Wamaungo Juma Abdu, 2014 Education and Microfinance as a Combined Empowerment Approach for the Microfinance Clients
Universitas Pendidikan Indonesia
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CHAPTER ONE: INTRODUCTION
1.1 Background
To address the problem of poverty, governments the world over massively adopted and implemented the modern microcredit model, while to reduce the
number of those leaving school prematurely and in an effort to avoid illiteracy the education for all EFA framework became a guide for most of these countries.
However, poverty has continued to present itself in multidimensional ways. In developing countries, Indonesia inclusive poverty is caused by many factors
whi ch include unemployment. Heryaldi and Yusuf 2013 point out that “among
the critical problems in Indonesia is underemployment and low absorption rate of the formal labour market, which absorbs only 60 of the working labour force of
the country, where by the earnings are below the normal working hours”.
The situation is reported to have become worse after the economic and monetory crisis of 1997-1998. Several years after the Asian crisis, a majority of
Indonesia’s population continues to live in poverty Indonesia-European Community Strategy Paper, 2007-2013. According to the National Forum
Coordination on Education for All 2005 the country’s economy experienced a negative growth and it became sluggish in the next years. 52 of the population
is estimated to be living with less than US 2 a day. Achieving Millennium Development Goals MDGs required targeting the poorest segments of the
population Indonesia-European Community Strategy Paper, 2007-2013. To eliminate poverty several steps have been taken more so after the start of the
reform period. Among such measures is mentorship as a nonincome component in poverty alleviation and capital provision to poor clients.
However, despite the growing recognition of the nonincome dimensions of poverty, most attention tends to be focused on incomes when defining the number
of people affected e.g., those living on less than 1 a day Steele, Oviedo, and McCauley, 2006. In Indonesia after the Period of Reform, a new chapter on how
the Government handles poverty Andrianto, 2006 set in. Evaluation of the prior
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Wamaungo Juma Abdu, 2014 Education and Microfinance as a Combined Empowerment Approach for the Microfinance Clients
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centralised approach to poverty alleviation and public consultations with government, universities, NGOs, donor organisations, economic players and poor
communities Andrianto, 2006; Kikis 1999 indicate tha t “the centralized
approach is outdated and that poverty alleviation should be specific to local conditions. Poor communities should no longer be seen as objects of
development, but rather participants to the solution”. The grass-root community organizations, religious organizations and also other non-government
organizations were established. Some of these organizations have been and continue to offer education with credit Programmes. Among them is Misykat and
BMT Khalifa. The present study attempts to examine and describe the education and microfinance integrated approach in poverty alleviation of both MiSykat and
BMT Khalifa to help empower the poor in Bandung area. MiSykat and BMT Khalifa approaches are different from the credit with
education model of the Freedom from Hunger. The education and microfinance approach of Misykat and BMT Khalifa is implemented based on religious values
of Islam. Islam teaches that “Everyone has a direction to which he turns”.
According to Basri 2001, some questions may arise given the above verse. Among such questions are: 1. is the economic field of any role in helping a given
community to realize its vision? 2. are the different communities having different visions? 3. can the prevailing differences get reflected in the social approaches to
community development? MiSykat and BMT Khalifa hold the view that Muslims have their own
vision. It because of this vision that during several decades ago the Muslim community developed it systems which ranged from the political, social and
economic aspects the developments at this time aimed to attain the Islamic vision Basri, 2001. The Muslim community believed that this vision could only be
obtained through education. According Ainain 1978: pg. 147 see: Abdullah in the translated copy by Mutammam, 1991: pg. 36 education in Islam is
comprehensive and it is not limited to certain aspects in life, but it is all embracing.
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Wamaungo Juma Abdu, 2014 Education and Microfinance as a Combined Empowerment Approach for the Microfinance Clients
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According to a translation of Sunan Abu Dawud by Hassan Book 9, Number 1637, it is revealed that the prophet Muhammad peace be upon him
empowered the poor by encouraging them to work. This is reflected in a hadith narrated by Anas ibn Malik see chapter II of this report. The verse and the hadith
imply that every effort must be made to avoid poverty. Everybody is required to work to avoid living a poor’s life and of course a begging mentality. This makes
accessing credit crucial in order to enhance entrepreneurship and self-employment throughout every strata of society for both women and men in Indonesia
Mustapha, R. B.; Jung-Kim, J and Zapata. Based on the above verse and hadith, Misykat and BMT Khalifa have integrated Islamic principles in their education
and microfinance empowerment approach since they believe that Islam is the solution to the prevailing problems.
