Economic subjects | Finance » Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank

Source: http://www.doksinet Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank ABSTRACT: Micro-financing for the purchase of clean water connection is very important for people who have limited cash to pay clean water connection. In this conceptual paper has explained the role of sharia bank for the poor people who don’t have the ability to pay in cash for the clean water connection. Clean water is a basic human need for survival, related to this consideration, Sharia Bank creates microfinance products to clean water connections to the poor because of this program also in line with the maslahah ummah or maqhasid sharia. This product requires intervention feasibility analysis of credit/financing used, or commonly referred to as the feasibility analysis 5Cs (character, capital, capacity, collateral, and condition). Intervention feasibility analysis microfinance clean water connection is required because our goal of providing clean water connection financing for

the poor people. Regarding the micro financing analysis, if we using a feasibility analysis 5Cs it will be not feasible for granted financing. To speed up the distribution of micro financing clean water connection, and have a broad impact on society, especially the poor (the benefit of humanity) to improve their welfare, the role of government is necessary in order to mitigate the risk of micro finance portfolio. The governments role as an authority has responsibilities for change peoples behavior to better care for their health. Furthermore, the role of the government in mitigating the risk of this financing model very important To mitigate this financing, the insurance is required in the micro-financing for the connection of clean water, and insurance premiums paid by the government. KEYWORDS – the basic need, intervention analysis, maslahah ummah, maqhasid sharia, micro-financing for clean water connection, poor people, sharia bank, the role of government. I. INTRODUCTION

Water is a vital resource for all living things, especially for humans to be able to sustain their life in the future. The benefits of water for human life are vital mainly used as drinking water, cooking food, washing, bathing, and toilet. The importance of clean water for human needs, making the availability of clean water for people in urban and rural areas is one of the targets of the Millennium Development Goals (MDGs). The MDGs are a global development paradigm with eighteen goals. Targets relating to the provision of clean water are the tenth goal, which decreased by half the proportion of people without access to safe drinking water and sustainable as well as the availability of sanitation facilities for all levels of society in 2015 (UNDP, 2004). MDGs are the worlds time-bound and quantified targets for addressing extreme poverty in its many dimensions-income poverty, hunger, disease, lack of adequate shelter, promoting gender equality, education, and environmental

sustainability. Availability and access to clean water became one of the problems faced by the government and society in Indonesia. In fact, of the eight targets set in the Millennium Development Goals (MDGs), Indonesia is still difficult to achieve the target of increasing access to clean water and sanitation. Some of the factors that constrain the provision of clean water in developing countries or third world countries included in Indonesia cases are as follows (Lenton and Wright, 2004): a. Political factors, in developing countries the water and sanitation sector is not a priority in government development policies; b. The financial capacity factor of society or the majority of the population in developing countries are poor, hence, the availability of and access to clean water is not their priority; c. Technical factors (eg spreading of the house) Nevertheless, factors that greatly influence the clean water supply is poverty (CGI, 2000). Therefore, micro-financing through Islamic

banks with intervention analysis is an alternative solution for the people and the poor in particular to be able to obtain clean water at an affordable cost to meet the needs of everyday life. The basic principles of microfinance by Muhammad Yunus as the founder of the Grameen Bank in Bangladesh and the recipient of the Nobel Prize for peace in 2006 was access to financial services is a human right. The same things also stated by several researchers that originality of microfinance objective, its to achieve the double bottom line. That is mean microfinance institutions are mindful not only of financial performance but also by social indicators. Furthermore, the main objective of microfinance is to help the poor become economically independent, not be dependent on government assistance or a burden State (Rahim, 2010). 1 | Page Source: http://www.doksinet Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank Microfinance can also devote and dedicated to the public

