Available online at www.aucjc.

ro
Annals of the University of Craiova for
Journalism, Communication and Management

Volume 6, 191-208, 2020 ISSN 2501-3513

EFFECT OF SHARIA FINANCIAL TECHNOLOGY IN

SMALL AND MEDIUM ENTERPRISES (SME)

Wahid Wachyu Adi WINARTO1

1
Lecture, Islamic State Institute of Pekalongan, Indonesia

[email protected]

Abstract
This journal aims to analyze the role of Sharia Fintech in improving financial
inclusion and literacy in SME. Currently, Technology Development has begun
to enter the Digital realm in order to meet Indonesia as the largest digital
economy country in 2024, the government as the regulator of the Indonesian
economy, must empower all Indonesian people to the villages and remote areas
throughout the country so that they can feel the positive impact of developing
technology in the future.
The current technological relationship is closely related to the existence of the
internet as the main access. We need to know that the existence of this Sharia
Fintech can be one of the driving forces for the existence of a movement to help

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increase finance for SMEs, especially those in the middle of the middle of the
community through Islamic financial institutions. As we know sharia fintech is
a term that can be used to refer to innovations in the field of financial services
using sharia principles.
The development of digital technology, including in the Islamic financial
industry, can no longer be dammed. Through sharia financial technology (sharia
fintech), all forms of transactions are faster, easier, and more efficient at the
same time, without the need for face-to-face meetings. The emergence of
shariafintech is inseparable from the innovations that develop to finance this
financial concept, it requires start-up (new entrepreneur) to build its business
Keywords: Sharia Fintech, Inclusion, Literacy
I. INTRODUCTION
The development of the technology business in Indonesia is followed by
the emergence of many new star ups. The more sophisticated technology will
encourage business growth in companies to further develop. New innovations
have sprung up in the financial sector so that they can be developed to spoil
business people, especially those engaged in online business for transaction
activities. The presence of companies engaged in financial technology in
Indonesia and the high interest and needs of the people of Indonesia using
applications make many FINTECH applications so that the dominance of the
use of FINTECH is higher(Gomber, Kauffman, Parker, & Weber, 2018).
At present the financial sector has become one of the sectors that has an
impact on the development of technology or it can be said that technology has
entered the financial sector. As it progresses rapidly, it can change the financial
industry to the digital age. The combination of technology and finance is often
interpreted as financial technology (FINTECH ). With the advent of FINTECH

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, it is expected to increase financial inclusion and financial literacy in the
community(Wachyu & Winarto, 2020).
Many financial institutions especially banks and savings and loan
cooperatives can increase financial inclusion and financial literacy in SME in
Indonesia. The development of FINTECH carried out by banking institutions
and savings and loan cooperatives can provide easy access for business owners,
including for example the owners and entrepreneurs of the SME sector can
easily access and accept offers of financial service products offered, for
example by applying for direct loans without coming to the office branch or
operational service. This will facilitate the access of SME sector business
owners in obtaining financial transactions, can also increase financial inclusion
and financial literacy and can improve the performance of banks and savings
and loan cooperatives.
Luckandi (2018) in his research discussed the analysis of activities of
payment transactions using fitech at SME in Indonesia, concluding that
security, convenience, transaction suitability and ease of transaction are factors
that encourage SME to use FINTECH so as to increase sales.
In 2017 According to Global Findex data, the percentage of achieving the
level of financial inclusion in Indonesia reached 48.9% or 12% which is higher
than the results of global Fidex in the previous three years. In 2018 only around
36% of the Indonesian adult population used access to formal financial
institutions(OJK, 2017).
Between inclusion and financial literacy, the two have a connection.
Inclusion is the amount of use of financial services, financial literacy focuses on
managing money held. So if someone has good financial literacy it is possible
to be able to make the most of money(Wachyu & Winarto, 2020).

