Strategic Alliances between Sharia Microfinance Institutions and

Financial Technology in Strengthening Small Micro Enterprises for

Socio Economic Justice

Euis Amalia

and Indra Rahmatullah

Universitas Islam Negeri Syarif Hidayatullah Jakarta

Keywords: Crowd Funding, Financial Technology, Sharia Microfinance, Strategic Alliances, Socio Economic Justice

Abstract: Sharia microfinance and financial technology have very significant role as an effective solution in accessing

finance for small and micro enterprises. By utilizing qualitative methods and critically analyzing specific case

study, this research aims to investigate business model used, type of contracts employed, legal aspects, and

the risk mitigation. Data was obtained from interview several experts and practitioners of sharia microfinance

and financial technology institutions. The research suggest that the business model used was based on crowd

funding compliant with sharia principles. This means that the legality of the cooperation between the sharia

microfinance institutions and the financial technology provider has strong basis both in positive law and fatwa.

In this case, the risk mitigation for consumer protection is guaranteed by specific government regulations.

The research showed that the strategic alliance between sharia microfinance institution and financial

technology firm is capable for strengthening access to capital sources for small and micro enterprises. It also

improves community financial literacy and financial inclusion, so that socio-economic justice can be realized.

This research could contribute to the creation of innovative products concerning sharia microfinance, sharia

financial technology, and the formulation of policies related to strengthening of institutional cooperation.

1 INTRODUCTION

Sharia microfinance institutions have very significant

role in realizing socio-economic justice. Its

characteristic as non-bank financial institution are

very close to micro-small business group, low-

income and poor people who have productive

abilities. In number of studies also stated that

microfinance institutions can be an alternative

solution to reduce poverty (Ahmed, 2007;

Chowdhoury, 2018; Rahman, 2010). Its presence is

closer to the location and condition of micro, small

business operator, easy administration system,

marketing strategy pro-actively, and easy guarantee

making this institution as alternative solution

effectively for accessing their capital (Muftie, 2014).

This fact is supported by Amalia (2008) research of

511 SME partners in sharia microfinance institution

proven that Micro Financial Institution (MFI) have

significant role in increasing their partner's income.

Low financial access has impacted on ability

productive poor group to gain benefit from business

opportunity, income, children education cost,

fulfillment other basic needs and protect them from

financial crisis problem (Ali, 2015). Thus

microfinance is financial institution that able to

guarantee capital support for small and micro

business sustainability.

In various studies show that Small and Micro

Enterprises (SMEs) have large contribution for

national economic development. The contribution of

SMEs in the Indonesian economy is shown by its

population as the largest business actor, strong pillar

of the economy and the strength example of the

national economy (Akita & Alisjahbana, 2002).

Structurally, the Indonesia economy configuration is

dominated by Small-Medium Enterprises/SMEs

group which around 51.3 million business units or

99.97% of all existing business units, the rest is large

businesses. The main difficulty faced by SMEs

business group in capital aspect is 31.11 percent, raw

materials by 24.80 percent, and marketing by 24.60

percent (Ascarya & Cahyo, 2010). One of main

difficulty is high interest rates on conventional bank,

the margin or profit sharing rate in sharia bank, as

well as the requirement and guarantee that cannot be

2444

Amalia, E. and Rahmatullah, I.

Strategic Alliances between Sharia Microﬁnance Institutions and Financial Technology in Strengthening Small Micro Enterprises for Socio Economic Justice.

DOI: 10.5220/0009944224442452

In Proceedings of the 1st International Conference on Recent Innovations (ICRI 2018), pages 2444-2452

ISBN: 978-989-758-458-9

fulfilled. In addition, the precautionary principle that

must be held by bank and become reason for limited

distribution financing for SMEs groups because they

are considered non-bankable. The importance of

capital for SMEs sector is expected to reduce poverty

and unemployment, economic growth, disparity

between region, to increase human quality, to

improve environmental quality and to increase

infrastructure support. On this point, the most

appropriate financial service and financing access for

SMEs is microfinance institution. Unfortunately,

microfinance institution, especially those operating in

sharia, still facing problem, including limited access

to funding, human resource and regulation. For this

reason, new innovation and strategy is needed that

can be problem solving for microfinance institution.

