Why is Growth of Islamic Microfinance Lower than its Conventional Counterparts in Indonesia?

Dian Masyita and Habib Ahmed
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Dian Masyita: Senior Lecturer and Researcher at the University of Padjadjaran, Postal: Bandung - Indonesia
Habib Ahmed: Professor of Sharjah Chair in Islamic Law and Finance, Postal: Durham University, UK
Authors registered in the RePEc Author Service: Habib Ahmed () and Ahmed Mohamed Habib ()

Islamic Economic Studies, 2013, vol. 21-1, 35-62

Abstract: The aim of this paper is to examine the demand factors for microfinance services in Indonesia consisting of the understandings, perceptions and preferences of 581 micro finance institutions (MFIs) clients of four MFIs— two Islamic (BMT and BPRS) and two conventional (BRI and BPR). The results show that MFIs clients’ preferences are driven by economic (low interest rates, low collateral and size of loan) and non-economic factors (such as quality of services variables; easiness, speed, nearness, payment method and loan officers’ profile). The results also indicate that BRI, a conventional MFI, is ranked the most competitive according to these factors, followed by BPRS (Islamic rural banks), BPR (conventional rural banks) and BMT (Baitul Maal wa Tamwil). The survey also identifies the gaps in which Islamic MFIs should fulfill in enhancing their roles to reduce unemployment and poverty.

Keywords: conventional MFI; Islamic MFIs; client’s understanding; perceptions; preferences (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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