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 One of SHARIA FINTECH is Peer to Peer Lending, The various
conveniences offered by Peer to Peer Lending compared to banking services are
still very limited, more requirements and procedures, as well as the large
number of Indonesian people who have not been served by banks, which is an
attraction for the presence Peer to Peer Lending in the community.
Until even in 2019, there have been around 4.35 million people in
Indonesia who made loans through Peer to Peer Lending. However, the many
benefits offered by Peer to Peer Lending cannot be taken for granted. Because
in fact the various benefits are also accompanied by a low security element and
various risks that arise due to the use of Peer to Peer Lending.
The Financial Services Authority in mid-2018 noted that there were at
least 277 illegal Peer to Peer Lending which had ceased operations in Indonesia
because it was considered dangerous for its users (OJK, 2018).
II. LITERATUR REVIEW
2.1 Financial Technology
Financial technology (FINTECH ) is also an innovation step from the
financial sector integrated with technology to produce facilities without
intermediaries, changing the company's methods of providing services and
products, while also being able to provide privacy, regulation and legal
challenges and is possible to provide sustainable growth inclusive (Harahap,
Idham, Kusuma, & Rakhman, 2017)
The Word Economic Forum explains that FINTECH is an innovative use
of technology and business in the financial sector. This financial innovation in
the form of the use of technology to be able to produce new ways as in financial
institutions such as loan savings, investment and e payment(Apfelbacher, 2016)
The FINTECH industry can develop due to several factors including:
a. There is a change in the mindset of consumers

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 This change is marked by increasing needs in society but people want to
get it in a practical and easy way. This encourages people to use
FINTECH services to meet their daily needs in an instant way and begin
to leave the conventional system that must come to the seller.

b. Digital progress
Digitalization is a change from the old system that has not been modern.
In this era digitalization has been used in many products for community
needs. As is the case in smartphones that are increasingly sophisticated
and have spread in the community will facilitate the community in
helping their activities and needs.
c. Change in trends
Developments and innovations that are carried out quickly and
continuously encourage change and acceleration in a trend in society.
d. Decreased brand and institutional loyalty
The potential to make a decision to buy a product in this period is not
influenced by a brand or institution, but for millennials in making
decisions to buy faster and be careful about offering products and
services.
e. Easier access
Openness of services and information systems will increasingly provide
easy access to transactions. The development of access is initiated by the
development of technology that will open new market shares.
f. Offering profitable products
If the product offered provides benefits and benefits, it will change and
attract consumers to buy a product offered.

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 g. Policy support from the government
In this case the government provides policies in supervision is important
to help advance the FINTECH industry and provide encouragement to
continue to develop. In Indonesia, the institution that is given the
authority to oversee FINTECH in financial institutions is the Financial
Services Authority.
2.2 SHARIA Financial Technology
Islamic FINTECH is developed using the principles of Islamic
economics. can be interpreted that the use of technology in the field of Islamic
financial services.There is no difference with the function of conventional
FINTECH andSHARIA FINTECH . Because, the two types are both want to
provide financial services. FINTECH (2017) the difference between the two is
the financing agreement which follows the rules of the Islamic. There are three
Sharia principles that must be possessed by this FINTECH that is not allowed
to maisir (bet), gharar (uncertainty) and riba (the amount of interest passes the
statute).
Although using the basic Sharia , basic references have also been made
by the National SHARIA Board related to the existence of this Islamic
financial technology. The basis is MUI No.67 / DSN-MUI / III / 2008 which
regulates what provisions must be followed by the latest financial technology
institutions in Indonesia. As of September 2018, there were only 4 Islamic
financial technology companies that were inaugurated by the Financial Services
Authority.
2.3 Financial Inclusive
In Presidential Regulation No. 82 of 2016 contains steps on inclusive
financial strategies. The strategy is a condition where every community has

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access to a variety of quality, smooth, timely and safe financial services. In
addition, affordable costs can be obtained according to your needs and abilities.
In Indonesia, community groups that are specialized in gaining financial
access include low-income people. Namely, such as migrant workers, women,
people with disabilities, neglected children, elderly residents of disadvantaged
areas as well as students, youth and SMEs. Financial inclusion is a situation
where there is a lack of people who have access to banking. Society tends to
own immovable property to be used and can be cashed everyday.
Financial inclusion is defined as an effort to reduce barriers in the form of
assets and non-assets in utilizing service facilities in terms of financial services.
Financial inclusion in this case is the condition of an individual or someone in
utilizing existing financial services and utilizing groups that are not yet aware
of the benefits of using financial access networks through existing access at low
costs.
In order to increase financial inclusion, the government supports online
loan products by financial institutions, both banks and other institutions
engaged in financial services, so that it is expected to reach the whole
community that cannot be reached by financial institutions.
2.4 Financial Literacy
According to Akmal & Saputra(2016)financial literacy is a set of
knowledge and skills that enables a person to make effective decisions with all
their financial resources.
After six years of development of financial literacy in accordance with the
OJK survey in the third National Financial Literacy Survey in 2019. From the
survey, OJK noted that the financial inclusion index exceeded 76.19 percent, or
up 8.39 percent from the previous 67,8 percent in 2016 also noted that the
financial literacy index also increased. According to the survey results, the