The development of digital technology today has

growth of information financial technology that able

to reach wider access to financial institutions reaching

all communities and societies, faster, easier, and more

transparent (Ismail, 2018). Based on data from

Indonesia Country's Key Digital Statistical Indicator

in May 2018, it is stated that the potential of the

community for access to finance and information

technology in Indonesia is very large.

The Indonesian population of 261.12 million is

known that debtors in banks are 48.9%, active social

media users 130 million, active internet users 143.30

million, while the number of creditors to financial

institutions 17.2%. The growth rate of mobile users

from 2015 to 2020 estimated to be 10-15%. On the

other hand, based on the release of the 2016 National

Financial Literacy and Inclusion Survey showed that

Indonesian has sharia financial literacy index 8.11%

and sharia financial inclusion index11.06% (OJK,

2016). Sharia financial literacy index and sharia

financial inclusion index give signal to stakeholders

sharia financial industry that still far away in realizing

well literature for society. Well literature

communities can utilize financial product and service

that are suitable for achieving financial sustainability

(Haddad, 2017). Related to inclusion, bad signals for

access, usage and quality of sharia financial industry.

In fact lack of financial literacy and public

financial inclusion was occurred, on the other hand

with rapid progress in field of information technology

and increasing internet users and gadgets,

transforming innovation for existing system or

market, by introducing practically, easy access,

convenience, and economical cost, known as

Disruptive Innovation (Teja, 2017). The problem is

how to relate between the strategic position of sharia

microfinance institution as micro small business

partner and the financial technology industry that

currently growing very quickly and able to realize

financial inclusion (Ali, 2015). Therefore, this study

to analyze the business model of partnership program

between sharia microfinance institution and financial

technology for strengthening micro small business in

Indonesia. The problem focused on business model

that can be developed in the context of linkage

program between sharia microfinance institution and

financial technology company, applied scheme

contract, legal issue faced by Fintech, and risk

mitigation of consumer protection.

2 LITERATURE REVIEW

Various studies on the potential and role of

microfinance institutions that containing sharia

principles in strengthening SMEs have been done, but

the partnership relation between sharia microfinance

institution and financial technology is still limited.

Various related research results that have been

conducted as follows.

First, related to sharia microfinance institution

and its role in strengthening SMEs can be seen in the

study of Abbas and Saad (2014) proved that

microfinance institution with sharia-based product

and service have succeeded in providing financing to

small businesses, especially those managed by

women's groups which have impact on poverty rates

in Pakistan. Other study that has been conducted by

Abd Rahman El Zahdi Ali (2015) suggests that

people in Muslim countries today are generally poor

and low income so that they have the difficulties of

access to financial institutions both conventional and

Islamic financial system. This study shows that an

appropriate financial institution that is a syariah-

based microfinance can help this group out of

poverty. The results showed that the conventional

micro finance focused only on low-income groups

(Rahman, 2010). Meanwhile, Islamic microfinance

has wider scope than conventional finance because it

can serve the poor through social financing facility

with zakat, waqf, and Sadaqah. Therefore, Islamic

microfinance can be said as microfinance inclusion.

Suberu et. al (2011) showed that the financing

provided by microfinance had positive and significant

impact in improving the performance of small-scale

business group proven able to increase market share,

the level of efficiency and the power of production.

Likewise, by Hadisumarto and Ismail (2010) in East

Java proved that sharia microfinance institution

Baitul Mal Wat Tamwil was effective in increasing

income.

Strategic Alliances between Sharia Microﬁnance Institutions and Financial Technology in Strengthening Small Micro Enterprises for Socio

Economic Justice

2445

Second, research related to financial technology,

financial literacy and value in Fintech Syariah in

Indonesia conducted by Abdillah Ubaidi Djawahir

(2018) about the relationship between the

phenomenon of information technology development

with financial institution, index of financial literacy

and inclusion and benefit of fintech in Indonesia with

the SOR (Stimulus-Organism-Response) Model.

