 1998 cited in Morduch 1999). Despite their good intentions, many microcredit programs proved to be costly and have done little to help their target beneficiaries (Adams and Von Pischke 1992 cited in Morduch 1999).

A second weakness of the microfinance approach is the heavy dependence of microfinance institutions on external funding (donor agency or government subsidy) for their delivery mechanism. Given the increasing number of microfinance institutions, there has been a shortage of funds, making it difficult for the new and relatively smaller ones to manage their programs (Haque, n.d.). The solution, therefore, has been for microfinance institutions to find innovative ways to create alternative microfinance models

with varying philosophies and target groups. Innovation can enhance the sustainability of these institutions and their capacity to reach the poor by initiating “changes in the banking technology, the type of financial services offered, the strategic behavior of the institutions, the institutional arrangement or the structure of incentives that result[s] in improved viability . . .” (Lariviere and Martin 1998 cited in Lianto and Fukui 2003).

The practice of social entrepreneurship promotes innovative ways to leverage scarce resources in the pursuit of social value by combining the motives to solve community problems with an entrepreneurial outlook. Hartigan and Martin (2003) explain that social entrepreneurship bring market­based mechanisms to create positive change in the domain of community development, such as access to economic, social and political resources; education; environment; human rights; and other social issues. The practice of social entrepreneurship is critical to the advancement of the microfinance field, particularly in terms of promoting systems, processes, and product innovations. According to Greiner (2002), social entrepreneurship characterized by the following:

1. Innovation. The focus of the entrepreneur on the economy is critical in creating change and progress.

2. Bearing risk for society or bearing uncertainty. Here, the thinking is that social outcomes are notoriously difficult to quantify and hard to evaluate over a short period. Therefore, social entrepreneurs bear the risk for the development of society

3. Spotting and acting on opportunities. Alertness of opportunities is regarded as central in social entrepreneurship. A social entrepreneur plays a role in framing the situation in a different way, or in creating opportunities by understanding or presenting issues in a new way. In

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fact, social needs and opportunities are real and tangible, and the social entrepreneur identifies these social needs and opportunities pragmatically and realistically.

4. Bridging between sectors, fields, and resources. The social entrepreneur is often presented as a partnership builder and resource mobilizer whose ideas can be brought and understood across the different sectors, such as the market and the state.

5. Leadership. The social entrepreneur serves a leadership function, creating a sense of solidarity, communicating and framing social needs that can be understood, motivating multiple stakeholders, and attracting new members and proponents.

In the practice of social entrepreneurship, innovation can be seen in the development of a product or service for poor clients that entails the least possible cost, or in new ways of screening and lending to specific clients, e.g., village bank (based on geographic location of client) or Sharia microfinance (based on the religious belief of the client). An innovation can also be a product that enables the poor people to meet their risk management requirements (e.g., micro insurance), or to create financial assets (e.g., micro savings).

2.3. Islamic teaching, Sharia Principles and the promotion of social entrepreneurship

The relationship between the religion and entrepreneurship had been recognized since Weber (1958) first identified association between Protestantism and the rise of capitalism in Western Europe (Stone, 1974). Drawing on the teachings of Luther and on the Calvinist reinterpretation, Weber argued that Modern capitalism in the west can not fully understood without reference to new ethos and conduct of life ­­­ a new set of values—known as “ethic of ascetic Protestantism” as, a system

of ideas, having some degree of religious sanction or justification, and containing the following elements (Weber 1958 pp 72­92): ascetic way of life, the concept of calling applicable to business and economic pursuits and a degree of group solidarity, determined minimally by common religious identification. Ethic of Protestantism lead worldly activity undertaken by men of religious with the following five attributes (stone 1974):

a. Asceticism (rejection of self indulge) b. Orientation toward active mastery over

worldly things and interest c. Rationality (rejections of non

instrumental traditionalism and suiting all acts to desired ends)

d. Ethical universalism (treating all men by the same generalization impersonal standard)

e. High functional specialization and different of roles (structuring economic activities in terms of modern occupational structure)

These element and attribute of the Protestant Ethic evoke the spirit of capitalism that refer to “idea of a duty of the individual toward the increase of his capital and … labor must be performed as if it were an absolute end in it self, a calling” (Weber 1958). However, the protestant ethic needs inhibiting factors of social precondition in order to transform one society to the rise of capitalism. The entrepreneurial organization of capital, rational technology, free labor, unrestricted market, rational law is social preconditioned that made capitalism a world­transforming force in the west but not elsewhere (Collins 1980). Weber argued that the lack of rationality in the civilization of China and Babylon, and others religion (Hindu, and Buddha) made impetus of economic ethic not develop into the rise of capitalism although trade and commerce was found since in the Stone Age (Collins 1980).

