The Financing Model in Indonesian Islamic Microfinance During the Covid-19 Pandemic

Abstract

Most entrepreneurs in Indonesia are in the micro business sector, which has been seriously affected by the Covid 19 pandemic. As a result, they are trapped in high-interest loans. This condition worsened their business when they were unable to pay their obligations. This study analyzes descriptively qualitatively the financing model for micro-enterprises during the Covid-19 pandemic. The descriptive analysis maps the problems of micro-enterprises and ongoing financing schemes and finds a more appropriate model. The research sample was 156 small traders receiving financing from the Baitul Maal wa Tamwil Islamic Microfinance Institution, with a maximum ceiling of Rp.20,000,000. The results of the study show that micro-enterprises are dependent on high-interest loans with short terms due to their convenience and family-friendly approach. Other findings show that interest-free Sharia financing schemes, with a speed of service, ease of procedures and family relationships, are in great demand by micro-entrepreneurs, even though the profit sharing or margins are expensive.