The role of Indonesian government in enhancing Islamic financing for small and medium enterprises (SMEs)

During the economic adversities in Indonesia in late 1997, the SMEs (Small and Medium Enterprises) proved to be more resilient than larger companies which were tied to foreign debts and imported materials. Due to their resilience, SMEs have the potential to improve the economic landscape of Indonesia provided that they are developed well. The continued running of the SMEs depends in many ways on value chains in the business environment. Strong financial institutions or banks are needed to finance the SMEs. In Indonesia, Islamic banking is a new and promising alternative for financing SMEs. The government’s intervention strategies and efforts to support such financing is analyzed in the paper.