The Islam as civilization and religion according to Weber bear the same problems with others civilization and religion. Weber (1922) argued that “the god (in Islam) was a

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lord of unlimited power” may lead to salvation anxiety among Muslim (Turner 1974). Man predestined, asceticism could have emerged as a solution to a potential salvation anxiety. However, Weber argued (Turner 1974) that asceticism was blocked by two important social groups; the warrior group and the Sufi brotherhoods. The warrior group changed the Islamic teachings into militaristic ethic on the holy war (Jihad) for their quest of land and military booty. The content of religious teaching was transformed into set of values compatible with the mundane needs of warrior group (Husain, n.d). On the other hand, the Sufi brotherhoods introduced magical and orgiastic into Islam (Turner 1974) and transformed spiritual massage in Islam to cater emotional and orgiastic needs of the masses (Husain, n.d ).

The second perspective of Weber on Islam covers the political and economic structure during the period of the Abbasid, Mamluk and Ottoman dynasties. Weber characterized Islam as patrimonial bureaucracy. Husain (n,d) explained:

This type of financial and political structure depended on the conquest of new lands which were then exploited to maintain central bureaucracy. The political structure hinged on a complex balance of social forces represented by the Sultan, the military, the ulama and the mass. The sultan used to hold on the power and retain his monopoly of power by curbing the growth of autonomous institutions and groups within the patrimonial society. On the other hand, potentially independent social groups were co­opted or assimilated into the military. The lawyers, the ulama generally, the merchants, they were all state officials and emerged out of the imperial household”.

Consequently, Islamic society failed to develop autonomous institutions, such as liberal democracy, rational formal law, and freedom of the city as prerequisite for the development of rational capitalism (Thomson, 1977). Therefore, Weber (1922) concluded that Islam ethic failed to become a salvation religion as social leverage to lift society up from patrimonial to bourgeois life style and ethic (Turner 1974).

Turner (1974) in his book “Weber and Islam: A critical Study” posed a critique on

Weber’s interpretation that Islam is being inconsistent and weakly connected with capitalism and entrepreneurial activities. For one, Mecca, where Islam developed, was primarily urban, commercial and literate (Turner, 1974). It was a strategic trading centre between Mediterranean and India Ocean. The Prophet Muhammad, himself has been employed on caravans that brought Byzantine commodities to the Mecca market. The Qur’an itself was used commercial terminology and much of the theological basis of the teaching of Islam is rich with the commercial concepts 6 (Husain n.d). Maxime Rodinson (1974), the French sociologist, in His book “Islam and Capitalism”, comes to the same conclusion “

“The correlation between Islam and any particular economic system has emerged as being very largely inclusive …. The leaders of the Muslim expansion were trader even before their conversion and they conquered societies in which trade was highly developed already before the conquest. The precept of Islam has not seriously hindered the capitalist orientation taken by Muslim world during the last hundred years and nothing in them is really opposed to socialist orientation either…”

Second, Islam does not take material success in this world as a sign of God’s approval of salvation (Husain, n.d). Its calls for hard work in order to earn a living and take care of one’s family instead of forsaking the world or surviving on handouts, donations and charity (Husain n.d). Therefore Islam does not decry wealth and the wealthy through legitimate economic pursuit (Ariff 1991). In the Qur’anic verse (e.g 2:198; 5:2; 22:28) wealth refers to “Blessing of God”. However, Wealth is not end; it’s only a mean for incurring the pleasure of God. Wealth also carries with it responsibility for those who possesses it. Man only acts as a trustee on the use of property to encompass welfare in this world and in the hereafter because in final analysis any property belongs to God (Ariff

6 The commercial term has been repeated more than 1,000 times and become third word most used word in the Qur’an (the other word are Allah and Knowledge) (Naqvi, 1994)

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1991). Here, “middle path” approach becomes Islamic precept. Thus, Islamic entrepreneur would share the benefit with others instead of converting them into maximum profits for himself. The Qur’anic amendments of Zakah and inheritance show the Islamic perception of individual action is embedded on the social action that is geared to the ameliorative of the poverty by the society.

Therefore, Islam as economic ethic has been transformed into military ethic and spiritual salvation among his follower is elusive. In practise, there are two domains where the influence of Islamic economics has spread widely, first in the banking sector where Islamic banking exist in more than 60 countries and second the establishment of government run and community run Zakah system in many countries (Kuran 1995). In theory, the mid twentieth century was saw emergence of a literature that has been to identify and promote an economic order that confirms to Islamic scriptures and traditions, known as Islamic economic (Kuran 1995). The Islamic economic derived from sharia principle apply in economic sector, namely the prohibition of interest, Zakah as redistribution system and the requirement of that economic decision pass through an Islamic moral filter 7 .

