Feb25

OPTIMALIZATION OF PROFIT-LOSS SHARING TO POVERTY REDUCTION

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OPTIMALIZATION OF PROFIT-LOSS SHARING TO POVERTY REDUCTION

Faiza Husnayeni Nahar

N.I.M: 20090430012

E-mail: faizahusnayeni@gmail.com

ABSTRACT

The poverty rate in Indonesia was still in a position that must be resolved by the government. If governments want to solve the problem of poverty in Islamic economics monetary policy by profit-loss sharing then the problem of poverty can be overcome. One reason that Indonesia still in high poverty level because of the low production levels. the causes that makes low-rate production is the system of borrowing money, the money lenders (plecit banks) and interest rates are high, which makes the borrower worried that cannot to repay the loan with additional interest. The low level of production affect the revenue and exchange rate stability which led to the rise in inflation. By introducing profit-loss sharing system of justice-oriented economy will stimulate the production level which makes the rising income levels. So that the optimization of profit-loss sharing government to be one way to overcome poverty.

Keywords: profit-loss sharing, interest system, Islamic monetary policies

INTRODUCTION

Standards Central Bureau of Statistics (BPS) in calculating the poverty line in Indonesia using a minimum level of average income of Rp. 211,726 per month or about Rp 7,000 per day, then the poverty rate in Indonesia in 2010 by Standards Central Bureau of Statistics amounted to 31.2 million people or 13.33% of the total population. But if Indonesia is using a standard poverty line based on World Bank as those used by the nations of Vietnam and other Southeast Asian countries with income levels minimum standard that is equal to U.S. $ 2 per day or approximately 18,000 IDR per day, then the poverty rate in Indonesia would be sped up by 42% of the total population. Poverty standard based on the Standards Central Bureau of Statistics makes the government still warned to 29.38 million people who are in-line near-poor people because if inflation occurs, the poor in Indonesia could be grown to 60.4 million people. (rimanews.com)[i]

The problem of poverty is not easily resolved. Although the government has sought to overcome various problems of poverty through various forms of activities and projects such as program Inpres Disadvantaged Villages (IDT), direct cash assistance (BLT), which is the transfer of fuel subsidy to the poor society , providing cheap rice and free treatment facilities only for poor families (GAKIN) [ii], but still the poverty can not be resolved quickly.

There are many factors that make poverty unresolved in Indonesia, one of which individual factors.[iii] the lack of work ethic, efficiency, productivity, creativity and entrepreneurial spirit of the people of Indonesia . Decreased productivity due to unfair lending system, such as plecit bank (the usurer) that make the borrowers which are minority from small business owners get two-fold burden of borrowing than system that does not use the interest. Lending system from usurer (plecit bank) is still a common thing done by the society because most people feel hard to lending at banks due to complicated procedures. While in the conventional banks, people who want to borrow money would also have the same case as when he borrow money at plecit bank (usurer) because the conventional banks do not care whether small businesses will get a loss or profit, for the most important thing of the conventional bank is the borrower must return back the money plus interest to the bank.

It needs the intervention of government in controlling and directing the direction of economic activity through monetary instruments. Monetary policy in the Islamic perspective regarding the state’s responsibility in controlling the monetary instrument so that could encourage the growth of economic growth, create social justice, and so forth. One of the characteristics of Islamic monetary system is free of interest/riba in the process, procedures, mechanisms and implementation of economic policies. So that money is a tool for increasing the economic activity not to a tradable commodity. Therefore, if governments want to solve the problem of poverty with the Islamic concept of profit-loss sharing, poverty will be solve easier.

Actually in the economic system, every aspect will affect one another. If the profit-loss sharing to be the solution for small businesses, small entrepreneurs can increase the production level that will raise their income levels. With the increase in income makes the level of consumption was increased and will increase the standard of living for the Indonesian society that poverty can be solved.

Therefore, the authors create paper will discuss the profit-loss sharing system that will help government to reduce the poverty problem with library research methods, descriptive analysis with the economy approach. But before discussing about it, the author will give a brief overview of the islamic economic monetary policy, profit-loss sharing and interest rate.

ISLAMIC ECONOMIC MONETARY POLICY

Monetary policy is a form of government intervention in controlling the direction of economic activity through monetary instruments. Likewise with the Islamic monetary policy that serves to control the monetary instrument so as to encourage economic growth. One of the characteristics of Islamic monetary system is free from interest / usury in the process, procedures, mechanisms, implementation of economic policies. With the Islamic monetary policy is expected to realize prosperity that blessed Allah that encourage optimal development of the real economy rather than the development of the monetary sector. The purposes of Islamic economic monetary policy are: [iv]

  1. The stability of the currency which provide the optimalization of role money as a medium of exchange, unit of account and store of value.
  2. Economic harmony between aspects of equalization with growth aspects that make the social and economic justice will be happen.
  3. The achievement of an increasingly prosperous economy with high economic growth and utilization of production capacity optimally.