Irma Muzdalifa et. al (2018) who analyzed the

phenomenon of fintech development and its role in

increasing ability of SMEs to access sharia financial

institution in Indonesia easily and quickly.

Muhammad Mufli (2017) analyzed the design of a

Crowdfunding-based Islamic Financial Technology

business model for financing Micro Enterprises in the

Agriculture Sector. This study shows that the

Crowdfunding platform service in Indonesia has

proven to be alternative source of financing because

it involves many parties to access the internet. Sharia-

based financial technology services have been able to

improve literacy and financial access for rural

farmers. Different from existing research, this study

focused on analyzing strategic partnership model

between sharia microfinance institution and financial

technology in an effort to strengthen capital access for

small micro business group. The emphasis of analysis

is business model, contract, regulatory issues, and

risk mitigation in the framework of consumer

protection.

3 THEORY AND

METHODOLOGY

3.1 Microfinance

According to Tohari (2003), microfinance institution

is institution providing financial service for micro

entrepreneur and low-income community formally,

semi-formally and informally (Thohari, 2013). While

Ledgerwood et al (2009), defined Microfinance

Institution (MFIs) is provider for financial service for

small and micro entrepreneur as well as functioning

as development tools for rural community. In Law

Number 1 year 2013 concerning Microfinance

Institution, Microfinance Institution (MFI) is

financial institution specifically established to

provide business development service and

community empowerment, either loan or financing in

micro-scale business for member and the community,

management deposit, as well as providing business

development consulting service that are not seeking

profit.

In the implementation of Microfinance

Institution, there are conventional system based on

the interest and sharia system based on sharia contract

and transaction (Baihaqi & Saifudin, 2000). In term

of funding or financing is given both in individual and

group. Group model is generally adopted from the

grameenbank model as developed in Bangladesh. As

stated by Feroz and Goud (2009), Rahman (2010)

affirmed the microfinance grameen bank pattern was

able to reduce poverty and empowering women who

were the majority as partners.

In Indonesia, sharia microfinance institution is

known as Baitul maal wa at-tamwil (BMT) in the

legal entity of sharia cooperation (Amalia, 2016).

BMT function as financial service in managing public

saving and distributing fund or financing for micro

small business group using sharia principles. Based

on the contract, deposit fund at BMT using

mudharabah and wadiah contract. Whereas in term

of financing distribution for micro small business

used profit sharing contract (mudaraba,

musyarakah); contract based on sale and purchase

(murabahah, salam, and istishna); contract based on

service (ijarah); and contract based on credit (qardh)

(Baihaqi & Saifudin, 2010; Amalia, 2008). Therefore,

BMT can be figured out as type of Sharia

Microfinance Institution (SMI).

3.2 Financial Technology

The National Digital Research Center in Dublin

(2014) defines financial technology as innovation in

financial service by utilizing the development of

information technology. Financial technology

generally refers to the form of application, process,

product or business model in the financial service

industry. Meanwhile, according to the International

Trade Administration (2016), financial technology is

a "revolution" for combining financial service with

information technology that has improved quality of

financial service, and creating financial stability. The

legality of Fintech companies in Indonesia is POJK

(Financial Services Authority Regulation) Number /

77 / POJK.01 / 2016 concerning information

technology on loan service and BI (Central Bank)

regulation Number 18 / 40 / PBI / 2016 concerning

the processing of payment transaction.

Based on the regulation, money lending and

borrowing service based on information technology

is the implementation of financial service to meet

lender and recipient in loan agreement based on

rupiah currency directly through electronic systems

using internet network. Whereas financing service

based on sharia principles stated in the Islamic Edict

(Fatwa) from National of Sharia Supervisory Board

(DSN) Number 117 / DSN-MUI / II / 2018

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concerning financing service based on sharia

principles is the implementation of financial service

based on sharia principles that meet or connect

financing giver and recipient in order to make

contract through electronic system using the internet

network.

3.3 Research and Methodology

The paradigm of this research is qualitative

(Moleong, 2004). According to Hartono (2004)

qualitative research is research that emphasize the

understanding of problem in social life based on

reality or natural condition that holistic, complex and

detailed. The analysis used in this research is critical

analysis by exploring the problem raised in the

development of partnership program between sharia

microfinance institution and financial technology to

strengthen small and micro business through sharia

finance. Data was obtained from interviews with

several experts and practitioners of sharia

microfinance and financial technology institutions.