The establishment of Islamic banking and Zakah institution reflect the broader Islamic teaching that underscores the business ethic based on the virtue of moderation (Ariff 1991). The virtues of moderation avoid the practice of unjust practices of homo economics that tend to be individualistic in economic (banking) sector, such the interest, and hoarding practices, that only benefited the few and suffered the many. In Islam, banking institution served as instrument to grow capital and Zakah institution play a role as instrument of redistribution of capital. Furthermore, the virtue of moderation calls for balance between spiritual and material needs, between worldly

7 Chapter 2 provide elaborate explanation of these principle and its implication on the development of microfinance model

life and the hereafter, between individual benefit and social welfares, and between individual freedom and social responsibility. In this scheme, a man established three simultaneous relationship; with God, with his own self, and with the society. This is how a Muslim is characterized in the Qur’an,

The believers, men and women, are protecting friends of one another; they enjoin the right and forbid the wrong, they observed regular prayer, practice charity, and obey God and His massager (Al Tawbah: 71).

True piety does not consist in turning your faces toward the east or the west – but truly pious is he who believes in God, and the last day and the angels and the revelation and the prophets; and spends his substance –however much he himself may cherish it— upon his near of kin, and the orphans, and the needy, and the wayfarer, and the beggars and for the freeing of human beings from bondage, and is constant in prayers, and renders the purifying dues and (fully pious are) they who keep their promise whenever they promise and are patient in misfortune and hardship and in time of peril; it is they that have proven themselves true and it is they who are conscious of God (Al Baqarah: 177)

The two verses in the Qur’an mentioned above indicate a Muslim should care for their spiritual well being through Islamic ritual performance, their material welfare and individual need through economic entrepreneurship, and their collective or social goods through social entrepreneurship.

The virtue of moderation that emerges from Islamic teaching and the application of the sharia principles are actually promoting social justice and avoiding social imbalances. In this regards, these basic rules of conducts in Islam facilitate the emergence of two key elements of Social entrepreneurship identified by Rosengard (2004). First is the creation of value added through the innovative exploitation of opportunity, and second is the focus on the improvement of collective welfare.

First, the practice of social entrepreneurship in the creation of valued added in Islam has been facilitated by Islam vision of the scope of voluntary action that not only supply economic goods and services, but also encompasses non­material needs. Siddiqi

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(1991) explained that “Islam envisions a society in which individuals, while pursuing their self­interest, also care for the interest of others by helping everyone materially and morally so that they can live a life pleases to Allah.” Here, value­added is interpreted not only for the material perceptive but also from the spiritual perceptive. Therefore, Islam gives motivation to the individual (social entrepreneur) to seek value­added in both their individual and social action. Islam a drive and motivation of individual to perceived every circumstance in balance manner and actively engage in innovation for social welfare because those who participate in the innovation will be rewarded for material and spiritual well being by Allah.

A second key element is the focus on the improvement of collective welfare. When Islamic teaching become the foundation of society where the Sharia is sovereign, the institutional arrangement of politics (state), economics (producer, trader, consumer and capitalist), and the social (voluntary organization) are ordained for the common good of the ummah or society as a whole (Ariff 1991). Hence, law and institution in Islam will have to create safeguards to various kinds of social injustice. The State governs the Zakah as mechanism for distribution of wealth to the poor, prohibits the changing of interest and gambling to defend society from unjust economic activities, and to act as voluntary organization under obligatory family support, payment of Zakah, Infaq and sadaqah (ZIS), and charitable endowment (waqf) to ensure that social and collective needs satisfied. However, the implementation of Sharia principles requires mean and tools (Naqvi 1994) to create a realm of flexibility and innovation. The flexibility and innovation in the practice and implementation of Sharia principles in socio­economic institutions thus provide the opportunity for social entrepreneurship to create solution for social injustice.

3. CONCEPTUAL FRAMEWORK

Based on the literature review in previous chapter, the research is going to analyze the

social entrepreneurship process in the development of the Misykat Darul Tauhid (DT) and BMT model of microfinance. As mentioned elsewhere, social entrepreneurship refers to a creative process of pursuing opportunity that lead to developing innovative models of microfinance, in this case, the Misykat and BMT model. The research reinterprets the four dimensions of new venture creation proposed by Gartner (1985)— environment, individual, process, and organization—to capture the social entrepreneurship process in microfinance. Along with Gartner, the research assumes both the individual and the social environment as having the same weight in influencing the emergence of social entrepreneurship in mobilizing organizational resources that will lead to the development of an innovative microfinance strategy. However, the conceptual framework is different from Gartner (1985) by introduced the Islamic teaching on application of Sharia principle in Microfinance in the social entrepreneurship process. Furthermore, the research focuses on entrepreneurship process in the context of social sector while Gartner framework applies in analyzing entrepreneurship process in economic sectors.