or people who have not been able to provide collateral for financing, collateral banking is intended to protect from the risk of loss if there is a failure to pay installments (Abu and Rafique, 2009). Concern over the provision of financing and financial accessibility for the poor through microfinancing is also relevant to the Islamic banks should be responsible and have a more important role in social welfare and commitment to achieve the goals of Islamic economics, which include social justice, equitable distribution of income and wealth and to support sustainable economic development (Ashraf, 2008). Therefore, Islamic banking is required to have a role to engage in microfinance programs in order to meet the needs of poor people who can not provide guarantees for microfinance (not bankable) (Al Harran, 1990, 1996, 1999; Akhtar, 1996, 1998; Dhumale and Shapcanin, 1998; Ahmed, 2001; El-Gamal, 2006). Microfinance is a source of financial services for entrepreneurs and small businesses

lacking access to banking and related services. Microfinance distribution agreements are generally not based on formal agreements. Therefore, there are opportunities for micro financing problems. The agreement between the borrower and the lender is only based on the element of trust, which is the first applicants reputation as a man who has a good character and reputation (Diamond, 1991) and the second is the availability of sufficient capital or collateral for repayment in case of default (Holmstrom and Tirole, 1993). Nevertheless, the availability of capital or collateral element is an important barrier for the poor, especially for the poor to access micro-finance market. The poor are stamped by the banks as a high-risk borrower due to financial difficulties inherent in their lives, so it would be difficult to qualify for the assessment of creditworthiness related to their inability to provide collateral which aims to protect potential future risks (Ashraf, 2008). The purpose and

contribution of this paper are to explain the participation of Islamic Bank in implementing sharia rules, which is the achievement of the objectives of Islamic (sharia maqashid). The purpose of sharia is that wellbeing can be distributed evenly on the whole society to enforce Sharia (Islamic law) (Ibn Ashur, 2006). Moreover, according to Jumantoro etal (2005), goals Sharia (maqashid sharia) is to create a human welfare (maslahah): Meaning: "Indeed, sharia aims to realize the benefit of humans in the world and in the hereafter." It is also narrated in a hadith by Musnad Shihab, Hadith No. 1234 as follows: Meaning: "The best man is the most beneficial for others." Based on the benefits principle, Bank Syariah Mandiri (BSM) makes the business model for the distribution of micro-financing for clean water pipe connections for the poor. Empirical studies on this research using secondary data microfinance; the object is the distribution of micro-financing for clean water

connections at BSM Kudus Branch since November 2011 to March 2013. The method is based on a framework of qualitative research and data analysis includes the following stages: a. The links Islamic banking with microfinance b. Identify the business model of the distribution of micro-financing for clean water connection in BSM Kudus Branch. c. The risk management required for the expansion of micro finance portfolio of clean water connection d. Analyzing the data distribution and micro-financing installment payments clean water connection from November 2011 until March 2013. e. Conclusions 2 | Page Source: http://www.doksinet Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank II. DISCUSSION AND ANALYSIS 2.1 The links Islamic banking with microfinance Quran and hadith are the two main pillars of Islam. Every detail of the teachings of Islam should refer to the Quran and hadith. Quran is the principal source of Islamic teachings as a guide for mankind

(Hudanlinnasi), as a guide human life towards a prosperous life in the world and safely in the hereafter In addition, Hadith has the role of interpreting the Quran in the practice or application of Islamic teachings in a factual and ideal real activity in human life. We would be hard to imagine if without "intervention" hadith, the Quran, especially those related to legal issues can be understood and actualized in practical Muslims. As guidance of human life, of course, the teachings contained in the Quran and hadith should be implemented in public life. Islam as rahmatan lil Alamin means that Islam is a religion that brings grace and prosperity for all the whole universe, including animals, plants and the jinn, and, of course, human beings, it’s stated in Qur’an Al-Anbya verses 107: Meaning: “And We have not sent you, [O Muhammad], except as a mercy to the worlds.” Furthermore, regarding Masyita (2009) existence of Islamic Bank has function in the figure as follow:

