Three Main Determinants of Accessibility to Get Financing at Islamic Microfinance Institutions

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Illustration by Feri Fenoria

UNAIR NEWS – Sharia Micro Financial Institution (LKMS) is a financial institution whose products and services are under Islamic values. In LKMS, there are two types of contracts, namely the production sharing contract and non-profit sharing agreement. What factors determine the accessibility or ease of accessing financing to LKMS?

This question then motivated Bayu Arie Fianto, SE., MBA., PhD., And the team to conduct research. The novelty of this study lies in the unique accessibility of financing between customer schemes that use a revenue-sharing agreement with non-profit sharing. This study in the future will be an essential addition to the literature on LKMS.

Bayu revealed that this study used a sample of 429 respondents consisting of 289 LKMS customers and 140 non-LKMS customers. Of the total respondents, there were 162 customers with non-profit sharing agreements, 111 customers with profit-sharing contracts and 16 customers with both schemes.

The results showed that three main factors influenced access to finance. It is a factor of age, gender and income (income).

Bayu said that the age factor had a positive effect on the accessibility of financing. Thus, the more mature a person who proposes financing, the easier he will get access.

“There are age restrictions. At a certain age, the older person will get access to financing easier. It could happen because most of them are approaching retirement age, “he said.

The second factor is the gender factor. In this factor, male respondents tend to have easier access than women. In Indonesia, especially in Java, it still adheres to a patriarchal system.

“Men as heads of households are considered responsible for the family, so it will be easier for men to get access to finance than women,” he explained.

The third factor is the income factor (income). This factor has a positive effect on the accessibility of financing. Thus, the higher a person’s income, he will get access to finance easier.

Furthermore, the LKMS customers are further divided into two groups. Customers are divided into customers with profit-sharing agreements and non-profit sharing customers.

“We use the logistic regression method, and we will know what factors caused customers with profit sharing and non-profit sharing agreements, “he explained.

Moreover, customers with non-profit sharing agreements don’t have a significant effect. Meanwhile, the income factor of the customers with profit-sharing agreements still determines whether they can get access to finance or not.

“Customers with a profit-sharing agreement still determines whether they get access or not. Whereas, the non-profit sharing customer will not get a significant effect” he concluded. (*)

Author: Sandi Prabowo

Editor    : Khefti Al Mawalia

https://www.emerald.com/insight/content/doi/10.1108/AFR-10-2018-0091/full/html

Bayu Arie Fianto, Christopher Gan, Baiding Hu. 2019. Financing From Islamic Microfinance Institutions : Evidence From Indonesia

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