Figure 1 shows how application of the social entrepreneurship in Sharia microfinance is shaped by social environment and the profile of social entrepreneur. In turn, these factors are influenced by the Sharia principle applying in the microfinance. The applications of the sharia principle facilitate the social entrepreneurship process for developing innovative model in microfinance field. The interrelation among these factors can be described as follows: 1. Social environment factors include

government policies and socioeconomic condition before, and during innovation in microfinance have been started. They consist of government policies, regulation and program in microfinance. It is assumed that the type of regulation, and the presence or absence of certain types of regulations and policies influence the operation of the Sharia microfinance

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institution. The socioeconomic condition of intended beneficiaries ­­such as social status, source of income and pressing social and economic problems ­­ may affect the social entrepreneurship process of seeking and perceiving circumstances as windows of opportunity in evolving a microfinance strategy. The social environment factors are outside condition that being perceived by social entrepreneur as “reality” both as problems or opportunity to venture into social entrepreneurship

2. The understanding of social environment factors is shaped by the profile of Social entrepreneur. The profile of social entrepreneur refers to motives, attitudes and capacities that influence the person’s desire and capability to engage in the process of social entrepreneurship. Its also reflect the internal dynamics of the social entrepreneur that affect how he understand the problems, and carries out innovations in the field of microfinance The profile of social entrepreneur include; a) Personal view on development process that inspired by the teaching of Islam. The personal view contributes to the way the strategy for using microfinance as a development approach is developed. b) Professional network which refers to the absence or presence of support from personal contacts, as well as the type of relationship developed with and the type of support gained from personal contacts. Here, professional network helps in the utilization of social capital, especially in identifying strategies for developing innovative microfinance approaches. c) Capability to carry out the innovation which refer to ability to take a risk, spot opportunities and induce change in people around him. Here, the capacity to carry out innovation serves as a tool in analyzing, seeking, and developing new ideas in microfinance strategy

3. However, the ideas and general perception of sharia principle that apply in microfinance evoke the individual who define social environment factors to develop distinct process and response to

outside condition in accordance to the principles of the sharia

4. Furthermore, the application of sharia principle, social environmental factors and the profile of social entrepreneur facilitate the social entrepreneurship process on the creative stage of defining the problems, and on the setting up new ideas. Here the social entrepreneurship process itself refers to activities intended for pursuing opportunities for innovating microfinance strategies to satisfy community needs for social and economic change carried out by social entrepreneurs. The social entrepreneurship process in microfinance can be indicated through, first, the creative process of finding and redefining the problems into opportunities that lead to innovative microfinance strategy; and second, the activity to set up new ideas (goal setting, problem solving and creating solutions to the perceived problems) in microfinance strategy.

5. The dynamic process of social entrepreneurship lead the process to discovering and organizing organizational resources, in terms of enticing people to join microfinance institutions, and building funds and knowledge to develop the Sharia microfinance approach.

6. The end product of social entrepreneurship process is innovation in Sharia microfinance. The types of microfinance innovation have been classified into three categories: (1) system innovation, which refers to the creation of new institutions tailored to deal with unmet needs (e.g., using group mechanism to retail services, formalizing informal finance systems, reducing the access barriers or setting up completely new services structures); (2) process innovation, which refers to the types of business processes that lead to increased efficiency and market expansion (e.g., loan and savings arrangement, repayment and savings incentives); and (3) product innovation, which refers to the types of products and services that motivate people to join Sharia microfinance

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institutions (e.g., presence and absence of new credit, deposit, insurance, leasing, hire purchase) and other financial products that respond to the felt needs of

marginalized groups in a given community.

FIGURE 1: CONCEPTUAL FRAMEWORK: THE PRACTICE OF SOCIAL ENTREPRENEURSHIP IN THE SHARIA MICROFINANCE APPROACH

4. IMPLICATION/RESULT

4.1. On Sharia Principles

Religious beliefs and the teaching of Islam became facilitating factors both the Misykat and BMT­MC models. Both models argued that solution to poverty is implicated on Islam values and practice. In the Misykat

Model, the zakah practice inspired the Misykat. Zakah practices as manifestation of mechanism for ensuring the equitable distribution of wealth to the poor is used for enterprising the poor in order to have larger impact of utilization of zakah for the poor and to bring credibility of zakah institutions through productive program development.

Sharia principles

(Ideas and general perception about the teaching of Islam in financial system)

Social Environment Factors

­ Government policies, regulations and program on Sharia Microfinance

­ Socioeconomic condition of the intended beneficiaries (social status, sources of income, pressing social and economic problems)

Profile of Social Entrepreneurs

­ Personal view of development process (whether suit to Islamic values or not)

­ Professional network (absent or present, types of personal contact, and kind of support gained)

‐ Capability to carry out the innovative process (ability to take risks, spot

Social Entrepreneurship Process

­Creative process (redefinition of problem as opportunity) ­ Setting up new idea (goal setting, problem solving & creating solutions)

Organization of Resources

(Strategy to attract people, fund and knowledge; Utilization multiple sources versus utilization limited sources)

Type of Innovation in Sharia Microfinance

‐ System innovation

‐ Process innovation

‐ Product innovation

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On the other hand, BMT­MC harnessed the teachings of Islam which were applicable to the economy and financial sector, such as prohibition of interest, mechanism of tijarah transaction and profit and loss sharing to support existing productive business among small entrepreneurs. These inspired the founders to continue pursue innovative social entrepreneurship model even though in the case of the BMT­MC, specifically, the BMT model has failed in other areas.

