• Muhammad Miqdad Robbani Universitas Indonesia, Indonesia
  • Mahdiah Aulia International Islamic University Malaysia, Malaysia
  • Fatiya Rumi Humaira University of Manchester, United Kingdom
Keywords: Islamic microfinance institutions, micro and small enterprises, baitul tamwil, relationship lending


Microfinance institutions (MFIs) play pivotal roles to providing financing and services to micro and small enterprises (MSEs) in Indonesia. Islamic MFIs, which follow Shariah principles in their operations, aim not only to provide financing, but also to improve the socioeconomic conditions of poor people. There is heightened interest in the factors influencing the development of MFIs, such as relationship lending. This study aims to explore the effectiveness of such lending and the uniqueness of the implementation of social purpose in Islamic MFIs. The paper adopts a quantitative methodology, using cross-sectional survey data from 1,001 microloan borrowers from five MFIs, three of which are Islamic MFIs which provided financing in 13 regions in Indonesia in 2018. The results show that Islamic MFIs do not differ in the implementation of relationship lending. Furthermore, there is a likelihood that they are able to be more focused on profit-oriented transactions ensuring sustainability, due to their unique characteristics, as they have Baitul Maal with the social instruments of zakat, infaq and sadaqa to provide social-oriented transactions to improve outreach to the poor. The study enhances our understanding and adds knowledge to the existing literature on Islamic MFIs, especially in Indonesia.


Agarwal, S., Chomsisengphet, S., Liu, C., Song, C., & Souleles, N. S. (2018). Benefits of Relationship Banking: Evidence from Consumer Credit Markets. Journal of Monetary Economics, 96, 16–32.

Ahmed, H. (2002). Financing Microenterprises : An Analytical Study of Islamic Microfinance Institutions. Islamic Economic Studies, 9(2), 27–64.

Aigbokhan, B. E., & Asemota, A. E. (2011). An Assessment of Microfinance as a Tool for Poverty Reduction and Social Capital Formation: Evidence on Nigeria. Global Journal of Finance and Banking, 5(5), 38–48.

Armendariz, B., & Szafarz, A. (2011). On Mission Drift in Microfinance Institutions. In The Handbook of Microfinance (pp. 341–366). Singapore: World Scientific Publishing.

Ascarya (2016). Holistic Financial Inclusion Based on Maqashid Shariah Through Baitul Maal Wat Tamwil. In Middle East Insights (pp. 1–8). Singapore: Middle East Institute, National University of Singapore.

Ascarya (2018). Baitul Maal wat Tamwil (BMT): An Integrated Islamic Social and Commercial Financial Institution in Indonesia. In Islamic Commercial Law Report 2018 (pp. 104–107). Retrieved from

Ascarya, & Sanrego, Y. D. (2007). Redefine Micro , Small and Medium Enterprises Classification and The Potency Of Baitul Maal Wa Tamwiel as Intermediary Institutions in Indonesia. International Conference on Inclusive Islamic Financial Sector Development. Negara Brunei Darussalam: UBD-IRTI.

Bank Indonesia. (2015). Profil Bisnis Usaha Mikro, Kecil dan Menengah (UMKM) Kerjasama LPPI dengan Bank Indonesia Tahun 2015. DKI Jakarta: Bank Indonesia.

Beck, T., Kunt, A. D., & Levine, R. (2005). SMEs , Growth , and Poverty : Cross-Country Evidence. Journal of Economic Growth, 10, 199–229.

Berger, A. N., & Udell, G. F. (1995). Relationship Lending and Lines of Credit in Small Firm Finance. The Journal of Business, 68(3), 351–381.

Berger, A. N., & Udell, G. F. (2002). Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure. Economic Journal, 112(477), F32–F53.

Chalid, D. A., Sulung, L. A. K., Robbani, M. M., & Hambali, M. (2019). National Framework, Market Structure, and Bank Stability: Evidences from ASEAN-5 Countries. Pertanika Journal of Social Sciences & Humanities, 27(S(2)), 17–32.

Cornforth, C. (2014). Understanding and Combating Mission Drift in Social Enterprises. Social Enterprise Journal, 10(1), 3–20.

Diamond, D. W. (1984). Financial Intermediation and Delegated Monitoring. The Review of Economic Studies, 51(3), 393–414.

Diamond, D. W. (1991). Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt. Journal of Political Economy, 99(4), 689–721.

Ferri, G., Murro, P., & Pini, M. (2020). Credit Rationing and the Relationship between Family Businesses and Banks in Italy. Global Finance Journal, 43(February), 100427.

Foose, L., & Greenberg, A. (2008). The Double Bottom Line: Evaluating Social Performance in Microfinance. Microbanking Bulletin, (17), 12–16.

Hassan, M. K., & Renteria-Guerrero, L. (1997). The Experience of the Grameen Bank of Bangladesh in Community Development. International Journal of Social Economics, 24(12), 1488–1523.

Hiatt, S. R., & Woodworth, W. P. (2006). Alleviating Poverty through Microfinance: Village Banking Outcomes in Central America. Social Science Journal, 43(3), 471–477.

Hu, H., Lian, Y., & Su, C. H. (2016). Do Bank Lending Relationships Affect Corporate Cash Policy? Review of Accounting and Finance, 15(4), 394–415.