This study presented business model that has been

done by PT Ammana Fintech Sharia in conducting

strategic partnership with sharia microfinance

institution, BMT Syahida Ikaluin to expand financing

access for small and micro business group. This

research analyzes of business model used, type of

contracts employed, other legal aspects, and the risk

mitigation dimention involved.

4 RESULTS AND DISCUSSION

4.1 Model Partnership of PT. Ammana

Financial Technology with Micro

Financial Institution

Financial technology is phenomenon of technological

development to response human analytical creativity

and to answer banking need to be faster and more

efficient. As result, customer can use fintech for all

purposes in banking service. Nowdays, customers

dont need to come at bank for financial service but

they only use the application from provider. Fintech

has beneficial potential, data released by Morgan

Stanley Research quoted by Haddad (2017) shows

that the role of Australia, China, Britain and the

United States are so large and always increase from

year to year, this indicate that technological financial

efficiency and innovation has main role at this time.

Currently in Indonesia there are 67 financial

technology companies that have obtained permission

from the Otoritas Jasa Keuangan (OJK) or Financial

Services Authority (FSA), 2 of which have obtained

permission and recommendations from the Dewan

Sharia Nasional (DSN) or National Sharia

Supervisory Board as Sharia Fintech, namely PT

Ammana and PT Dana Syariah. While residing in the

registration process as many as 40 companies, there

are 57 applications for registration were returned, and

the interest in registering a 38, a potential total of 202

companies (OJK, 2018). In Indonesia context,

Fintech companies have been growing up rapidly

after the issuance of specific government regulations.

Actually, big companies like banks and other non-

bank companies have issued products based on

technology that making easier for customers.

Furthermore, there are several types of Star up

Fintech in Indonesia such as; Asset Management,

Crowd Funding, E-Money, Insurance, P2P Lending,

Payment Gateway, Remittance, and Securities

(Siregar, 2016). The existence of companies engaged

in financial technology will able to access funding

source from investors widely and reach broader

financing. One of the Fintech model for micro, small,

and medium enterprises is Crowdfunding.

Crowdfunding is a new term used in the financing

realm to define the type of financing activity which

gathers a pool of money that ranges from small to

medium-size contributions from a crowd of people

from different background, age group, religion and

races to participate in an economic exercise that aims

to mutually finance each other based on certain needs

with reference to some specified criteria (Beaulieu,

Sarker, & Sarker, 2015). In a similar meaning,

Mollick defined crowdfunding as “the efforts by

entrepreneurial individuals and groups cultural,

social, and for-profit to fund their ventures by

drawing on relatively small contributions from a

relatively large number of individuals using the

internet, without standard financial intermediaries”

(Mollick, 2014) . The definitions denote three

important elements of crowdfunding, which are

technology, capital funding, and the power of the

crowd. These three important elements enable many

small efforts to accumulate to a significantly huge

financial outcome.

PT. Ammana as the First Sharia Fintech in

Indonesia has main objective to serve SMEs and

public who have productive, creative and innovative

business/activity to support the development and

progress of Indonesia to be ready facing global

challenges through sharia financial technology

service. To implement the vision, Ammana will

continue to make cooperation between personal

partners and institutions that have same vision,

Strategic Alliances between Sharia Microﬁnance Institutions and Financial Technology in Strengthening Small Micro Enterprises for Socio

Economic Justice

2447

mission and goals (Ludi et.al, 2018). There are

currently 5 sharia microfinance representative by

sharia cooperative or BMT partnering with Ammana

Company. The SMEs community/ Education

Institutions (Colleges), as partners in assisting and

developing business capacity for SMEs as Ammana

partner and Nadzir Waqf who develop productive

waqf management. Sharia Commercial Bank, as

operational work partner and financial service

transaction between Ammana and Investors.

Association institutions as partner in supporting

industrial development of Fintech. Funding

Foundation as funding support partner outside

personal investor for SMEs financing that is

commercial and social program based on productive

waqf scheme.

