A Model for Empowering Micro, Small and Medium Enterproces (MSMEs) Through Sharia-Compliant Financing in Regional Developman Bank

Abstract

Micro, Small, and Medium Enterprises (MSMEs) are critical engines for economic development and employment generation in developing economies. Yet, a persistent barrier to their growth lies in limited access to suitable financing mechanisms. In Indonesia, where Islamic finance has experienced rapid development, regional banks are well-positioned to support MSMEs through sharia-compliant financing. However, the disconnect between Islamic financial principles and the practical financing needs of MSMEs has hindered the effectiveness of such models. This study seeks to develop a model for empowering MSMEs through regional banks using Islamic financial instruments that are both inclusive and sustainable. It aims to identify key internal and external factors affecting MSME empowerment, propose strategic responses to sharia financing challenges, and offer a comprehensive empowerment framework grounded in Islamic economics. Using the Analytic Network Process (ANP), the study analyzes complex interdependencies among influencing factors and prioritizes strategic solutions through expert input. Internally, the foremost concern is improving access to financial products, especially for underserved segments. Externally, challenges include low financial literacy among MSME actors and limited comprehension of Islamic finance principles. The proposed model emphasizes financing through profit-sharing contracts such as mudarabah and musyarakah, combined with mentoring and monitoring to ensure effective fund usage. The research underscores that a successful empowerment strategy requires not just financial instruments but also education, capacity-building, and ethical guidance. By incorporating the Islamic values of justice (`adl), transparency (shafa’), and equitable risk-sharing, this model promotes an inclusive and ethical financial ecosystem. Ultimately, the study contributes to advancing Islamic finance as a pathway toward sustainable economic development and broad-based social empowerment.