Although the members of both MFI’s appear to understand the integrated development concepts embedded in Islam, this was not the leading motivation for them to become involved in the program of these MFIs. Under the Misykat model, the motivation to participate was more of rational rather than religious consideration. No interest procedure and simplicity of financial services made Misykat attractive to its beneficiaries. Aside from that, the group meeting serves as venue for many of Misykat members to share their daily problems is other aspects that compelled many members to avail financial services in Misykat.

Under BMT­MC, trust of the MFIs rather than understanding of the Sharia principles propelled the members to remain loyal to it. There are various explanations for this. Firstly, Islamic teachings have been understood by many Moslem to apply only to individual behavior. For them Islam is related to how to perform praying, and fasting and have a good conduct. This is manifested in public sermon conducted by Ulama. Many of them have lack interest on public discussion on how Islam can be applied in economic sector in order to have better Moslem community. Secondly, reference to Islamic principles in microfinance is quite limited. Hence, most beneficiaries of both MFIs follow their rules and regulation without being conscious of how the sharia principle is interwoven in their operations.

The mix finding of Islamic teaching as a drive of social entrepreneurship might be attributed to difference perspective of how

Islam should be practices. For social entrepreneurs, Islamic values and principles indicate the promotion of social justice and avoidance of social imbalances that facilitated the creation of institutions (Misykat and BMT­ MC) for improvement of collective welfare. For majority of Moslem being served by the institutions, Islamic values and principles indicate responsibilities of merely caring for their spiritual wellbeing through Islamic ritual performance. However, the drive for enjoying the graces of God and material success made the promotion of Islamic values and principles in the financial sector is easy to accept.

With regards to social entrepreneurs, both the inventor of Misykat and the founder of BMT­MC share the same inclination to subscribe to the teaching of Islam as guiding concepts in alleviating poverty and addressing the issues of social development. The distribution of zakah and profit for helping the poor and profit sharing mechanism for encouraging productive activities among the micro lender are some manifestation of Islamic teaching in effort to combat poverty problems. Professional networks also influenced them in their decision to venture into microfinance.

4.2. On Social Entrepreneurship Process

The social entrepreneurship process in microfinance can be identified through first, the creative process of finding and redefining the problems into opportunities that lead to innovative microfinance strategy; and second, the activity to set up new ideas (goal setting, problem solving and creating solutions to the perceived problems) in microfinance strategy. In the case of the Misykat model, there are four problems that were identified and redefined by the model. First, the failure of microfinance program as a whole, second the bank mechanism that made the vicious circle of poverty persist third, the misinterpretation of Islamic teachings on poverty and lastly, the underutilized potential of the ZISWA fund to help the poor. By looking at the practice of the prophet Muhammad in helping the poor and blending various approaches of microfinance, Misykat transformed these problems into

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opportunities by redefining the weaknesses of existing approaches of microfinance by combining financial services, education and capacity building, the weakness of Indonesia banking system and by setting up simple and pro­poor procedures of saving and lending. It also reinterpreted the Hadist by giving more weight to Islamic teachings about being productive and wealthy, and by developing more productive programs for zakah utilization that would enable the poor to earn more, save more and gain more through entrepreneurial activities. The redefinition of the problems above lead social entrepreneurs to set up their microfinance models, acquire resources and new services to address social problems.

In the case of the BMT­MC, the failures of the other BMT’s, the need to have alternative financial services to micro entrepreneurs and the belief that Islamic teaching is not fully implemented because of lack of skill and knowledge to apply Islamic teaching into practices lead it to reassess where the the BMT model failed. In the process, the BMT­MC found out that the BMT concept still has the potential to help the poor borrowers in meeting their financial needs. However, lack of professional personnel and lack of focus left it underdeveloped. BMT­MC came up with an improvement program of investing funds and for professionalization

Furthermore, under the Misykat model, Islamic teachings on productivity serve drive the social entrepreneur to maximize the social and economic values of the zakah fund. Thus, Misykat transform the role of zakah institution from being purely philanthropic into providing mixed productive services. To do this, Misykat created innovative system, process and products for microfinance institution, such as productive approach of utilization of zakah fund, religious based group approach, three­month training for group formation, and accumulation of saving among the borrowers.