Imai, K., Gaiha, R., Thapa, G., & Annim, S. K. (2012). Economics Discussion Paper Series Microfinance and Poverty A Macro Perspective Katsushi Imai Raghav Gaiha Ganesh Thapa. World Development, 40(8), 1675–1689.

Karlan, D., & Zinman, J. (2009). Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment. Econometrica, 77(6), 1993–2008.

Khandker, S. R. (2005). Microfinance and Poverty: Evidence Using Panel Data from Bangladesh. The World Bank Economic Review, 19(2), 263–286.

Kinsey, J. (1981). Determinants of Credit Card Accounts: An Application of Tobit Analysis. Journal of Consumer Research, 8(2), 172–182.

Korth, M., Stewart, R., Van Rooyen, C., & De Wet, T. (2012). Microfinance: Development Intervention or Just Another Bank? Journal of Agrarian Change, 12(4), 575–586.

López-Espinosa, G., Mayordomo, S., & Moreno, A. (2017). When Does Relationship Lending Start to Pay? Journal of Financial Intermediation, 31, 16–29.

Masyita, D., & Ahmed, H. (2013). Why is Growth of Islamic Microfinance Lower than its Conventional Counterparts in Indonesia? Islamic Economic Studies, 21–1, 35–62.

Mersland, R., & Strøm, R. Ø. (2010). Microfinance Mission Drift? World Development, 38(1), 28–36.

Ministry of Cooperation and Small and Medium Enterprise of The Republic of Indonesia. (2017). Data development of micro, small, medium, and big enterprises 2016-2017. (1), 2016–2017.

Moffitt, R. A. (1999). Chapter 24 New developments in econometric methods for labor market analysis. In Handbook of Labor Economics: Vol. 3 PART (pp. 1367–1397).

Naceur, S. Ben, Barajas, A., & Massara, A. (2015). OKUNDU_24.02.2018_Can Islamic Banking Increase Financial Inclusion ? IMF Working Paper, 1–41.

Obaidullah, M. (2008). Introduction to Islamic Microfinance. India: International Institute of Islamic Business and Finance.

Olagunju, F., & Ajiboye, A. (2010). Agricultural Lending Decision: a Tobit Regression Analysis. African Journal of Food, Agriculture, Nutrition and Development, 9(1), 76–99.

Petersen, M. A., & Rajan, R. G. (1994). The Benefits of Lending Relationships: Evidence from Small Business Data. The Journal of Finance, 49(1), 3–37.

Robbani, M. M., Anggriyani, D. S., Sekardhani, M., & Nikmah, U. (2019). UKM Tak Tersentuh Bank. Depok: UKM Center FEB UI.

Schuite, G. J., & Pater, A. (2008). The Triple Bottom Line for Microfinance. London, UK: Enclude.

Seibel, H. D. (2008). Islamic Microfinance in Indonesia: The Challenge of Institutional Diversity, Regulation, and Supervision. SOJOURN: Journal of Social Issues in Southeast Asia, 23(1), 86–103.

Shaban, M., Duygun, M., Anwar, M., & Akbar, B. (2014). Diversification and Banks’ Willingness to Lend to Small Businesses: Evidence from Islamic and Conventional Banks in Indonesia. Journal of Economic Behavior and Organization, 103(Supplement), S39–S55.

Simatele, M., & Dlamini, P. (2019). Finance and the Social Mission: a Quest for Sustainability and Inclusion. Qualitative Research in Financial Markets, ahead-of-p(ahead-of-print).

Tamanni, L., & Haji Besar, M. H. A. (2019). Profitability vs Poverty Alleviation: Has Banking Logic Influences Islamic Microfinance Institutions? Asian Journal of Accounting Research, ahead-of-p(ahead-of-print).

Weiss, J., & Montgomery, H. (2005). Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America. Oxford Development Studies, 33(3–4), 391–416. Retrieved from

Wijaya, I. F., Hakim, A. R., Saputro, N., & Mulyadi, M. (2019). Religiosity Level and Saving Decisions in Baitul Maal wat Tamwil: the Case of Indonesia. Journal of Islamic Marketing.

Wulandari, P. (2019). Enhancing the Role of Baitul Maal in Giving Qardhul Hassan Financing to the Poor at the Bottom of the Economic Pyramid: Case Study of Baitul Maal wa Tamwil in Indonesia. Journal of Islamic Accounting and Business Research, 10(3), 382–391.

Wulandari, P., & Robbani, M. M. (2019). Does Religiosity and Socio-Economic Aspects Influence Zakat and Waqf Payment? (Case Study of Ultra Micro SMEs in Indonesia Baitul Maal Wa Tamwil). In Revitalization of Waqf for Socio-Economic Development, (Vol. 2, pp. 269–292). Springer.

Yahaya, K. A., Osemene, O. F., & Abdulraheem, A. (2011). Effectiveness of Microfinance Banks in Alleviating Poverty in Kwara State Nigeria. Global Journal of Management and Business Research, 11(4), 13–20.

Zeller, M., & Meyer, R. L. (2002). The Triangle of Microfinance: Financial Sustainability, Outreach, and Impact. Washington: IFPRI.

How to Cite