Financing to Infrastructure Contractors Using Musharakah Contract in Islamic Banks Indonesia
Thirty years since they began operating in Indonesia, the market share of Islamic banks is still small (6%). Additionally, their share of financing to the construction segment is only 7 percent of the industry’s total. It is imperative to identify why Islamic banks are trailing in this segment an...
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| Summary: | Thirty years since they began operating in Indonesia, the market share of Islamic banks
is still small (6%). Additionally, their share of financing to the construction segment is
only 7 percent of the industry’s total. It is imperative to identify why Islamic banks are
trailing in this segment and to recommend how they may improve their position. The
study aims to investigate the current practices and approaches of Islamic banks to
finance infrastructure constructors and to propose musharakah as a financing solution.
The study also aims to support Indonesia’s Islamic Economy Masterplan. The study,
therefore, aims to accomplish three objectives: (1) to investigate the current practices
and approaches of Islamic banks in Indonesia to finance construction companies, in
particular infrastructure contractors; (2) to identify the reasons for the low share of
financing from Islamic banks to infrastructure contractors; and (3) to determine the
appropriateness of musharakah contract to fulfil the financing needs of infrastructure
contractors. This study is qualitative in nature. Data were collected using semistructured
interviews with key personnel of Islamic banks, infrastructure contractors,
and an Islamic finance authority to answer the research questions. The study also used
secondary data from annual reports, websites, and other relevant documents. The data
were analysed using thematic analysis. For the first research objective, the study found
that Islamic banks perceived contractors only as a component of the construction
process. They have not set infrastructure contractors as their target segment. As a result,
Islamic banks and infrastructure contractors have rarely been in a financier-customer
relationship. This creates information asymmetry between both parties. For the second
objective, the reasons for the low share of financing of Islamic banks to infrastructure
contractors include changes in ownership and limited area of operations of some Islamic
banks. Additionally, some banks follow the policies set by their parent banks, which do
not focus on infrastructure contractors. Most Islamic banks also have not considered
contractors as potential customers. For the third objective, it was concluded that
musharakah is ready to be used to finance infrastructure contractors. Islamic banks must
carry out proper marketing activities so that infrastructure contractors become more
aware of the offerings of Islamic banks. The thesis contributes theoretical and practical
knowledge concerning musharakah. It also contributes to the knowledge of
infrastructure contractors of non-interest-based financing. The findings are expected to
be useful for Islamic banks to gain new customers and increase market share. For
construction companies, the findings inform them of non-usury financing alternatives. |
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