Figure 2.1 Islamic Bank as The Solution of Financial Intermediaries Conventional Bank The Causes Global Financial Crisis Alternative Solution Sharia Bank 5 Pillars of Syariah Bank 1. 2. 3. 4. 5. The ban of interest, The ban of uncertainty or speculation, The ban of financing certain economic sectors, The profit and loss sharing principle and, The asset backing principle Sources: Masyita (2009) In the macro view the financial crisis caused by the mainstream financial intermediary. The process of the financial crisis in the word can be described in the figure as follows: Figure 2.2 The Macro View of Financial Crisis 3 | Page Source: http://www.doksinet Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank Sources: Masyita (2009) Based on figure 2.2, Islamic Bank should be create wellbeing for the community or ummah in the world, in another word can be as the solution to a ban of the crisis. What is wellbeing? Wellbeing is the maslahah, its mean the Islamic

bank should give the positive impact and beneficiaries to all communities. In addition, Islamic bank as the financial intermediaries has the multiple bottom lines, not only financial performance as the purposes, but also the concern about the social performance, environmental conservation, and for sure the spiritual aspects should be embedded (maqhasid sharia) in the operation. The link between the Islamic bank and microfinance is very closer. To find out the link is not based on the interest (riba) point of view but based on the ideological and practical terms of microfinance. The originality of microfinance objective, its to achieve the double bottom line. That is mean microfinance institutions are mindful not only of financial performance but also by social indicators. Econometric analysis is used to assess financial performance, and guidance is provided for extending the analysis of social performance indicators or MFIs have a double aspect: financial and not-for-profit. It

is, therefore, appropriate to assess their performance not only of financial ratios but also by means of social indicators. (Frank, 2008; Armendariz and Labie, 2011; Hudon, 2011; Stuart, 2011; Balkenhol and Hudon, 2011; Cinca et al, 2011). In another word the MFIs was designed to serve unbanked poor and, its seen by some as a magic wand against poverty that is supposed to solve it all (Armendariz and Labie, 2011), but microfinance neither a panacea nor a magic bullet, and it can’t be expected to work everywhere or for everyone (Armendariz and Morduch, 2010). According to the purposes of microfinance, there is a strong similarity with Islamic bank, the in line purposes of microfinance with Islamic bank are social performance and poverty alleviation. Although the practice of Islamic finance is based on the belief that money is not a productive asset in and of itself. Furthermore, aiming to implement Islamic law sharia maqhasid, so the activities of Islamic banks emphasize factors

ethical, moral, social, and religious to promote equality and justice for kindness the ummah. Although this analysis of Islamic banking focuses on the economic aspects, the system can be fully understood only in the context of Islamic attitudes towards ethics, wealth distribution, social and economic justice, and the role of the state. Principles encouraging risk sharing, individual rights and obligations, property rights and the sanctity of contracts is part of the universal values that underlie the Islamic banking system (Dhumale and Sapcanin, 1998). According to Nugroho (2014 and 2015), Islamic Banking should have a microfinance services and products which should have a commitment to the social issues such as environmental, low-income community (poor people), disabilities persons and gender. The environmental damaged was happening in Indonesia conditions is certainly contrary to the principles of Islam which the majority of the Indonesian population are Muslim. Islam is not just a

religion It covers the views and way of life in total Islam is a religion that upholds the dignity of civilization and humanity that combines aspects of the material and the spiritual, worldly and hereafter. Therefore, the environmental damage was not due to religion but because of ignorance and low levels 4 | Page Source: http://www.doksinet Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank of education, especially those with low incomes or poor. Islam emphasizes the importance of science and knowledge to humans or the people that studying becomes a liability. One of the tangible evidence of the glory of science in Islam is the first verse revealed by God to the Prophet Muhammad related to science (QS. AlAlaq: 3-5) as follows: Meaning: “Recite, and your Lord is the most Generous-Who taught by the pen-Taught man that which he knew not.” The Islamic perspective on science is very important because knowledge as a means of strategic and effective in lifting