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financial literacy index reached 38.03 percent, up 8.33 percent from the position
in 2016 which reached 29.7 percent.
Member of the OJK Board of Commissioners for Education and
Consumer Protection TirtaSegara said the survey showed that during the last 3
years, there was an increase in financial literacy or understanding in the
community. And increasing public access to financial products and services or
financial inclusion.
Based on the description above, the writer formulates the problem as follows:
a. How is FINTECH 's role in increasing SME financial inclusion
b. What is the role of FINTECH in increasing SME financial literacy
Research Objectives:
a. To find out FINTECH 's role in increasing SME financial inclusion.
b. To find out the role of FINTECH in increasing SME financial literacy
2.5 Micro, Small and Medium Enterprises
a. Micro Enterprise
Understanding of micro business in Law Number 20 Year 2008
concerningSME Article 1 number 1 what is meant by Micro Business is
productive businessbelongs to individuals or individuals and / or business
entities that have individualsthe following criteria: have a maximum of
Rp.50,000,000.00 (fivetens of millions of rupiah) does not include land and
buildings for business premises, or ownsannual sales of Rp.300,000,000.00
(three hundred million rupiah).
b. Small Enterprise
While the criteria for small businesses are as follows: productive
economic venturesstand alone conducted by individuals business is not a
subsidiary or branch company owned, controlled,or be a part directly or
indirectly of a Medium Enterprises orLarge Enterprises that meet the following

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criteria: have a net worthmore than Rp.50,000,000.00 (fifty million rupiah) up
to the mostRp.500,000,000.00 (five hundred million rupiah) excluding land and
buildingsplace of business. Or have annual sales of more than Rp.
300,000,000.00 (threehundred million rupiah) up to a maximum of
Rp.2,500,000,000.00 (two billionfive hundred million)
c. Medium Enterprise
Preventive Business is a productive economic business that stands alone,
which is carried outby an individual or business entity that is not a subsidiaryor
a branch of a company that is owned, controlled, or is part of either directlyor
indirectly with Small Business or Large Business and business criteriamedium
is as follows: has a net worth of more thanRp.500,000,000.00 (five hundred
million rupiah) up to the mostRp.10,000,000,000.00 (ten billion rupiah)
excluding land and buildingsplace of business, or have annual sales results of
more than Rp. 2,500,000,000.00(two billion five hundred million rupiah) up to
the mostRp.50,000,000,000. 00 (fifty billion rupiah).
III. RESEARCH METHOD
This study uses Qualitative research methods are research methodsbased
on the philosophy of postpositivism, or interpretive paradigmand constructive,
which views social reality as somethingholistic or whole, complex, dynamic,
full of meaning and symptom relationsinteractive and used to examine the
condition of the objectnatural, not experimental, where the researcher as a key
instrument,data collection techniques carried out by triangulation
(combined),data analysis is inductive or qualitative and results of research are
moreemphasizing the meaning of generalization.
This research uses a qualitative method because the researcher
wantsfind out and analyze in depth about the role of SHARIAFINTECH in
increasing financial inclusion at SME in Indonesia.

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 Qualitative research are words, and actions, the rest are additional data
such as documents and others. In this study the data source was obtained from:
1. Primary data is data obtained directly from the object of research, in this
study the object of research is Micro, Small and Medium Enterprises in
Central Java.
2. Secondary data is data obtained in the form of ready-made data, this data is
obtained from related documents such as articles, books, and photos.
The data analysis technique used in this study is an interactive model.
Analysis using interactive model analysis is carried out through three
procedures, namely:
1. Data Reduction
It is a process of evaluating, focusing, paying attention and
simplifying, abstracting and transforming data that arise fromwritten notes
in the field. This analysis technique is needed for researchers todirect and
sharpen the analysis by classifying it and discarding what is not needed.