PROFIT-LOSS SHARING

Profit-loss sharing include ordinance or mechanism between the providers of funds (shahibul mall) with the fund manager (mudharib).[v] The profit loss sharing may occur between banks and depositors or between banks and  borrower. PLS system is usually in the form of mudaraba and musharaka. As we know, that the PLS system aims to develop the real sector is not only the monetary sector. Monetary sector is when banks only lend money to a borrower which does not care about the purpose of lending money, the important thing is the borrower can return back the money to the bank with additional interest. then real sector is when bank lend money to borrower, bank should know about the purposes of loan money by borrower, because the profit-loss sharing will burden for both of them (bank and borrower). If the real sector is developed, then the banks lend money intended for business for people who borrow. the means of business is the use of funds for productive activities and become involved in economic activity because of that money. The PLS system oriented to the real sector is applied in Islamic bank. Islamic banks will control the borrowers about the business carried on by the borrower, because borrowers will share to bank whether he get loss or profit.

INTEREST RATE SYSTEM (RIBA)

Riba means ziyadah (addition). In fiqh terminology, riba means extra taken by creditors (al-muqridh) from debtor (al-mustaqrid) as compensation for time.[vi] Or money charged for borrowing money or paid to somebody who invests money.[vii] Additional to the principal loan is usually referred to as interest. An example is when Faiza borrow money from Nahar 10,000,000 IDR for a period of one year with interest of 20% then the interest is called riba. The logic of the existence of such interest is if Nahar does not lend money to Faiza, then he will use the money as capital to trade. The longer the money is used as capital, certainly the greater the profits he earns. Therefore, the longer the money lent, the greater the compensation to be paid.

The Holy Qur’an rejected the analogy of business with riba, because business logic can not be used for the practice of borrowing. Orientation of business is profit oriented whereas borrowing is the social charity as a form of social solidarity. Additional obtained from business is lawful, while an additional derived from the practice of borrowing and lending is riba which is forbidden by Allah SWT. In business, it is expected to always get the advantage, obviously not necessarily like that, because it was likely that the business will lose money. While in riba, the lender does not care what the money was used for, if the money is used for trading capital, then the lender money does not care whether the business will be lost.

Al-Qur `an asserts that riba and the business is completely different. Allah forbid usury/riba and accept business (lawful), Allah said in sura Al-Baqarah verses 275,

šúïÏ%©!$# tbqè=à2ù’tƒ (#4qt/Ìh9$# Ÿw tbqãBqà)tƒ žwÎ) $yJx. ãPqà)tƒ ”Ï%©!$# çmäܬ6y‚tFtƒ ß`»sÜø‹¤±9$# z`ÏB Äb§yJø9$# 4 y7Ï9ºsŒ öNßg¯Rr’Î/ (#þqä9$s% $yJ¯RÎ) ßìø‹t7ø9$# ã@÷WÏB (#4qt/Ìh9$# 3 ¨@ymr&ur ª!$# yìø‹t7ø9$# tP§ymur (#4qt/Ìh9$# 4 `yJsù ¼çnuä!%y` ×psàÏãöqtB `ÏiB ¾ÏmÎn/§‘ 4‘ygtFR$$sù ¼ã&s#sù $tB y#n=y™ ÿ¼çnãøBr&ur ’n<Î) «!$# ( ïÆtBur yŠ$tã y7Í´¯»s9’ré’sù Ü=»ysô¹r& ͑$¨Z9$# ( öNèd $pkŽÏù šcrà$Î#»yz ÇËÐÎÈ

275. Those who devour usury will not stand except As stand one whom the evil one by His touch hath driven to madness. That is because They say: “Trade is like usury,” but Allah hath Permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (the offence) are companions of the Fire: They will abide therein (for ever).

The practice of riba also contains elements of exploitation that destroys the people’s lives because one group gets benefits at the expense of other groups. Allah said in sura An-Nisa verses 29,

$yg•ƒr’¯»tƒ šúïÏ%©!$# (#qãYtB#uä Ÿw (#þqè=à2ù’s? Nä3s9ºuqøBr& Mà6oY÷t/ È@ÏÜ»t6ø9$$Î/ HwÎ) br& šcqä3s? ¸ot»pgÏB `tã <Ú#ts? öNä3ZÏiB 4 Ÿwur (#þqè=çFø)s? öNä3|¡àÿRr& 4 ¨bÎ) ©!$# tb%x. öNä3Î/ $VJŠÏmu‘ ÇËÒÈ

29. O ye who believe! eat not up your property among yourselves In vanities: but let there be amongst you traffic and trade by mutual good-will: nor kill (or destroy) yourselves: for Verily Allah hath been to you Most Merciful!

