Comparative study of Islamic financial institution offering micro trader credit in Medan Indonesia

Abstract

This research study the effectiveness of micro credit that offered by Islamic financial institution to micro traders in Medan Indonesia. It also analyse the perception of the micro traders on the Islamic microfinance that are offered by Islamic financial institutions. In addition, the service, procedure, and the requirement on Islamic financial institutions on offering credit to micro traders are examined. This analysis is expected to assist micro traders in expanding their business. Furthermore, the researcher also approached several micro traders to gain their perspectives on Islamic microfinance, and identify altertenative funding that they can use to increase the capital. In addition, the government program is still popular among the traders in gaining credit due to low interest as compared to Islamic microfinance. There are two instruments that were developed to collect the data; the first instrument was interviewing the practitioners in Islamic financial institutions, to obtain the accurate data of Islamic microfinance product. The second instrument was by approaching the micro traders in Medan to collect information regarding the micro credit. Among the findings, financial illiteracy is considered the main issue for the traders, due to this problem many of the traders will choose other sources of funding as an alternative for gaining more capital. Based on the result, Rural Credit Business (KUR) is still popular among the traders followed by the alternative source funding. This observation indicates that Islamic microfinance product still needs to be promoted among the traders.