The religious component makes the approach different from the credit with education approach which integrates education into a microfinance delivery
system as well as integrating impact evaluations and operational learning MkNelly and McCord, 2002. The components of this combined approach
reinforce each other by addressing the informational as well as the economic obstacles Dunford, 2001. MkNelly and Watson mention that credit with
education model is based on the assumption that to address the complexity and scale of malnutrition requires innovative and multi-level efforts 2003. They
further point out that Freedom from Hunger’s strategy in the form of an integrated microfinance and education programme called credit with education attempts to
respond to challenges. It addresses malnutrition’s principal underlying factor, poverty, while also providing information and problem-solving forum to address
the more immediate factors, such as illness and deity quality MkNelly and Watson, 2003. They also illustrate this argument using a figure. The figure
depicts the hypothesized benefit of the credit with education strategy, reflecting both intermediate and ultimate impact goals MkNelly and Watson, 2003. The
figure is as below:
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Wamaungo Juma Abdu, 2014 Education and Microfinance as a Combined Empowerment Approach for the Microfinance Clients
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Figure 1.1 Credit with Education Benefits Process
Source: Adapted from Barbara MkNelly and April Watson, October 2003
This figure shows that inputs of credit and education channeled through women’s associations have the potential to produce intermediate benefits, or first-
order effects, which include change in knowledge and practice, increased self- confidence and improved income savings MkNelly and Watson, 2003. The
implication of this framework is a proof that education is the best effective tool for human transformation. Through education people work cooperatively and
serve each other UNESCO, 2006, and are also empowered. Thus, the integration of training activities in microfinance services for the empowerment of
clients is a proof that in today’s world, the academics, practitioners, and professionals of microfinance have accepted that there is need for a shift in the
microfinance sector which need reform in service delivery to the poor people. Providing education to microfinance clients on topics ranging from
marketing to reproductive health is one of the key ways in which microfinance institutions MFIs can serve the broader needs of their clients Capsuto, 2010.
Ideally, this implies that a combination of microfinance and other development
services Dunford, 2002 such as education can help to eliminate the multiple sufferings faced by the poor. Using a multiple cases approach, this study examines
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Wamaungo Juma Abdu, 2014 Education and Microfinance as a Combined Empowerment Approach for the Microfinance Clients
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Misykat and BMT Khalifa’s education and microfinance approaches in the empowerment of the poor clients. The two cases are just a small sample of Baitul
Mal Waatamwil BMTs. In Indonesia, microcrocredit organisations are divided into different categorises.
According to Possumah and Baharuddin 2012 they refer to Baitul-Mal as one of the financial institutions in Islam. They further refer Baitul Mal Waatamwil
as an alternative Shariah financial institution that has a social and productive dimension at both national and even global scale to foster Islamic economic
development. In Indonesia, Islamic banking was started in 1992 with the establishment of Bank Muamalat Indonesia BMI which served as the first
Islamic Bank in the country. The establishment process was supported strongly by the government. There was a community gathering in Bogor, West Java led by
President Soeharto to raise the initial capital of the bank Budi, 2007. Since 1995, Baitul Mal Waatamwil, as an alternative financial institution for the lower income
groups of society has developed and grown rapidly Hamzah, Rusby and Hamzah, 2013. It has been proved by the data taken from Incubation Center of Small
Business PINBUK on 12 February 1998, that there were around 2000 units of BMTs established in Indonesia, but only 384 units of BMT registered in
PINBUK, within a total number of investors being 79,325 people, and a total number who receive financing being 28,430 people, with the total amount of
financing being IDR 11 billion ± MYR 31 million Hamzah, Rusby and Hamzah, 2013; Adiwarman, 2009.
Zahria 2012 has “established that there were approximately 3900 active
BMT by the end of 2010. Total assets under management reached a value of Rp 5 trillion; customers served were around 3.5 million people, and the number of
workers was approximately 60,000 people across Indonesia. In 2010, for West Java, it is reported that, according to the development trend, the polarization
of economic activities in the region mainly the central region, growth core areas
grew stronger, while the peripheral regions, called the rural, semi rural, urban and semi urban had a slow growth. It is noted that the disparity between the
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Wamaungo Juma Abdu, 2014 Education and Microfinance as a Combined Empowerment Approach for the Microfinance Clients
Universitas Pendidikan Indonesia
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rich and the poor widened. The poor areas grew became more poor because of the unequal distribution in development
”.
1.2 Problem Identification