Based on interview with the Managing Director,

Agus Khalifatullah (2018), CEO of PT. Ammana

Fintech Syariah, Ludi (2018), described the model

and process business institution in the context of

partnership program with sharia microfinance

institution. As Fintech company, PT. Ammana

develops financing for small micro business as

follows:

a. Focused on providing information related to

investment for micro small business sector fulfilling

the principle of sharia, ethic and promoting the value

of cooperation and justice in business. Ammana

provides application to socialize various micro small

business project and productive waqf program from

partners. For this reason, Amma has right to get fee

(ujrah).

b. Developing crowdfunding business model

based on sharia principle. This is very helpful for

those who have micro and small scale business to

access easy and affordable financing. The aim of the

Ammana crowdfunding platform is to facilitate

investor (shahibul mal) in seeking alternative

investment competitively and to help Indonesian

SMEs listed on the Ammana. Crowdfunding

generally using website technology which functions

as a media in the system online payment to facilitate

transactions between individual or groups need funds

an investors (Gerber et. al, 2012). Basically, activities

crowdfunding is done through the internet to provide

financial sources in form of donations (without

compensation) (Hemer, 2016). The current

development of crowd funding is also being

developed for profit financing models. There are four

categories of crowdfunding platforms (CFPs): equity-

based, lending-based, donation-based, and reward-

based crowdfunding (Massolution, 2012; Pilliang,

2018). Equity-based crowdfunding enables the

funders or investors to receive compensation in the

form of fundraiser’s equity-based or revenue, or

profit-sharing arrangements.

c. Developing transaction agreement based on

sharia principle. In the process of funding

collaboration of the crow funding model, several

contracts can be implemented, among others: profit

sharing contract (mudaraba) between investors

(shahibul mal) and business owners (musharib) which

can be determined by the profit sharing portion (ratio)

at the beginning of the contract. Profit sharing is

derived from income and profit from the result of the

partner business. In this context, the mudharabah

muayyadah contract can also be developed where the

business project is chosen since the beginning

determined by the investor. Ammana as an arranger

who mediates between investors and business

partners through linkage program with sharia

microfinance institution. Ammana has right to get fee

(ujrah), with wakalah bil ujrah contract. Some

contracts based on sharia principles used between

sharia microfinance and end user (SMEs), in term of

financing for productive business used profit sharing

(mudharaba or musharaka) and the sales contract

(murabahah) on the purchase of investment goods

(Faisal, 2018).

d. Investing Update: Investors (shahibul maal)

can directly monitor the process of using the

investment managed by Mudharib (worker) for

business financing through available account.

e. Channels Online, which is the official website

that can be accessed by all people both on the desktop

and mobile. Online channel is for investors (shahibul

maal) by looking at the business profile of

prospective mudharib and looking the development

of investment. While Offline, through partners is to

find SMEs that need financing.

f. Customer Relationship. Deposit reward is

money deposites in investors (shahibul maal) virtual

account from profit sharing.

g. Community development is empowerment of

the recipient capital (mudharib/end user) through

entrepreneurship and business management training

to participate in the economic empowerment of the

SME community.

h. Key Partners, the development of Ammana

will collaborate with two parties, namely sharia

banking institution becoming escrow agent for

managing fund holding account during the financing

process; opening account in several sharia banks to

accommodate fund from investors; becoming partner

for SMEs through opening of Ammana bank account

and sharia insurance for financing which is partner to

provide investment protection for investors to avoid

risk.

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Based on an analysis of the crowfunding model

developed by PT Ammana, it can be said that this

model is very suitable for expanding access to finance

for micro-small businesses. Funding is relatively

cheaper than source fund from banks or other

financial institutions. Mudharabah can be developed

better because of the openness of information on

fortofolio performance of the business or project. The

whole business information can be accessed by

investors so easily investors can determine the

development of the business and also the results that

can be obtained. Equality between investors and

mudarib can be better maintained and more just

because of the disclosure of information. For

microfinance institutions that partner with Fintech it

is also very helpful in terms of access to cheaper funds

for SMEs and the sharing of risks in terms of SME

management.

