Sharia financial products can reduce MSME investment risk: Sri Mulyani

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Digital-based Islamic financial products could help reduce the risks involved in investing in micro, small, and medium enterprises (MSMEs), which often deter investors, Finance Minister Sri Mulyani Indrawati has said.

“The portfolio of Islamic financial products available for MSMEs, including financing, guarantees, savings, money transfers, and cash management services, combined with digital technology, has the potential to be a solution for MSME financing,” the minister noted at the 6th Annual Islamic Finance Conference.

MSMEs seeking to obtain sharia financing usually provide all information related to their business to potential investors so that they can reduce the risk for the investors in the future. “Sharia financing can also be designed not through leverage or loan schemes, but through equity-based financing, so that risks can be truly structured,” Finance Minister said.

Furthermore, large Islamic financial institutions can also provide funds that are much cheaper, while Islamic microfinance institutions can provide funds directly to MSMEs through asset-based financing on the basis of takaful (Islamic substitute to insurance).

“With this model, Islamic microfinance institutions can have an (important) role not only in providing financial services, but also in providing technical (guidance) and coaching as well as overcoming risk problems experienced by MSMEs and investors,” Indrawati informed.

Islamic social finance that provides cheaper financing to MSMEs could increase the resilience of MSME actors during a financial crisis.

“With this digital-based Islamic finance, we can also track the behavior of MSMEs, the characteristics of their owners, and the development of their assets. This is all very valuable information so that the high-risk financing model for MSMEs can be significantly reduced,” the minister explained.

The difficulty MSMEs face in accessing financial services must be resolved because they contribute up to 60 percent to Indonesia’s total gross domestic product (GDP) and employ as much as 97 percent of the workforce.

“The design of our National Economic Recovery program also places the recovery of MSMEs as one of the most important (tasks and prioritizes them among sectors) to be granted government assistance, in addition to the health and social protection sectors,” Indrawati added.—Antara News

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