Sharia-Based Ultra-Micro (UMi) Financing Model for MSMEs through Islamic Microfinance Institutions

Abstract

The halal industry in Indonesia holds significant potential as a driver of national economic growth, particularly in the financing of ultra-micro enterprises. Ultra-micro financing (UMi) through Islamic microfinance institutions (IKMS) is an inclusive and practical financing alternative for ultra-micro entrepreneurs in Indonesia. This study aims to analyze the Sharia-based ultra-micro financing (UMi) model through Islamic microfinance institutions (IKMS), identify its strengths and weaknesses, and evaluate its alignment with the principles of Maqashid Sharia. The study finds that integrating funds from the Government Investment Center (PIP) to institutions such as KSPPS, BMT, and LKMS serves as financing channels and as agents of community empowerment through sustainable approaches rooted in Islamic principles. This paper is a case study research with a qualitative-descriptive approach and is enriched with literature reviews to examine various dimensions of Sharia-based UMi financing. The analysis reveals that this model is superior to conventional financing models, as it prioritizes not only financial aspects but also social dimensions aligned with the objectives of maqashid sharia, including the preservation of wealth, life, intellect, lineage, and religion. Despite existing challenges such as limited human resources, underdeveloped digital infrastructure, and the need to balance social and business functions, institutional strengthening and adherence to Sharia principles within Islamic microfinance institutions (IKMS) can serve as key drivers in poverty alleviation and the enhancement of community welfare.

Keywords: Islamic Microfinance Institutions, Ultra-Micro Financing, MSMEs