2. Data Presentation
The information is arranged and provides the possibility of drawing
conclusions and taking action. The form can be followed by an overview or
scheme of several tables that are designed to compile so that it can be
understood. This analysis technique is needed by researchers to make it
easier for researchers to see a general picture of what is happening or the
results of the data obtained during the study so that it can be determined
what should then be done by the researcher.
3. Draw Conclusions (Verification)
The data that has been collected and analyzed can be drawn
conclusions. Conclusions are drawn during the study. Data analysis

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 techniques by drawing conclusions this researcher will provide conclusions
from the results of data analysis that has been done and provide suggestions
as further recommendations for policies regarding the role of
SHARIAFINTECH in improving financial inclusion and financial literacy
in small and medium businesses.
The reason for choosing data analysis techniques using an interactive
model is because the model will facilitate researchers. The data that has
been obtained in the field will be selected first, after that it is presented in
the research report by providing analysis before the final step is to draw
conclusions.
IV. RESULTS AND DISCUSSION

4.1 The role of Sharia financial technology in increasing financial inclusion

in SME in Indonesia
In the current era of globalization, the role of Islamic financial technology
is developing rapidly, both for the Indonesian economy and financial
institutions, one of which is Islamic financial institutions in Islamic banking.
Indonesia is one of the countries with the fourth largest population in the world
with a total population of 271 million. Indonesia must independently.
Islamic banking as an intermediary financial institution operating based
on Sharia principles must be present to meet the needs of business actors.
These needs are not only in terms of capital provision, but also help in terms of
payment systems. In the current digital era, Islamic banks should not only carry
out conventional operations, which only rely on activities through branch
offices, which tend to be exclusive. Will be achieved, Islamic banks must
innovate in their business activities, one of which can be done is by
collaborating with FINTECH companies by making SHARIAFINTECH in
banking.
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 Presence of a number of SHARIA FINTECH companies also contributed
to the development of SME. Not only limitedhelping venture capital financing,
the role of SHARIA FINTECH has also expanded to various aspects such as
digital payment services and financial arrangements.
Here are some SHARIA FINTECHservices for SME:
1. Capital Loans
The SHARIA FINTECH company is here to provide capital loan services
with a simpler submission process compared to conventional financial
institutions such as banks without the need to submit guarantees and just
complete a few document requirements, this online loan service is an alternative
to conventional bank loans or other loan companies. Loans can be disbursed in
a relatively short period of time, less than a week.
2. Digital payment services
SHARIA FINTECH companies also provide digital payments that are
easier and safer for business people. With an easy payment process for secure
funds, this will be able to attract more consumers so that it provides benefits for
business people
3. Financial management services
There are several applications that offer financial management services.
This innovation aims to help SME in managing corporate finance. The services
provided include recording expenses, monitoring investment performance, and
financial consulting at no charge. There are several SHARIA
FINTECHcompanies that provide regulatory services.
Some of the SHARIA FINTECH services mentioned above, if they can
be applied to the operational system of SHARIA banks, it is easy for business
people to access products that areoffered Islamic banking. So that Islamic banks

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will be inclusive, meaning that all products offered can be accessed by business
people.
With the existence of Islamic FINTECH in Islamic banking, it will
increase users in communities in remote areas to feel the positive impact of
technological developments.Economic growth can be achieved when
productive resources can be utilized optimally and equally allocated. The goal
of economic development is to achieve the main goal of creating prosperity and
reducing inequality. In the process of developing the Indonesian economy, the
SME sector has a very strategic and important role.