4.2 Fintech Risk and Mitigation

Lending and Borrowing Service based on

Information Technology are civil agreement between

Lender and Borrower, so that all risks from the

agreement both parties are responsible. One of the

risk faced by Fintech is credit risk or default from

partner. This risk is certainly also investor risk. Based

on the Financial Authority Service/OJK data in 2018,

67 fintech companies both conventional and sharia

found data on Non Performing Loan on Fintech

financing was low at 0.99% as of Dec 2017 but

increased by 1.40% in July 2018. This condition

needs to be considered because of the NPl / NFP tends

to rise. On this context there is no state institution or

authority responsible for the default.

Every borrowing and transaction activity or

implementing agreement on lending and borrowing

or involving the Operator, Lender and / or Loan

Recipient must through escrow account and virtual

account as required under the Financial Services

Authority Regulation Number 77 / POJK.01 / 2016

concerning Lending and Borrowing Services

Information Technology and violation or non-

compliance with these provisions constitute evidence

of breaking the law by the Operator so that the

Provider is obliged to bear the compensation suffered

by each User as direct result of the breaking law

without reduce the right of the User suffering loss

according to the Civil Code.

Risk mitigation that can be done is Integrated

Risk Mitigation. To minimize all possible risks that

rise using integrated financing analysis such as

financing analysis, diversification of business

portfolio financed, and sharia financing insurance. In

addition, the implementation of Fintech needs

considering good governance by fulfilling the

principles of good governance: Transparency,

Accountability, Responsibility, Independence and

Fairness (Britis & Irish, 2009). Fintech business must

accommodate honesty values (must be able to

maintain all data and confidentiality of stakeholder

information), fair (considering all parties, open

information through publication that can be accessed

easily), trustworthy (fintech must have clear vision,

mission, goals, operational for the benefit

stakeholders, no fraud, conflict of interest), ihsan

(Fintech Sharia is not only focused on profit but also

has sense of sharing and caring).

4.3 Legality and Consumer Protection

in Sharia Fintech

The use of fintech must be based on the legal rules to

guarantee legal certainty for consumers. Legal

certainty is one of the legal objective in which legal

certainty has clear legal basis [40], [41], [42]. Legal

certainty according to Utrecht, contains two

meanings, first, the existence of general rules that

make individual know may or may not be done, and

secondly, in the form of legal security for individual

from abuse of power from government.

To fulfill legal certainty, the use of fintech has

been regulated in the Financial Services Authority

Regulation Number 12 / POJK.03/2018 concerning

the Implementation of Digital Banking Services by

Commercial Banks. The OJK regulation is

recognized as one of the law and regulation in

Indonesia as referred in Article 8 of Act Number 12

of 2011 concerning the Establishment of Legislation.

Beside POJK, there is Fatwa Indonesian Ulama

Council (MUI) Number 117 DSN MUI / II / Year

2018 concerning Financing Services Basd on

Information Technology issued by the National

Sharia Board (DSN) MUI. The DSN fatwa does not

include the hierarchy of Indonesian law and

regulation. However, Fatwa is considered legal norm

that can be source of law in Indonesia through the

process of regulating Islamic law into national law

[43]. Thus, the legality of Fintech Sharia has clear

legal basis. However, in the development of Sharia

Fintech better in the future, it is necessary to have its

own OJK rules.

One of the objective of law is to protect all

interests in society. Legal protection aims to integrate

and coordinate various interests in society (Rahardjo,

2005: 5). One of legal protection is in consumer trade

transactions. The importance of legal protection for

consumers because of weak bargaining position of

Strategic Alliances between Sharia Microﬁnance Institutions and Financial Technology in Strengthening Small Micro Enterprises for Socio

Economic Justice

2449

consumers rather than producers. Legal protection for

consumers is important for cunsumer in the weak

positions (Sudaryatmo, 1999 90). In fact, in the

United States, the initial movement of legal

protection for consumers is characterized by the

philosophy that regulation is intended to provide

assistance or protection to low-income consumers,

improve the distribution and quality of goods and

service in the market and increase competition

between actors effort (Carol & Rosthschil, 1986: 24).