Under the BMT­MC, the teachings of Islam are adopted as a sharia financial institution that capable of competing with

interest­based microfinance. The promotion of BMT model with business focus, individual approach of loan and saving arrangement, profit and sharing mechanism application are some innovative effort in BMT­MC that shift the original BMT model as mixed model of development services to the pure business services for creating social impact.

Table 1 the Core Process of Social Entrepreneurship

The core process of social entrepreneurship

Misykat Model

BMT­MC Model

Learning Motive, method and goals

mission driven, social and economic values

Market driven and economi c values

Adaptatio n

Organizatio n designed

From purely philanthropi c to mixed development services

From mixed development services to purely business services

Innovations On system : productive approach of Zakah

On process : religious group approach, three month training for group formation

On product : saving products

On system : BMT model with business focus

On process : individual approach

On products : profit sharing mechanism

4.3. On Organization Resources

Misykat needed a lot of resources, especially human resources, to run the microfinance program and to generated the initial funds necessary to develop such, DT Foundation provided integration of its programs and lends it charismatic leadership that made it attractive to others parties, such as the government agencies and the mining industries. For example, Misykat get staffing complement and volunteer facilitators from other units of the DT Foundation. It also gets

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its operational funding from the DPU. Thus, Misykat were able to focus on development program, fund sourcing, it was also able to develop its own strategy of attracting resources through its productive unit, Misykat was able enjoin other parties to replicate the Misykat model in other areas, such as Bogor, Aceh and Kalimantan and earn income for its consultancy fee.

In the case of the BMT­MC, it has been able to address its weaknesses in term of lack of human resources and lack of professionalism into strong points. It recruited competent personnel and set up standard operation procedures to professionalize the BMT. By professionalizing the BMT­MC procedure and services, BMT­MC develop trust among its borrowers and third parties particular funding agencies to place their funds on the BMT­MC. Table 2 summarizes the strategy to attract resources of the both models.

Table 2 shows that Misykat model relies on its parent organization, DT Foundation to build up its resources. Because the beneficiaries of Misykat do not bear the costs of financial and social intermediation,

Misykat need to develop a strategy to acquire resources from external parties (community fund, and parent organization). So far DT Foundation shows strong commitment to support Misykat program through its LAZ institutions. However, some barrier on communication between Misykat boards and DPU boards sometime create problem on the funding of its program and has impact on the members loaned on longer disbursement period.

On the other hand, BMT­MC acquire its financial resources from market mechanism (commercial fund, such savings from their members, earning from lending, donor loan). The strategy to develop more partnerships to support its financing services also is part of the BMT­MC strategy to distribute risk on financing due to lack financial guaranteed from the government. The commercial fund to finance its financing program; however, requires some changes on financing arrangement in BMT­MC from individual to group lending. This drives BMT­MC to explore group lending model that suit to the situation of its operation areas.

Table 2 Strategies for attracting Financial Resources

Key resources Misykat Model

BMT­MC

Beneficiaries Pay nothing Market rate price through profit loss mechanism

Capital Community fund (donation, grant )

Commercial fund + donor fund (both grant and loan)

Staffs Mostly volunteer and limited paid staffs

Paid staffs

4.4. On Innovations in Sharia Model

From the two models, there are three type’s innovations can be identified; first is

systems innovation. Misykat uses group approach to manage its financial services and organize its membership. At this point, however, effort to institutionalized its programs is not yet completed still has much to improve and it has yet to become independent from DT Foundation

On the other hand, being part of the DT Foundation benefits the program. Firstly, Misykat can use the resources of DT Foundation in term of personnel recruitment, capitalization and promotion. Moreover, the Misykat taps DT Foundation as cooperative institution that manages the savings and loan activities of the Misykat 8 .

8 Saving and loan activities are undertaken during weekly meeting. Saving and loan transaction take place during weekly meetings. The Majlis chairman or the treasury notes the transactions and reports them to the facilitator. The facilitator directly deposits the group and individual

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In contrast, the BMT­MC uses the individual approach to reach its clientele. It organizes several businesses groups. However, the development of group lending is still remain slow. BMT­MC uses two strategies to make the delivery of its funding and financial services more efficient. Internally, it adopt well planned program and continue with its organizational and service improvements, particularly those concern the process and product design. Simultaneously, it also promotes and spread the success stories of the BMT­MC. In doing so, BMT attracts more resources that enable it to continue to improve services.

In term of institutionalization of the BMT model, BMT­MC adopted cooperativism in a different manner. For one, it facilitates the strengthening of the network BMTs at the regional and national levels and lobbies for regulation of the BMT through PINBUK. To date, however, changes in regulations and policies have yet to be made.

Both models also introduced two process innovations. For the loan arrangement, Misykat sets up systems and procedure prior to obtaining loans, and during the repayment period. Prior obtaining loans, members must participation in a­three­month training, which test the willingness of the members to be part of the group. Loan disbursement also follows a 2­2­1 process which keeps the group mechanisms at work. In term of repayment members are expected to participate actively in weekly meetings, and to join occasional business trainings to upgrade their business skills and knowledge. Moreover, members only pay the principal loan (amount around U$100) without any additional payment because the mode of transaction follows the tabbru contract (non profit contract).

