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The Role of Islamic Banking System as the Milestone towards Indonesia Micro Economy Development

  • Rahajeng, DIAN

As the largest Muslim community in the world, Indonesia is optimist on implementing Islamic economy as one of the system. The previous global financial turmoil has made the attention turn on the Islamic financial model, and in particular the Islamic banking system. This model offers a microfinance system that allows poor people to meet their financial needs. Most banking systems are less concern about the difficulties affecting poor people since they usually have no collateral, making them a riskier investment. Knowing the 98.9% micro industries of Indonesia, it is an urgent need on facilitating their financial intermediaries. The Islamic microfinance system manages this demand by providing small-scale financial services to the lower and poor markets by giving them banking facility. Hence Islamic microfinance helps to sustain financial inclusion as attempt for that mostly poor society who has lack access to financial institution. The motivation for this research is to meet the knowledge gap of acceptance on the Islamic banking system implementation in the Indonesian micro economy development. The research questions is how micro industries perception and acceptance towards the existence of Islamic rural banks. The methodologies used are survey as primary data collection of 60 both Islamic and common rural banks for thorough analysis also secondary data collection from its financial reports. The research finding is the positive perception and acceptance of Islamic rural banks as micro industries’ financial intermediaries. This research concludes that Islamic rural bank has become the part of micro banking services and contributes on building ideal Indonesia development.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50465.

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Date of creation: 10 Sep 2013
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Handle: RePEc:pra:mprapa:50465
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  1. Michael Chibba, 2008. "Poverty Reduction in Developing Countries," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 9(1), pages 197-200, January.
  2. Ken Binmore, 2008. "Behavioural Economics and its Applications," Economic Journal, Royal Economic Society, vol. 118(529), pages F248-F251, 06.
  3. Richard Montgomery, 1996. "Disciplining or protecting the poor? Avoiding the social costs of peer pressure in micro-credit schemes," Journal of International Development, John Wiley & Sons, Ltd., vol. 8(2), pages 289-305.
  4. Mirakhor, Abbas & Krichene, Noureddine, 2009. "The Recent Crisis: Lessons for Islamic Finance," MPRA Paper 56022, University Library of Munich, Germany.
  5. Panjaitan-Drioadisuryo, R.D.M. & Cloud, Kathleen, 1999. "Gender, self-employment and microcredit programs An Indonesian case study," The Quarterly Review of Economics and Finance, Elsevier, vol. 39(5), pages 769-779.
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