Microfinance And Poverty Allevation

MICROFINANCE AND POVERTY ALLEVATION Microfinance relates to providing financial services, especially in the form of savings and credit, for people with low incomes (Ledgerwood, 1999). Seven general functions of Microfinance: (1) small transactions, either loans or savings; (2) loans for entrepreneurial activities; (3) loans without collateral; (4) group lending; (5) focus on underprivileged clients; (6) focus on women; and (7) market interest rates (Prawiranata, 2016) Microfinance has three types namely group lending ( group lending) is the practice of working with clients in small groups (usually three to seven neighbors) . individual lending is a direct credit lending model, in which microloans are provided directly to borrowers. A sel-Help Group is an informal association of individuals who come together voluntarily to promote economic and social goals. In microfinance there are also three paradigms, namely The financial Self-Sustainability Paradigm is a microfinance scheme designed to reach creditworthy clients who are able to repay loans at commercial interest rates. The Poverty Alleviation Paradigm is the philosophy that underlies the poverty alleviation paradigm, often referred to as the Grameen Model. The Feminist Empowerment Paradigm is the concern that underlies this paradigm is gender equality and women's human rights. The target is poor women and women who are able to become role models for alternative women for change. Poverty is the greatest moral challenge of this century. Muslim societies are far worse than any other country in the world in overcoming the problem of poverty. In Indonesia itself, with the world's largest Muslim population, half of the national population of around -129 million people are poor or vulnerable to poverty with incomes less than US$2. What the poor need in terms of financial services are Life-cycle events, including once-in-a-lifetime events (birth, marriage, death, house construction). Recurring incidents (education, festivals, and harvest time). Emergencies include personal crises such as illness or injury, death of a member or loss of job, and theft, as well as natural disasters and disasters such as earthquakes, natural disasters and famine. Opportunities to invest in businesses, land or household assets also arise. Products from Microfinance consist of Micro-credit, Micro-savings, Micro-transfers, Micro-insurance. Central to the challenge of ending poverty is creating wealth through developing microenterprises. Micro-enterprises are generally included in two categories, namely livelihood enterprises (livelihood businesses) are survival businesses. The main features of livelihood enterprises are that they are often one of many part-time or seasonal ventures undertaken to supplement the family income, enterprises usually do not involve skills, cases of surplus income are limited, a higher proportion of livelihood enterprises tend to be owned and operated by women. The second is Growth enterprises (businesses that are developing) are usually involving people who are quite poor or who have a poor ending, most of whom have managed to get out of extreme poverty and destitution and are trying to move up. The main characteristics of growing companies consist of the company is often the main source of family income, the entrepreneur usually has an education, the company often occupies a market “niche” with a wide scope for specialization and product differentiation, less affected by seasons and functions throughout the year, a portion of the surplus is reinvested in business expansion and growth. ISLAMIC APPROACH TO ALLEVIATIOAN POVERTY A poverty in the view of Islam Poverty in the perspective of Islam is that both the material and moral dimensions as well as welfare have two material and spiritual sides, which include two mental material sides, happiness and spiritual harmony. So to make it happen, he enforces justice and human brotherhood, regardless of gender, race, age etc. (Chapra 2008). The poverty rate in Islam consists of those who live at or below the poverty line defined as poor people (Al Fuqura). Those living far below the poverty line, which is defined as the poor (al Masakin). Three aspects of poverty in Islam consist of moral because it reduces self-esteem. Social because it pulls the poor out of society, and political because it has a higher probability of creating a higher gap between people's social ranks. The Islamic approach to poverty alleviation consists of charity, charity occupies a central position in the Islamic scheme of poverty alleviation. The broad term for charity in Islam is sadaqa. When it is obligatory to be mandated to a mulim who fulfills the sadaqa requirements it is called zakat. The main problem with zakat-based solutions is the sustainability problem. Islamic microfinance institutions are the most appropriate approach for mobilizing resources, both obtaining funds from local Islamic banks for further financing, economic empowerment (keywords that rule out dependence on charity, Empowerment as an expansion of people's ability to make strategic life choices where this ability was previously rejected by them (Kabeer, 2001).Economic empowerment:ability to involve control over and allocation of financial resources, Debt avoidance however, he recommended debt only as a last resort and not as a means of financing one's growing needs. Muslims are also warned against the danger of large debts. Cooperation, mutual cooperation and solidarity are central norms in Islamic social behavior and collective ethics. Islamic family groups attach great importance to the family as the core of social institutions that play a major role in shaping the future of humanity. Sharia contract compliance is that all contracts in Sharia must be free from certain prohibitions such as: • • • • Freedom from riba (freedom from usury) the word usury means increase or growth. Freedom From Gharar is a ban on excessive imprecision. Gharar is prohibited because it is an act based on incomplete information (fraud). All activities must be for a permissible purpose (hala). When choosing a company they can invest in. Muslims must not engage in, or benefit from, any activity prohibited by Sharia law. Profit sharing Islamic banks and their clients are partners, with both parties sharing the risks and profits. The differences between Microfinance and Islamic Microfinance are in the categories of poverty, financing basis, funding sources, empowerment approach/target dealing with defaults and program social development.