the human dignity of the downturn, as happened in the era Jahiliyya. This can be understood because of the persons knowledge will have a provision in his job, has an opportunity and a promising opportunity in the future, full of confidence, and not easily manipulated. In line with this, the Quran insists on the importance of intellectual responsibility in performing various activities. In this regard, the Quran besides teaching humans to lifelong learning requires someone to work with the support of knowledge, expertise, and skills held for the benefit of the Ummah. The work that is done without the support of knowledge, expertise and skills considered invalid and beneficial for the people and will bring destruction. 2.2 The business model of the distribution of micro-financing for clean water connection in BSM Kudus Branch Islamic banking is one of the Islamic financial systems must be able to provide benefits to economic development in Indonesia. Islamic banking as an institution

and as ethical sharia-based intermediaries also has the potential to support the distribution of income and financial stability, one of which is to increase access to financial services to all segments of society, including the poor who have the potential to improve the welfare (Muljaman, 2013). Based on this, micro financing for clean water that provided by Islamic bank is very relevant to the Islamic Law. Nevertheless, water is very important for human, it’s also explicitly stated in Qur’an, Al Anbya verses 30 “Have those who disbelieved not considered that the heavens and the earth were a joined entity, and we separated them and made from water every living thing? Then will they not believe?”. The above verses suggests that if we want to live a more perfect and more healthy, we should consume sufficient amounts of water, both to drink, or to cleanse themselves and the environment, as well as to perform ablutions (water as a sources of life). First of all, there is an

important question related to clean water connection, financing, why water connection financing is important? The answer is as follows: a. The limitation of poor people to pay in cash for clean water connection; b. The limitation capital of local clean water company (PDAM) to make installment payment product for clean water connection; c. Water is very important for human life to survive Furthermore, in cases in the Kudus region of Indonesia, regional clean water company want to focus on the technical side of the water company, in addition, local clean water company Kudus also has cooperative employees. Because of this condition, the business model of micro-financing for clean water connection in regional clean water company at Kudus Branch, involving several parties as follows: a. Bank Syariah Mandiri (BSM) Kudus Branch; b. Local Clean Water Company (PDAM) Tirta Kudus Dharma; c. Employees Cooperative Tirta Makmur Kudus (Cooperative Employees PDAM Tirta Dharma) Based on this

cooperation, the scheme can be described as follows: Figure 2.3 Cooperation Scheme for Micro Financing of Clean Water Connection 5 | Page Source: http://www.doksinet Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank Source: Small and Micro Division of BSM According to figure 2.3, the mechanism of new connection for new customer as follows: 1. 2. 3. Make a Cooperation Agreement between Tirta Makmur cooperatives and regional water company; Make a Cooperation Agreement between Tirta Makmur cooperatives and regional water company; Potential customers of the regional companies propose financing of clean water clean water connections through Cooperative Tirta Makmur; 4. Cooperative Tirta Makmur forwarding submission connection clean water to regional water company; 5. Then the water company regional performs a feasibility analysis of potential customers who meet the criteria for financing micro-plumbing. Potential customers are eligible will then be processed

by PT Bank Syariah Mandiri to analyze the history of the loan with the credit bureau system (BI-Bank Indoneia checking); 6. PT Bank Syariah Mandiri to process analysis based Checking data/identity that has been given by the customer; 7. If the results of the analysis of a prospective customer credit bureau feasible, then the approval of the provision of financing and the contract will be directly done by the prospective customer and cooperatives (representing PT Bank Syariah Mandiri); 8. Cooperative inform the regional water company related to new customers; 9. The local clean water company confirmed to PT Bank Syariah Mandiri to immediately execute the disbursement of funds for the cost of connecting to the water; 10. PT Bank Syariah Mandiri make disbursements to the customers account; 11. With the transfer authorization letter from the customer, the funds for the financing to be transferred to the account of the Cooperative Tirta Makmur in PT Bank Syariah Mandiri; 12. Cooperative

