By Setiawan Budi Utomo, an observer of Islamic economics and public policy
The economic awakening of the ummah found new momentum with the acquisition of a license to establish an Islamic people’s economic bank (BPRS) Muhammadiyah, named Bank Syariah Matahari (BSM), last June, and various Islamic financial institutions from the roots of the Islamic mass organization community. It is time for us to answer the needs of the people for financial institutions that are trustworthy, fair, and in favor of the small people.
Community-based financial institutions are not new. BMT, sharia cooperatives, and other micro institutions have long played a role in the community. However, many have failed. Some have slipped because of weak management. Some collapsed because they could not withstand the crisis. In fact, they carry the name of Islam, the name of the ummah, and the hopes of the small community.
According to OJK data as of the end of 2024, Islamic banking assets were almost Rp1,000 trillion nationally, exactly Rp980.30 trillion. It grew almost 10 percent (year on year / yoy) compared to the same period the previous year, with a market share of 7.72 percent. Financing disbursed grew 9.92 percent to reach Rp643.55 trillion, with around 16 percent-17 percent of it targeting MSMEs.
The gross/net NPF rate was recorded at 2.12 percent and 0.79 percent, respectively. This indicates that the quality of Islamic banking financing is quite good. Meanwhile, CAR reached 25.4 percent, reflecting the industry’s high resilience in facing risks with a strong health ratio.
In the BPR/BPRS family, assets reached Rp216.7 trillion (March 2024) with 174 BPRS entities. Asset growth was 7.34 percent (yoy). On the other hand, financing grew 9.42 percent, and deposits grew 8.6 percent.
In the micro sector, OJK noted that there were 79 Islamic microfinance institutions (LKMS) as of the end of 2024, a sharp increase from the previous (2016) which was only 13 entities. Total SMFI assets reached IDR 629.6 billion with growth of more than 9 percent in the past year.
However, around 60 percent of SMFIs still face challenges in digitalization and strengthening governance. This is homework that needs to be addressed immediately, so that Islamic finance can truly reach and empower communities at the grassroots.
Many MSME players have not been touched. This is where optimizing the role of community MFIs and BPRS is very important. Not only as an alternative to conventional institutions, but as an embodiment of Islamic values: justice, honesty, and benefit.
To avoid repeating failures, we must learn from examples of global success. Globally, Akhuwat in Pakistan has shown spectacular success by distributing over PKR128 billion (Pakistani rupees) worth of qard al-hasan to over 3 million families. They integrate the mosque network as a distribution channel and practice a zero-margin scheme, promoting social trust.
In Malaysia, Amanah Ikhtiar Malaysia (AIM) has managed to maintain a smooth repayment rate of over 99 percent through a group approach and state support. Their keys are trustworthy, transparent and professional.
However, it is also necessary to anticipate failures, such as the Comilla model in Bangladesh and the BuN project in India, which demonstrate the importance of management integrity, community participation and close supervision. In Indonesia, lessons from failed BMTs and cooperatives that are generally based on troubled communities emphasize the urgency of strong risk management and governance.
OJK has introduced POJK 24/2024 to strengthen the asset quality of BPRS, as well as two new guidelines on musyarakah and digitalization. However, deeper transformation is needed: digitization of 60 percent of MFIs that are still manual, improving unit cost efficiency, and strengthening human resources.
Synergies are needed between large Islamic banks and community institutions in the distribution of microfinance, productive zakat, and CSR. Programs such as sharia KUR and partnerships with fintech can be the backbone of modern community finance. Community finance must be able to reach villages, Islamic boarding schools, and religious mass organization communities that have been marginalized by conventional financial schemes.
Strategic recommendations include drafting modular regulations, providing social tax incentives, establishing an MFI Digitalization Acceleration Fund, and developing a social outcome-based monitoring system. Community finance must also develop a collaborative ecosystem that brings together social capital with professional institutional standards.
With strong social capital, a wide network of community organizations, and progressive regulatory support, Indonesia is in a strategic position to make community-based Islamic financial institutions a locomotive of inclusion. The challenge is to ensure the transformation of values into systems from good intentions to credible, adaptive and digitally competitive institutions. If this momentum is managed with the right strategy, community Islamic finance will become a bridge between the national financial system and the real needs of the grassroots. A transformation that is not only possible, but also urgent. (*