4.2The role of SHARIA FINTECH in increasing SME financial literacy

In this study, researchers took random speakers in Central Java, especially
in the areas of Pekalongan and Pemalang and Batang, both located far from
Islamic banking services or close to Islamic banking.
1. Long time the SME was running a business
In this research, SME has been running for a long time, starting from
2010. In the beginning, many tried innovations for their products. SME players
try to find out what market tastes are suitable. Many in the beginning of the
SME did not run smoothly like customers because it was looking for a difficult
market. As time goes by, SME players innovate about their products and try to
find out the interests of the market or customers.
2. Knowledge of SME practitioners about SHARIA FINTECH
SHARIAFINTECH is increasingly developing, making SME actors must
be able to follow its development. SME actors must not only follow, but SME
players are expected to be more selective in choosing SHARIA FINTECH,
because many SHARIA FINTECH es have not been registered with the
Financial Services Authority. SME actors' knowledge of FINTECH SHARIA is
still limited, but they do not know much about the role of FINTECH , many
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SMEs know the role of FINTECH SHARIA only as payment. However, there
are those who already know what the role of FINTECH is and have many roles
not only as payment but can be as capital financing, financial regulator.
Financial arrangements as the role of SHARIA FINTECH have also begun to
be applied by SMEs to ease transactions.
3. Application of SHARIA FINTECH in SME
SHARIA FINTECH has been applied by SMEs in this study, although not
all of the roles of SHARIA FINTECH are used, but there is one role that has
been applied to its business. Some have applied as a payment instrument and
application for financial arrangements. The application of SHARIA FINTECH
to SME actors provides convenience and benefits

4.3 Constraints on the implementation of SHARIA FINTECH in increasing

financial inclusion and literacy in SME
1. Infrastructure
At this time a good IT infrastructure can only be felt by people in large
cities such as Jakarta, Surabaya, Bandung and so forth. While the internet
network has not been able to spread evenly into remote areas, this is one of the
biggest obstacles to the spread of SHARIA FINTECH.
2. Human Resources (HR)
The limited ability of rural communities to apply financial technology in
their areas, has spreadfinancial technology is hampered. This condition makes
the government. it is difficult to develop FINTECH in the area due to lack of
manpower that can support the sustainability of the modern economy.
Supplying human resources

4.4 The risk ofSHARIA FINTECH implementation increasing financial

inclusion and literacy in SME

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 Basically, financial technology provides a lot of convenience for the
community, but this facility contains various risks, one of which is the opening
of opportunities for cybercrime. The highly sophisticated cyber world makes it
easy for hackers to be able to track financial transactions, while security in
remote areas has not yet reached the perfect safe point.
However, currently there are no institutions that can handle the problem
of security devices in Indonesia. Placement of funds in financial technology
companies or peer to peer lending has a high risk. This can be seen from among
othersbad financing that is quickly creeping up.
Based on data from the Financial Services Authority, the ratio of bad
loans to SHARIA FINTECH companies was recorded at around 1.28% at the
end of January. Even though it is still small, the number has increased
significantly compared to the December position
Last 2019 which was only 0.99%. whereas, the distribution of SHARIA
FINTECH loans to the same period is growing. Still based on the records of the
Financial Services Authority, loans disbursed by SHARIA FINTECH reached
Rp.3 trillion. Significant increase from December 2017 around Rp. 2.5 trillion.
thus, FINTECH default loans, up 54% from around Rp. 2.5 billion to around
Rp.3.8 billion

V. CONCLUSION
SHARIA FINTECH comes from the term financial technology. SHARIA
FINTECH Global shows that SHARIA FINTECH is growing rapidly in
various sectors, from payment startups, lending, financial planning, retail
investment, crowdfunding, remittances, financial research, etc.Based on this
research, it can be concluded that the role of FINTECH in Micro, Small and
Medium Enterprises (SME) is as follows:
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 a. The role of SHARIA FINTECH in financial inclusion in SME in
Pekalongan, Batang and Pemalang districts. It can be seen that many
SME owners use the application and collaborate with banks and Savings
and Loans Cooperatives so as to provide easy access to various types of
bank and savings and loan cooperative financial services, now financial
institutions are able to reach all SME to remote areas, SHARIA
FINTECH has opened access to business financing that is easier and
faster than banking institutions and savings and loan cooperatives. And
finally SHARIA FINTECH's role in financial inclusion in SME is that
SHARIA FINTECH has greatly contributed to the empowerment of
SME and the local economy.
b. The role of SHARIA FINTECH in financial literacy in SME
Pekalongan, Batang and Pemalang districts. Can be seen from the
average increase in the use of banking products and services, savings
and loan cooperatives and other financial institutions by 6.40% from
before the development of SHARIA FINTECH.

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