Tirta Makmur will confirm to the local clean water company to install water connections; 13. An area of water installing water connection to the customer; 14. Installment payments are included in the payment slip of water each month So in this cooperation there are two payments, the first payment of water use and the second for installment payments for the connection of clean water; 15. Submit installment payments to the local clean water company; In this cooperation there is the obligation of each party as follow: a. Local clean water company obligations: 1) Provides warning to water customers who are in arrears to pay the installment payment; 2) Paying arrears (bails) to Bank Syariah Mandiri, associated with customers who do not pay. b. Bank Syariah Mandiri (BSM) obligations: 6 | Page Source: http://www.doksinet Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank 1) Disburse micro credit (financing) clean water connection (for customers who need / poor) to

local clean water company through cooperatives for new customers who have obtained approval from the Bank Syariah Mandiri to obtain micro-finance facilities; 2) Provide a report to the Cooperative and local clean water company on the status of payments by the customer recipient micro-finance facilities. Explanation of sharia perspective, the concept of microfinance Bank Syariah Mandiri is very different from the concept of the conventional bank, Islamic Bank applies murabaha, the concept of buying and selling (trade) with the system margin, whereas the conventional micro financing to apply the system of interest. Furthermore, the mechanism of murabaha in this business model; Bank Syariah Mandiri buy a house extension package (clean water connection) from local clean water company and sell the package to customers who can’t pay cash the clean water connection (poor people) through the Cooperative Tirta Makmur that designated as intermediary local clean water company and as a

representative of Bank Syariah Mandiri to the customer. Nevertheless, micro-finance in this program will be successful if there is a strong motivation of customers (willingness) to pay this installment, the motivation customers to have clean water connection as follows: a. Customers live in areas which have trouble with groundwater; b. Use of water from a local clean water company will reduce household spending, according to research GTZ save water payment by 25-fold, according to sampling data from Perpamsi (association of water companies throughout Indonesia), the average requirement per month per household is 10 m3, then poor households will pay Rp500.000,- per month for use of water from water vendors (instead of regional water company). However, when using water from a local clean water company then they only pay Rp20000,so that poor people can save their expenses per month to Rp480000,- In addition, the gap amounted to Rp480.000 ,-can be used as a water supply connection

installment payments; c. Health awareness, low-income people generally have low levels of education are less concerned that the quality of the water used can interfere with their daily activities that impact reduces productivity. 2.3 The risk management required for the expansion of micro finance portfolio of clean water connection Feasibility analysis is commonly used to determine the prospective clients of micro financing feasible or not to obtain a loan are 5Cs analysis. The 5 Cs analysis can be divided into two pillars: a. The first pillar, associated with willingness associated with characters that include responsibility, honesty, seriousness in the business, the customer desire to pay off the entire loan; b. The second pillar, associated with skills related to capacity, capital, condition and collateral Nevertheless, the most important in the analysis of the feasibility of micro-finance is a character (Diamond, 1991) and collateral (Holmstrom and Tirole, 1993). The

availability of collateral is an obstacle for low-income communities or poorer households. Based on the difficulty of providing collateral constraints (collateral) by low-income people and poor households, then the BSM intervention using only the first pillar, which is a willingness to pay related to the character, furthermore, feasibility analysis based on the results of BI checking (credit bureau) the prospective customer. If the customer has a checking BI positive result, then a borrower is eligible to obtain micro-finance facilities clean water connection. The intervention was performed due to microfinance portfolio target is low-income communities/poor who cannot afford to pay in cash the connection of clean water to the PDAM. The scheme of mechanism feasibility analysis of micro financing for clean water connection as follows: Figure 4.1 Feasibility Analysis before Intervention Analysis of Syariah Micro Finance Character Capital Capacity Condition Risk Mitigation Maintain Non

Performing Financing (NPF) Syariah Micro Finance in Low Level Collateral Source: Small and Micro Division of Bank Syariah Mandiri 7 | Page Source: http://www.doksinet Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank Figure 4.2 Feasibility Analysis after Intervention Source: Small and Micro Division of Bank Syariah Mandiri The need for clean water is a basic need, as well as the provision of micro-finance for the connection of clean water to the poor is an implementation of the maslahah ummah or maqhasid maslahah sharia, which is also one of the important pillars of Islamic economics and Islamic finance (Beik, 2013). According to in figure 4.2 the main caused by intervention micro financing feasibility analysis is the limitation of the collateral from the poor and water as a basic need for human life. The ultimate goal of Islamic economics is as the goal of Islamic law itself (maqashid Shariah), which is to achieve happiness in this world and the Hereafter

