Empowering the Islamic Microfinance to Overcome Riba (Usury) based Economy

Abstract

In order to have the success of economic policies to develop microenterprises and alleviate the problems of poverty in Indonesia over the past three decades, financing microenterprises was considered as an effective paradigm in the grass root economic sector and became the popular subject of study by a number of researchers in the past, particularly, after the proclamation of the year 2005 as the microfinance year by the United Nations (NU) and every July 12^th is commemorated as the cooperative day in Indonesia. Therefore, this study aims to empower the Islamic microfinance system in order to overcome riba (usury) based economy in this country, besides to decrease the power of conventional banking and financial system, to abolish the moneylenders’ system and to eradicate rural poverty and particularly to help Muslim micro entrepreneurs all over Indonesia. This article uses the library-based research method by analyzing relevant materials such as the Holy Quran, the Hadith, the traditional Islamic books and literatures, journals, academic textual materials as well as internet sources and afterwards followed by discussions based on Islamic law of financial transactions. As a result, the study found that the some of Islamic micro institutions such as Bayt Mal wa al-Tamwil (BMT) as a model of Islamic micro financial institution were problematic and not totally Islamic, although they are somewhat better, if compared to conventional products and services. The most reasonable arguments of the problem were derived from the operating system which is parallel to the conventional counterparts. .