Legal protection for consumers can be realized in

two forms of regulation through legislation and

agreement made by parties (business actors and

consumers). The Law Number 8 of 1999 concerning

Consumer Protection in Indonesia, the basis of

consumer protection regulated in Article 1 point 1

states that "all efforts aimed at ensuring legal

certainty to provide legal protection to consumers

must be protected by nine consumer rights

(Rosthschil, & Carrol, 1986; Alexy, 1992, 2002;

BPHN, 1986).

The phenomenon of sharia fintech must consider

consumer rights as regulated in Indonesia. Moreover,

this fintech has become the world's attention not to

cause harm for consumers, one is The Organization

for Economic Co-operation and Development

(OECD) (Moshe, 2014). The OECD issued various

recommendations so that fintech activities do not

harm consumers through the G20 / OECD Policy

Guidance Financial Consumer Protection

Approaches in the Digital Age (OECD, 2018) and

Consumer Policy Guidance on Mobile and Online

Payments (OECD, 2014). Most of the OECD

recommendations provide guidance on the use of

fintech including the risks (Moshe, 2014), including;

1) Regulation and Legality of Product/Service;

2) Role of Institution/ Agency;

3) The same and fair treatment for consumers;

4) Transparency and Information Disclosure;

5) Awareness of financial education;

6) Code of ethic and responsibility of financial

service provider;

7) Protection of use and interest in consumer

asset;

8) Protection of data and consumer

confidentiality;

9) Mechanism of complaint and,

10) Regulation of unfair business competition

and anti-monopoly

The principles of consumer protection for

customers using Fintech in banking transaction in

Indonesia generally have been regulated in various

laws and regulations, including the Financial Services

Authority Regulation No. 12/POJK.03/2018

concerning the Implementation of Digital Banking

Services by Commercial Banks. The regulation has

accommodated the principles of consumer protection

by entering Article 21 which regulates Customer

Protection. In Article 21 of the POJK, in principle all

Commercial Banks that provide digital banking

service must apply the principle of consumer

protection by having mechanism for handling every

question and/or complaint from customers operating

for 24 hours. While the Sharia Fintech based on

Fatwa No. 117 DSN MUI/II/Year 2018 concerning

Information Technology-Based Financing Services

Based on Sharia Principles is still too general. The

fatwa only accommodates the basis of Sharia fintech

law, financing service model, contract mechanism,

and dispute resolution so that the principles of

consumer protection as stated in the POJK have been

not stated. Regulation of customer protection is very

important because according to the OJK, based on

inspection September 2018 found 182 entities doing

Fintech and 10 business activities without OJK

permits which could be harm the society. This

condition is very ironic for all consumers in

Indonesia.

5 CONCLUSIONS

It is concluded that strategic partnerships between

microfinance institution and financial technology are

very appropriate to provide access to finance for

micro small business. The position of Fintech as

media has provided adequate space for raising the

literacy index and financial inclusion index for

Indonesian people. Related to financial literacy which

is defined as ability in financial matter. A person with

good literacy will be able to see money with different

perspective and to control his financial condition.

The research findings suggest that the business

model used was based on crowd funding, itself

compliant with sharia principles. This means that the

legality of the cooperation between the sharia

microfinance instutions and the financial technology

provider has strong basis both in positive law and

fatwa eventhough in fatwa does not contain

spesifically issue of consumer protection and

mitigation risk. Fatwa gives only general rule for

financial technology based on sharia principle;

structure of agreement, term and condition, and form

of agreement. In other case, the issue of risk

mitigation for consumer protection is guaranteed by

government regulations. It means that sharia financial

ICRI 2018 - International Conference Recent Innovation

2450

technology has legal certainty and clear legal based

for business activity.

The research showed that the strategic alliance

between a sharia microfinance institution and a

financial technology firm is capable for strengthening

access to capital sources for small and micro

enterprises. It also improves community financial

literacy and financial inclusion, so that socio-

economic justice can be realized. This research could

contribute to the creation of innovative products

concerning sharia microfinance and sharia financial

technology, and the formulation of policies related to

the strengthen of institutional cooperation.

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