(Falah), through a system of good and civilized life. Brought essential for human well-being is the foundation once the primary purpose of Islamic law (mashlahah), hence maslahah is also the goal of Islamic economics (Bahsoan, 2011). Prosperous life in the world and the hereafter can be realized when it is the fulfillment of human needs in a balanced life (spiritual and physical). The realization of the needs of the community will have an impact that is called by maslahah. Thus, mashlahah are conditions, both material, and non-material, which is able to improve the human position as the noblest creature. This is achieved when every economic activity is mainly based on Islamic law constantly. Maqhasid sharia has six components (Bahsoan, 2011) The six components can be explained as follows: a. First, Maintaining Religion Humans require absolute religion Without religion, there is no point in life, even religion is the most important requirement of all basic needs. Religion ranks first

because as a basic human act in accordance with the command and pleasure of Allah. Therefore, in the Quran and the Hadith of human faith in God is the foundation of Islamic economics. So the economic relations with aspects of aqidah which makes economic activities as worship; b. Secondly, to preserve life Maintaining life is meant to preserve the right to live with dignity and nourishes the soul to avoid maltreatment in the form of murder, as well as the harm, includes eating foods that can damage the body and health, including excessive in consuming the food; c. Third, Keeping the Mind Sharia perspective the human mind as a gift of God, which is very important With the human mind can distinguish between what is good and what is bad. With the human mind is assigned to worship God. Therefore, the mind must be preserved and protected For this reason, the Sharia (Islamic law) forbids alcohol and all that can kill the creativity of the human mind and moral damage. Thus, in Islamic

economics, alcohol and the like are considered to have no value; d. fourth, Maintaining Descendants Utilization of the world intended by God for existing one generation to another. Therefore, Islam arranging marriages and prohibiting adultery ordered anyone who can be married with the procedures of marriage and the conditions that must be met. All of this provision is a form of preserving the good and healthy offspring in a calm and peaceful atmosphere. Thus, there will be a next generation of strong and healthy; e. Fifth, support the property Although essentially all the property belongs to Allah, but Islam recognizes an individuals personal right. Islam requires that regulations about such buy, lease, borrow or lend, pledge and so on, and prohibits fraud and practicing usury. Maintaining a well-understood property set system on the 8 | Page Source: http://www.doksinet Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank f. basis of fairness and willingness,

trying to develop wealth and handed into the hands of people who are able to keep up good property is also understood to regulate system on the basis of fairness; Six, Maintain the environmental, QS. Ar-Rum verse 41 stated: Meaning: ”Corruption has appeared throughout the land and the sea by [reason of] what the hands of people have earned so He may let them taste a part of [the consequence of] what they have done that perhaps they will return [to righteousness]”. In this verse, Allah revealed the emergence of the environmental damage caused by human activities, and people will accept the consequences. Because of environmental damage would threaten human existence, especially our future descendants.” In addition related to risk management in the provide micro financing for clean water connection, with this program, the expenses for clean water by poor households became decreasing, it’s shown in the below table: Table 4.1 Expenditure of Poor Households for Clean Water Note:

Non PDAM-clean water provide by private company PDAM: Local clean water company Source: Iuwash Publication According to the table 4.1 above, using the water from PDAM can be more efficiency till 25 fold, this gap very useful for the poor because of the gap could be allocated for water financing installment, for health purposes, child educational purposes, etc. At the operational Sharia Bank, are also required to apply the prudential principles in the distribution of micro-financing. The distribution of micro-financing for the connection of clean water to the poor in the intervention feasibility analysis, of course, there is also a potential risk of default by the customer. In this business model, analysis of the distribution of funding mechanisms based on the results of BI checking that can represent a character, then another anticipation microfinance credit risk for the connection of clean water is also insured to the insurance company. However, to expand maslahah (benefit to the

