Abstract
Islamic finance evolved in Indonesia since 1990 and is now recognized as part of a dual banking system. Lacking broad popular demand, experience differs by sub-sector. Only commercial banks have successfully acquired the art of Islamic banking by training young and dynamic people; yet, they lack experience in micro-finance. Islamic rural banks, mostly under absentee ownership, have failed to prove themselves as efficient and dynamic providers of micro-finance services. Unsupervised Islamic, like conventional, cooperatives are an outright menace to their members, who risk loosing their savings. There are two options of promoting Islamic microfinance: (1) assisting Islamic commercial banks to establish units with Islamic micro-finance products, or (2) reassessing in a participatory process the challenges and realistic opportunities of Islamic rural banks and cooperatives, with a focus on effective internal control, external supervision, and the establishment of associations with apex services to their member institutions.
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