CULTURAL ASPECTS ON THE ISLAMIC MICROFINANCE: AN EARLY OBSERVATION ON THE CASE OF ISLAMIC MICROFINANCE INSTITUTION IN BANDUNG, INDONESIA -Kurniawan Saefullah
EM Strasbourg Bussiness School
(Université de Strasbourg)
with
European Research Group
“Money, Banking & Finance”
Financial and Monetary European Integration Group
Workshop on Islamic Finance
in Strasbourg
What Islamic Finance does (not) change
March 17th,, 2010,, EM Strasbourg Business School
ABSTRACT:
Microfinance has been widely accepted as one of the tools to eradicate poverty. The
stories of Grameen Bank in Bangladesh, Bank Rakyat Indonesia (Indonesian People Bank) in
Indonesia, Self-Help Group in India show the extent to which microfinance can eliminate
poverty. The success story has been accepted also with the contribution of Islamic Microfinance
Institutions. (Seibel:2008). Yet, it is unfortunate not many studies have been conducted in order
to investigate the impact of culture to the development of microfinance in Indonesia. The cultural
factor itself is believed to also influence the existence of poverty (Goode and Eames, 1996 &
Lewis, 1998). According to Mohammad Obaidullah (2008) the cultural and religious sensitivities
of the Islamic world are somewhat unique and these must be given due emphasis in any attempt
to build inclusive financial systems and bring the over one-billion Muslims into the fold of
formal financial systems. Research conducted by Deubeul (2003) on microcredit on Mali showed
how culture can be integrated in developing microfinance. The success of Grameen Bank is also
due to the bank’s understanding of cultural factor embodied in women as their main client
(Varghese, 2001). Another research done by Phlong (2009) on informal credit system in
Cambodia also indicates that the understanding of local culture assist the effectiveness of
microfinance in a society. Latest research by Rana (2008) in Bangladesh also confirmed the need
to have cultural orientation in managing the microfinance. These findings leads to the need of
diversification in empowering the microfinance institution as well as the Islamic MFIs.
Islamic MFI need to diversify product range and design product to cater the financial
needs of the poor segment of the economy. This diversification refers to the diverse financial
requirements with regards to the cultural differences. The innovative designs of a range of
sharia-compliant products and services would provide greater financial access to a broader
segment of islamic microfinance customers. (Karim, Tarazzi and Reille :2008). In Indonesia
itself, despite of the fact that Indonesia consists of various different cultures, such research are
still very limited. The living culture of poor fisherman for instance, will obviously differ from
that of poor farmer and poor fellow in an urban city. Thus, eventually the culture is predicated to
have an impact on the success or failure in financing distribution of islamic microfinance.
This paper attempts to examine the extent to which cultural factor affect the Islamic
microfinance development, particularly in Indonesia. Using sample quantitative and qualitative
data and approaches of Islamic MFIs in Bandung, this paper attempts to observe and find the
evidence that cultural aspects should be incorporated in the development and management of
Islamic MFIs. Finding of this research however indicates the extent to which Islamic
microfinance institutions tend to deny the importance of cultural differences and thus this
prevent them from providing cultural specific products. Interview conducted with Bambang
Ismawan yields that two factors are associated with such attitude i.e. the banking regulation and
Islamic normative traditional discourses that seems not considering the cultural aspects of the
people. These finding thus needs to be further investigated in order to provide a more detailed
understanding of the issue.
source: http://www.em-strasbourg.eu/ems/ems-workshop-on-islamic-finance-33.html