community) distribution of micro-finance the connection of water, the role of government is essential to the success of this program. The role and function of government are needed on the distribution of micro-financing for clean water connections are as follows: a. Capacity Building 1) Government as an agent of change contributes to change peoples habits in the use of water which aims to maintain their health. Therefore, socialization functions related importance of clean water to maintain their health undertaken by government officials in the local area is necessary, so that people are aware and have a dependency on the use of clean water. 2) Government as an agent of development, served to increase the public knowledge of the importance of clean water, and its effects can lower the cost of the household of the community, if the people get sick due to the use of clean water coming from not local clean water company, then the cost of the treatment will also increase. 3) Islamic

banking has limited ability to channel the distribution of micro-finance connection of clean water in bulk because in the process of cooperation with local clean water company needed standardization of perception, associated with patterns of cooperation and benefits. Based on the role of 9 | Page Source: http://www.doksinet Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank the government is required to provide standardization socialization patterns of cooperation between the Sharia banking with local clean water company to officials in the local area concerned and the distribution of authority in the implementation of micro-finance the connection of clean water. b. Cash Flow 1) The government provides subsidies related to operating costs in the form of investments in third-party funds that are subject to margin can be more affordable to low-income communities with the financing period is not in a long term (maximum 24 months). 2) The government made a special

program for microfinance, which is directly secured by micro finance insurance (credit insurance) which premium expenses covered by the government, but to avoid moral hazard of clients, the government does not need to expose the program. However, this program as a part of an agreement between the government with Islamic Bank. Based on this, the aspects of the collateral may be replaced with Sharia banking risk mitigation, and will be give benefit to community (maslahah) if the government also take a part in the clean water financing mechanism because the function of government has responsible for the creation of the social wellbeing (Choudhury, 2009). The governments role in mitigating the risk of micro-financing for clean water connection can be done by providing capacity building assistance and cash flow, so it can be minimized the risk of financing that will arise in the future. Based on the mechanism, the micro-financing, risk management scheme for the connection of clean water as

follows: Figure 4.3 Risk Management Mechanism in Microfinancing for Clean Water Connection Source: Small and Micro Division of Bank Syariah Mandiri III. CONCLUSION Regarding on the analysis of the distribution of micro-financing for the connection of clean water to poor or low-income communities can conclude the following matters: a. Government support is needed in order to optimize the role of Islamic Bank to improve the welfare of the society, especially low-income communities or poor, who want to improve the quality of life and economic level in the future. The program is also in line with the governments responsibility to reduce the number of poor people, one of whom is a clean water supply for the community and is also included in the MDGs. Educate the local communities on the importance of drinking clean water. The program is delivered in locations where piped water systems are not feasible and where readily available surface waters are biological. b. Microfinance is a

product that is owned by the Islamic banking, one of which is the connection of a micro finance portfolio of clean water to the poor. Consideration of community welfare and needs of the poor to clean water is the reason BSM to create special micro-finance products by intervening on a common analysis of micro financing. c. Chances of risk in the connection of a micro finance portfolio of clean water to the poor have been mitigated by the client character analysis through BI checking (credit bureau) and micro-finance insurance 10 | Page Source: http://www.doksinet Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank d. e. f. (credit insurance). However, there are limitations in estimating the ability of Islamic banking risks will arise and a number of human resources if it is implemented massively throughout Indonesia. Therefore the distribution of funding clean water connection is also a characteristic of the micro-finance products, where the number of

customers that much and the amount of funding that average under Rp2.000000,Based on this, so the program can have a wide impact in communities across Indonesia, government support is needed. Government support is needed in the form of capacity building and cash flow With the support of the government, the risk of micro finance portfolio connection of water becomes smaller and overcome the limitations of sharia banking to distribute of mass micro-finance products. The pattern of distribution of micro-finance connection of clean water for the poor with sharia banking with government support can be implemented for other programs in order to meet the basic needs of the community, especially for people who want to improve the quality of life and economic level in the future, such as the need for residential, the cost of education and other needs. It also required the commitment of all stakeholders to implement them for the benefit of mankind, not the interests of individuals, families and

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