On the savings side, Misykat educates the members about the importance of savings as a tool for improving their living conditions. Misykat also create savings that enable its

saving to the DT cooperative for safekeeping. Therefore, no funds are kept by the group or the Misykat.

members to plan their financial activities despite limited sources of income.

In the case of the BMT­MC, it simplified the procedure for saving and borrowing. Members can save as low as half a dollar. It takes nine days after a member opened a saving account in the BMT­MC before she/he can get a loan. Compare with other Banks such BRI that take three to four weeks. It also charges minimum cost of 1.5 % of the total loan applied for. Repayment period varies from 4 to 18 month at daily, weekly or monthly basis. The members pay the principal loan and a pre­agreed profit and loss sharing proportion. These mechanism and procedures create perception of simplicity and flexibility of loaning process of BMT­MC as a key to attract many borrowers.

Product innovation, Misykat focuses only on funding product services such individual savings, group savings and planned savings. It believes that savings help members improve their living conditions. The focus on saving mechanism is also part of its strategy to prevent bad loans among Misykat members. By contrast, BMT­MC focuses on both financing and funding products. Hence, BMT­ MC develops variety of financing and funding models that suit the needs of different target groups. Table 31 below compares the innovative approach of both models.

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TABLE 3 INNOVATIONS OF THE MISYKAT AND BMT MARDHOTILLAH

Type of Innovation

Aspect Misykat BMT

Approach to intended beneficiaries

Group approach and religious attachment

Individual approach and religious attachment

Systems

Strategy for institutionalization the microfinance model

No strategy has been developed Strengthen networking among BMTs and policy advocacy through the PINBUK

Strategies to reduce barriers for setting up new services

Using DT Foundation’s resources (outsourcing strategy)

Internal strategy : professionalized BMT­MC procedure and services

External : promotion and spreading of the success story

Loan and savings arrangement

• Takes at least 3 month to obtain the first loan and 2­3 weak for succeeding loan

• three months training and weekly meeting as requirement for eligibility to access financial services

• Loan arrangement: 2­2­1 (The first two borrowers get loans followed by another two, then the last person in the group)

• Savings : individual, planned and group savings mechanism

• Takes 9 days to obtain the first loan after opening a saving account with the BMT­MC

• Membership in BMT­MC, before obtaining financial services

• Individual basis with simple procedure for saving and obtaining loans

Process

Repayment arrangement • Through group weekly meeting • Pay only the principle loan without interest

• Daily, or weekly visits depending on pre agreed arrangement

• Cost of loan (1 % of total loan amount), amount of payment based on average income from sales + profit sharing nisbah

Financing products Qardh ul hasan (social lending) • Bai’bit saman ajil (long term financing for working capital)

• Mudharabah (financing for initial capital)

• Murabbahah (shor term financing for working capital)

• Bai’salam (financing for emergency business needs)

• Musyarakoh (joint venture financing • Al Rahn (pawning)

Product

Funding product Individual, planned and group savings

• Ordinary Sharia Savings (Tamalah, Tasima, Qurban and Aqiqah, Walimah, Pilgrim and umroh, Tamaka)

• Savings for member (Si Ummah saving and Sertifikat Mitra Muamalat

5. CONCLUSION

5.1. On Harnessing Social Entrepreneurship in Misykat Model

As mentioned in chapter 2, the teachings of Islam facilitate the process of social entrepreneurship in two ways. First by giving the motivation to achieve material and

spiritual well being from Allah if one is able to bring welfare of other through individual and social action and second by giving the space of innovation in regards to the flexibility of the practice of sharia principle in economic and in financial activities in particular. The socio economic factors that give a rise to the Model were dominated by the alleged

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misinterpretation of Islamic teachings on the concept of poverty. Its leads to emergence of weak character among the Muslims and worsened by economic institutions that do not support the poor. On the other hand, Islamic teachings rich with encouragement of productivity, entrepreneurial spirit and institutions that support the poor are not developing well. These gaps create opportunity for the activity of social entrepreneurship to redefine the problem, setting new goal and come up with new model to address the problems.

To solve the problem, DT foundation come up with ideas that Islam is not merely concerned to individual religiosity and moral issues, but also to individual and social welfare. In order to obtain individual and social welfare, Muslim should combine Dzikr (spirituality) with Fikr (rationality) and Ikhtiar (productivity). For those who do not have access to Fikr and Ikhtiar, DT­foundation established the program to facilitate development of these aspects through optimation of the zakah fund under the Misykat model. Therefore, zakah that used to be distributed for consumptive purposes was transformed into integrated microfinance approach for the enterprising poor. The innovative way of utilizing zakah, does not merely lie on its productive purpose but to the concept of Misykat model. Misykat model recognizes the power of Fikr to change the attitude of the individual. Consequently, education and facilitation became the core program of the Misykat. Savings and loan activities are means to generate productivity (ikhtiar aspect). Thus, entrepreneurial activities served as venue for transforming the weak character of the Muslim into strong Muslim community. The Dzikr aspect is used to orchestra the whole program and activities of Misykat model.