Beside that, riba also give the bad implication, namely:[viii]

  1.  Riba cause hostility between individuals and also eliminate the behavior of help to each other. Actually Islam hates the people who put their own interests as well as the people who exploit other people’s hard work.
  2. Riba grow mentally wasteful and lazy, for who want to get the wealth without hard work, a parasite that thrives on the toil of others. While Islam appreciate people who like to work because the work requires individuals to be professional and psychologically stable.
  3. Riba is a form of colonialism.
  4. Getting Allah’s punishment as promised in the sura Ar-Rum verse 39, Allah said

!$tBur OçF÷s?#uä `ÏiB $\/Íh‘ (#uqç/÷ŽzÏj9 þ’Îû ÉAºuqøBr& Ĩ$¨Z9$# Ÿxsù (#qç/ötƒ y‰YÏã «!$# ( !$tBur OçF÷s?#uä `ÏiB ;o4qx.y— šcr߉ƒÌè? tmô_ur «!$# y7Í´¯»s9’ré’sù ãNèd tbqàÿÏèôÒßJø9$# ÇÌÒÈ

39. That which ye Lay out for increase through the property of (other) people, will have no increase with Allah. but that which ye Lay out for charity, seeking the countenance of Allah, (will increase): it is these who will get a recompense multiplied.

DIFFERENCE OF RIBA AND PROFIT-LOSS SHARING

The differences are:

  1. Determination of interest by conventional banks as the agreement was made without based on profit or loss, PLS system is the determination made when the agreement is based on profit or loss.
  2. Number percent interest on the amount of money (capital) that exist, but the amount of profit sharing ratio based on the amount of benefits to be gained.
  3. Interest payments remain such an agreement without consideration of whether the project being undertaken both parties get profit or loss, then the profit-loss sharing depends on the results of operations. If businesses do not profit or loss, the risk is burden by both parties.
  4. Total interest payments never increased while profits doubled, and the profit-loss sharing increases with an increase in profits.
  5. Take the interest are forbidden, while receiving profit was lawful.[ix]
  6. If the borrower at Islamic banks have problems, and suggests that he get the inefficiency of business then the bank can suggest immediate efforts to improve efficiency through restructuring costs. Being at conventional banks, if any borrowers who are having problems, banks are less transparent to see any indication of the inefficiency of business because of the calculation system based on the amount of interest determined.
  7. In Islamic banking, the possibility of huge borrowers to lie because the borrower knows exactly income in real terms while the bank does not know, while borrowers in conventional banks tend to be small to be deceptive because the interest expense remains the same.[x]

DISCUSSION

According Muchammad Ichsan, lecturer law of faculty in UMY in the event “Ekonomi Syariah Ekonomi Pemberdayaan” on opinion of the western economist is so surprising because the dominant opinion from western economist reject the system of interest that exist today. He said that in the atmosphere due to the collapse of American banking in the Great Disaster in the early 1930s, Henry Simon support the banking system based on equity, not based system of interest. basic weakness in the current system is that when there is a critical and declining revenues, the banks will try to attract deposits to boost reserves. each bank can do that, but only suffered to other banks. as well as the opinion of James Robertson, an American economist who think that interest-free financial system is the choice for the financial system of the 21st century. James Robertson asserts:

 “The role of the widespread interest in the economic system resulted in the systematic transfer of money from people who have less money to people more. And the transfer of money from the poor to the rich is incredibly evident in the Third World debt crisis. But actually it is true throughout the world. “

Then John Tomlinson also supports changes to the existing financial system into a system based on equity, no longer interest-based, which is theft of money secretly from savers and those with fixed incomes. He said: “The proposed changes will also free up a lot of people from the bondage caused by debt. Neither nations nor individuals will regain their honor”

Therefore it can be said that the PLS system is the solution to the government in alleviating poverty, as we see the system of interest is applied by a conventional bank can be a burden by the borrower, because borrowers are required to return the money with interest. As we discussed above, that the business logic with the borrowing is not related at all. So with the PLS system, the real sector can grow better. business which based on real sector more stronger and has more endurance. While the monetary sector-based business that is more weak than speculation that led to the economic crisis.

By the system of interest, conventional banks do not bear the loss if the customer’s business went bankrupt and unable to repay the loan because the bank could sell insurance that can cover the loan. But unlike profit-sharing system on Islamic banks, because banks have an interest that customers succeed, because if the customer incurs a loss, banks will also get a loss. Islamic banks can help revamping the company’s management to make healthy corporate or business customers (borrower). If customers require additional capital, the Islamic bank will help to provide additional capital for him. Islamic banks also provide financing for theprofi-loss sharing to small, medium, micro, and the corporate level. Either BUS Islamic banks (Commercial Bank Syariah) or UUS (Syariah Business Unit) can also use the BPRS Sharia and BMT to reach out to UKM, thus the small business would get the capital and guidance to develop the business to increase revenue for them. The increase of  the real sector which stimulate the job opportunities for unemployment, and develop the economic activities for small business. Thus the expected poverty can be overcome.

