Micro Waqf Bank Aims to Provide Opportunities for How Low-income People Do Business
Low-income people do business better with financial literacy and freedom.
The Republic of Indonesia’s Micro Waqf Bank scheme will positively impact how low-income people do business. Micro Waqf Banks aim to redress industry concerns that have hampered this group in their business entrepreneurship. These mainly include access to sufficient funding and limited capital to start a business, amongst others. The Micro Waqf Bank initiative will also empower economic activities in the low-income market segment.
This was the highlight at the recently held Vocational and Entrepreneurship National Conference at Cipasung Islamic Boarding School. Micro Waqf Banks are crucial in boosting the financial initiatives of communities located in the vicinity of such schools. These low-income groups struggle to secure venture capital funding or obtain support in running and marketing their business.
This has been a cause of concern for the Government, as the economic activity of low-level tiers isn’t encouraging. Micro Waqf Banks are ideally situated to provide a viable solution that can encourage the growth of low-level income groups.
Islamic Financial Instrument for the Needy
As an Islamic microfinance instrument, the creation of Micro Waqf Banks was with the permission of the Financial Services Authority (OJK). First formed in October 2017, it was an experimental initiative undertaken by the Islamic Boarding Schools or Pesantren. Its main aim was to encourage financial inclusion for rural and remote areas. It also targeted people with below-average income who lacked familiarity with formal economic systems.
The popularity of Micro Waqf Banks led to official formalization and licensing by OJK within a year. Capital accumulation is via private and corporate donations, especially from the National Amil Zakat Institutions (LAZNAS). Micro Waqf Banks qualify as Shariah-compliant Islamic financing instruments.
Accelerating Low-level Economic Activity
Currently, there are approximately 60 Micro Waqf Banks affiliated with Islamic boarding schools across Indonesia. Fund distribution via these banks to communities around Islamic boarding schools has been encouraging. To date, 4,789 community business groups and 44,900 customers have benefitted from funds totalling Rp67 billion.
Relevant institutions and ministries are under mandates to accelerate an optimization programme of the Government’s Revolving Fund. The programme will involve the Revolving Fund Management Agency for Cooperatives, Micro, Small and Medium Enterprises (LPDB UMKM). It will also include Ultra Micro Financing and the Government Investment Centre Public Service Agency (BLU-PIP).
Optimizing the State Revenue and Expenditure Budget (APBN) usage can accelerate the creation of Micro Waqf Banks. The Government is confident that the number of Micro Waqf Banks will continue to grow with this impetus. This will have a positive outcome on the way low-income people do business.
Waqf financing is undoubtedly leading the current trend as Indonesia’s potential cash waqf is estimated at Rp180 trillion. Along with land waqf and the recently introduced waqf Sukuk, Indonesia is well on its way to scale its rankings. It currently holds second place in the Islamic Financial Development Indicator 2020, up from the fourth place.
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