5.2. On Feature of Social Entrepreneurship in Misykat Model

There are two contexts that give a rise to the Misykat Model. First is the socio­ demographic and second the organizational

context. The model has been designed to serve urban women groups to facilitate generation of income through microfinance program. The program was developed in voluntary organization (DPU­DT foundation) setting that make used community Fund (ZISWA fund). As microfinance program that operate in religious based organization, Misykat submitted not only to policy and regulations of the government but also to sharia principles. Therefore, the policy on zakah management, the tabbarru­ based contract for setting up mode of transaction and Qurdh ul hasan model play critical roles in the designing the Misykat model. The model itself aims to give enterprising women alternative income sources. The model hopes that through entrepreneurial activity, the members of Misykat would eventually become zakah payers.

However, to achieve the goal mentioned above, Misykat can not use either the existing microfinance model espoused by formal banking system or adopt the usual program of other traditional zakah organizations. If the first model offers unjust system of financial services to the poor, the second model merely focuses on consumptive programs that failed to respond to poverty. Hence, Misykat model learned to adopt new approaches by blending various microfinance program and come up with a relatively unique microfinance approach. The uniqueness is on target group and organizational design. Misykat combines financial services, education and facilitations to their beneficiaries. The component was designed to give a room for character building, paradigm shift and capacity building of the members. Misykat do not rely merely on the use of the group mechanism to manage the loan and repayment process but also the religious sentiment to nurture individual responsibility and character to become good Muslim with sound entrepreneurial spirit. Both components directly link to the effort of the DPU­DT foundation to have a financial institution that is owned and managed by the poor.

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5.3. On the Unique Approach of Misykat Model and BMT Model

The differences in the approaches of Misykat Model and BMT­MC model is rooted in the sectors their target, while make the application of sharia principle and the model of microfinance approach different. If Misykat mainly operates as a religious formal organization (voluntary sector) 9 , BMT­MC model operate in semi­formal organization (private sector) on which the policies and regulations of government have implication to their performances. However, given these, both models have own characteristics and limitations. Misykat model characterized with Qurdh Ul hasan based model by utilizing Zakah fund from the Muslim Community. On the Other hand, BMT­MC model characterized by Profit and Loss Sharing model by utilizing commercial fund (saving and investment from third parties) from both Muslim and Non Muslim community. Although Both Model used Islamic teaching practice to generate fund or membership, and to design the model, the both model has their own approach to the client. While Misykat focus on group approach to manage their financial activities, BMT­MC model maintain individual approach on their financial services.

5.4. On Contribution to existing Sharia Microfinance Approach and Reaching the Poor

Misykat model is a relatively new development in term of harnessing the zakah fund through microfinance approach. The other zakah institutions use variety of zakah utilization approach, such as the Rumah Zakah (Zakah House) to address public health, and Dompet Dhuafa Republika to address poverty using community development approach in rural areas. However, despite this, it has attracted some government agencies and

9 Formal and informal organizations in this context refer to legal status of the organization whether fully regulated or not. If they are fully regulated, the organizations are formal and if regulations are absent, the organization are informal and if the regulation exists but not fully regulated the sector, then the organizations are classified into semi formal organizations.

private business to replicate the model. According to the Local Planning Boards, Misykat model has a sound data base and works in localities hence, the model can serve right target groups. In term of coverage, Mr. Saktiwan argued that

“Quantitatively speaking, the Misykat model is only serving 4 villages in one sub­district. Thus it is difficult to give sound evident that Misykat has already successfully reached a large number of the poor. However, I may say that Misykat has potential to give more alternative access to the capital needed for developing entrepreneurial activities among the poor. The replication of Misykat model in other areas proved that the model is attractive as instrument of community development either for private companies or for the government programs”

In the case of the BMT model, in general it has been developed in almost every province in Indonesia. However, the improvement and best practice of BMT model indicated in BMT­MC is needed. Although BMT model has several BMT networks and has been developed as a movement in Sharia microfinance field, the policy advocacy to have specific legal status is not yet successful. In terms of reaching the poor, However, BMT­ MC is targeted micro­entrepreneurs lacking in capital to develop their business. Therefore, BMT­MC is not serving the poorest segment of the society. New models of BMT to serve the poorest segment of community (such as beggar) are being developed in collaboration with Ministry of Social Welfare. However, the model is not implemented yet, and nothing can be said to this new BMT model.

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