The Four Main Factors for Problem Funding in LKM Sharia

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Illustration by Feri Fenoria

UNAIR NEWS – Microfinance institutions (MFIs) are financial institutions intended for small groups of people who have been unable to access formal financial institutions such as bank. Whereas Sharia MFIs are financial institutions whose products and services are under Islamic values.

In carrying out Sharia MFIs, financing problems often occur. Massive problem financing will undoubtedly threaten the business continuity of the financial institution itself.

On the customer side, there are several factors that determine problematic financing in Islamic MFIs. On the customer side, are there any several factors that determine uncertain funding in Islamic MFIs. Are there any specific factors that cause customers to fail or cannot pay on time?

Furthermore, Bayu Arie Fianto, SE., MBA., PhD., and the team conducted research. Bayu claimed this research was a continuation of previous studies.

In the study, the sample is from Sharia MFI customers. There are 50 customers with non-performing financing and 90 customers with smooth financing.

“In total, 140 customers or respondents that we interviewed from LKS in Indonesia,” he added.

There are eight factors or variables used in this study. These are age, sex, educational background, occupation, location (distance from the customer’s home to the Sharia MFI), location related the city or village, type of occupation, total financing, and type of contract. In the LKMS, the deal is generally divided into two, namely the production sharing contract and non-revenue sharing contract.

“Whereas in conventional banks, only all interest,” he said.

After conducting research, there are four variables that most influence on problem financing. The variables are age, sex, type of occupation, and type of contract.

“And of the four variables that are very influential is the type of contract,” he said.

For the age variable, older clients have a higher probability of not performing than younger clients. On the gender variable, female clients are better at managing loans/finance than men.

The third variable is the type of work variable. Clients working in the formal sector tend to fall more into the nonperformance category than clients working in the informal sector, which is an interesting result.

“The possible reason for the result is because most respondents in this survey work as small entrepreneurs who possibly have more income than those receiving a fixed salary,” he explained.

Then the most influential variable is contract type. For contract types, revenue sharing agreements tend to be more non-performing than non-revenue sharing contracts. This happens because these revenue sharing contracts have a high risk.

In the profit-sharing agreement, the customer will calculate the profit. In the process, clients may increase costs so that the value for the results will be smaller.

This research will certainly have a significant impact on Islamic MFIs. There are four main factors that affect problem financing. Hopefully, the Government and Financial Institutions will pay more attention to these factors in providing financing.

“It is expected that the funding can continue smoothly. If the financing is not smooth, it will certainly cause the sustainability of this financial institution to be problematic, “he concluded. (*)

Author: Sandi Prabowo

Editor : Khefti Al Mawalia


Bayu Arie, FiantoHayuMaulida, NisfulLaila. 2019. Determining factors of non-performing financing in Islamic microfinance institutions

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