The success of profit-loss sharing system is largely determined by the honesty of borrower in the conduct of business and report the results. If the customer does not honest by not reporting the actual form of report books, then the bank will be loss. And the bank can not cover by the guarantees because the profit-loss sharing do not use the the guarantees. In contrast to conventional banks that have guarantees from the customer if the customer loses. Therefore if people are not honest, then the profit sharing system will not develop properly. The reality in Indonesia, or mudarabah sharing system that is still small by 30% compared with other Islamic products, such as murabahah and al-bai. the mudarabah in Islamic banks still low level to be applied because bank are very carefully in financing especially with the reputation of Indonesian society that is not honest.

Muslim population in Indonesia is 207,000,105 or 88.20%.[xi] With such a large Muslim population, prohibition of riba by Allah should be applied. Muslim should stay away from riba. So it can be said that the PLS system will be used by 88.20% Muslim citizen in Indonesia which will contribute the economic activities. But in fact, Islamic Banks in Indonesia are still few in number compared to conventional banks that exist. According to Yunahar Ilyas, as the National Islamic Council said that the number of Islamic banks in Indonesia at 3% in 2011. Actually in the year 2010, target of Islamic banks is around to 5%. but it couldnt happen. This is very different from other countries, like Malaysia Islamic banks have as much as 23%, Saudi Arabia 19%, Luxembourg 7%, Bahrain 6%, Cayman Island 4% and Ireland 4%. Flow of funds in the conventional bank is 3000 Truliun and Islamic banks funds amount to 86 trillion. So it can be said that the flow of conventional funds is greater than Islamic banks.

CONCLUSION

The author suggested that the government can do a radical policy to improve the PLS system in Indonesia as one way to alleviate poverty. By making one of the top commercial banks owned wholly converted into Islamic banks. So that the Islamic banks in Indonesia may increase with significance. If this policy can not be implemented then the government should be coordinating between BI, minister of the economy, finance ministries, state ministries, the ministry of cooperatives, industry ministries, trade ministries to jointly formulate policies to alleviate poverty through increased PLS led by the president and vice president.

REFERENCES

Book sources:

1.      Sabiq, Sayyid, 2006, Fiqh Sunnah jilid 4, Pena Pundi Aksara, Jakarta Selatan.

2.      Yuliadi, Imamudin, 2009, Perekonomian Indonesia, UPFE-UMY, Yogyakarta.

3.      Ilyas, Yunahar. Cakrawala Al-Qur`an, 2009, Itqan Publishing, Yogyakarta.

4.      Yuliadi, Imamudin, 2007, Ekonomi Islam, LPPI UMY, Yogyakarta.

5.      Christantiowati dkk, 2005, Prospek Bank Syariah Pasca Fatwa MUI, Suara Muhammadiyah, Yogyakarta.

6.      Oxford Advanced Learner’s Dictionary of Current English

7.      Handout seminar ”Ekonomi Syariah Ekonomi Pemberdayaan” by Muchamad Ichsan, lecturer FH UMY.

Electronic sources:

1.      http://www.rimanews.com/read/20110218/17148/standar-kemiskinan-bps-terlalu-rendah-cuma-rp-7000-hari.

2. http://ainuamri.wordpress.com/2008/12/20/daftar-jumlah-umat-islam-terbanyak-di-negara-negara-di-dunia/.

[ii] Yuliadi, Imamudin, 2009, Perekonomian Indonesia, UPFE-UMY, Yogyakarta. Page 165

[iii]  Yuliadi, Imamudin, 2009, Perekonomian Indonesia, UPFE-UMY, Yogyakarta. Page 159

[iv]  Yuliadi, Imamudin, 2007, Ekonomi Islam, LPPI UMY, Yogyakarta. Page 209

[v]  Yuliadi, Imamudin, 2007, Ekonomi Islam, LPPI UMY, Yogyakarta. Page 150

[vi]   Ilyas, Yunahar. Cakrawala Al-Qur`an, 2009, Itqan Publishing, Yogyakarta. Page 205

[vii]  Oxford Advanced Learner’s Dictionary of Current English

[viii]  Sabiq, Sayyid, 2006, Fiqh Sunnah jilid 4, Pena Pundi Aksara, Jakarta Selatan. Page 175.

[ix]  Christantiowati dkk, 2005, Prospek Bank Syariah Pasca Fatwa MUI, Suara Muhammadiyah, Yogyakarta. Page 120

[x]  Yuliadi, Imamudin, 2007, Ekonomi Islam, LPPI UMY, Yogyakarta.

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