1. Mitra Bisnis KeluargaVentura - Indonesia
(Family Business Partners)
Microcredit Summit, Valladolid, Spain, Nov 2011
Challenges in Syariah Group Lending
Shafiq Dhanani

2. Main Challenges
 Legal and Regulatory Approvals
 Modification of MFI Governance
 Product Design with Syariah Principles
 Practical Implementation Issues
 Conclusions: Syariah Group Lending?

3. Examples of MBK Clients & Houses

4. Weekly MBK Centre Meeting: 6 Stages
Read promise/ 5 main rules Register Attendance Repay instalments
Receive follow-up working capital Information, Answer questions Read promise/Close meeting

5. Legal and Regulatory Approvals
 National Syariah Council: Full Presentation
(30 members) -->Recommendation
 Amendment to Company’s Articles of Association –
Ministry of Justice
 Approval by Regulator – Ministry of Finance, Capital
Market and Financial Institutions Supervisory Board
 Separate Consultations/Endorsement by Ulama
Councils at provincial, district, sub-district and
village level

6. Modifications of MFI Governance
 Syariah Supervisory Council reporting to MFI’s Board of
Directors
 2 Members recommended by National Syariah
Council
 Members employed by MFI
 Functions of Syariah Supervisory Council:
 Approve Syariah Product Design
 Monitor Implementation of Syariah Product in the
field
 Report to both MFI and National Syariah Council

7. Product Design
 Most common Syariah Product is mark-up on Buying
and Selling (Murabahah): one-time purchase
 More difficult Syariah Product is Profit-Sharing
(Mudharabah):
 What Profit-sharing Rate?
 Different businessmen abilities
 Different industries: trade, agriculture, processing, services
 different scale of operations and location (urban/rural)
 Expected Profit-sharing rate vs. Actual:
 difference must be given back to client, or client must pay more, at
the end of loan cycle
 Separate Accounting for Syariah Product:
 Eventually full accounts of Subsidiary Unit
 Fines and Penalties
 donated to social causes, not included in Company Income

8. Practical Implementation Issues
 Data on business profitability & profit-sharing rate?
 Complex Field Surveys for different industries and business
scale
 Regular updating of field surveys findings
 Clients in same group but different profit-sharing rates?
 Group Lending MFIs usually have hundreds of
thousands or even millions of micro-clients:
 How can MFI physically verify every year the profitability of so
many clients?
 Most micro-clients do not keep written accounts, many
are illiterate…

9. Conclusions: Syariah Group Lending?
 Many regulatory, design and practical challenges
 Syariah lending Rare in Muslim Bangladesh,
Pakistan and Indonesia
 Syariah Loan Products mainly used for
buying/selling
 Why Syariah Group Lending Product in MBK?
Resistance / of local Ulamas in a few areas to:
 Conventional loans based on interest rate
 Vested Interests
 Resistance to fixed profit-sharing rate

10. Thank You
PT Mitra Bisnis Keluarga Ventura