Malik Abdul Jabbar Zen, Ade Irma Diana & Khoirul Zadid Taqwa

ISBN 978-967-394-230-5 [PROCEEDINGS OF IDMAC2015]

9th ISDEV International Islamic Development Management Conference

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SUPPLY CHAIN MANAGEMENT BASED ON ISLAMIC MICROFINANCE

FOR SUSTAINABLE FEEDING

Malik Abdul Jabbar Zen1, Ade Irma Diana

2, Khoirul Zadid Taqwa

3

1 Veterinary Medicine Faculty, Airlangga University

Mulyorejo, Surabaya 60111, phone (031) 5992785 2 Veterinary Medicine Faculty, Airlangga University

Mulyorejo, Surabaya 60111, phone (031) 5992785 3 Business and Economics Faculty, Airlangga University

Airlangga, Surabaya 60111, phone 1 [email protected] 2 [email protected]

3 [email protected]

Abstract

Sugarcane is one of the strategic agricultural commodities which provide many on

farm and off farm side products. In 2014, sugarcane plantation area in Indonesia

reaches 477.881 hectares, increasing about 1,84% over the previous year. That

number is expected to continue to increase with the passage of the national sugar

self-supporting program. Sugarcane byproducts that have not been utilized is dried

sugarcane leaves, reached 30,8 tonnes/hectare. In the other side, the growth of cattle

farms in Indonesia reached 15.494.290 cows. The problem is that scarcity of

fertilizers and the availability of feed in dry season. From the problem, we need for a

guarantor system availability of feed to prevent losses for farmers based on

integrated cooperation. Islamic insurance is an insurance business based on the

principle of helping (ta'awuni) and protecting (takafuli) each other among the

participants through the creation of a collecting of funds (Tabarru' funds) that are

managed according to Islamic principles to deal with spesific risks. Data collection

method in this paper through literature studies using secondary data. The steps in the

process is done as a foundation for developing the basic idea in providing solutions

to problems that are formulated, included formulated themes and problems,

collecting data method, analysis, conclusions and recommendations. Data analysis

techniques using inductive analysis conceptual. Therefore this concept shows the

supply chain management for sustainable feeding integrated with Islamic sugarcane

plantation microfinance institutions (IFI's) has high chance to develop in Indonesia

supported by public sector, private sector and third sector.

Keywords: Islamic Insurance, Dried Sugarcane Leaves, Cooperation, Cattle faeces



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INTRODUCTION

Indonesia is agricultural state which has many variations of agricultural products.

Sugarcane (Saccharum officinarum L.) is one of the strategic agriculture

commodities which provide many on farm and off farm products. Based on Angka

Sementara (ASEM) 2011 from General Directorate of Plantations, sugarcane

plantation area in Indonesia increased between 2000-2011 (Picture 1). Perkebunan

Rakyat (PR), dominated most of the sugarcane plantation areas, followed by

Perkebunan Besar Swasta (PBS) and Perkebunan Besar Negara (PBN). In 2011, the

wide of sugarcane plantation areas in Indonesia up to 457.615 hectares or increasing

0,77% than the previous year (Data center and Agriculture Information, 2013). With

the government’s program, sugar self-sufficiency 2014, one of the effects is

sugarcane plantation areas become wider. So, the side product from sugarcane

plantation will be increased. The side products are the dried sugarcane leaves,

bagasses and molasses. If this side products do not recycle well it can be polluted to

the environment.

Cattles is one of the livestock. As a livestock animal, cattle divided into two types,

beef cattle and dairy cattle. Cattle are herbivores, they have mastication behavior.

Mastication behavior is the behavior that ruminants do to chew the feed again after

the feed turn on to the rumen, from the rumen, the feed will be back to the mouth to

doing mastication behavior. This behavior caused by cattle’s feed contains high crude

fiber so to break the components of crude fiber, they doing mastication behavior.

Figure 1: Graphic for Sugarcane Areas

Source: Data Center and Agricultural Information 2013

The prominent cow’s feeding is forages, bye products of agriculture, legumes and

concentrates. The productivity of cattle depend on feed which given to them, so

feeding must attended to quality, quantity and availability. Forages usually consist of

grass and bush. On the rainy season, the availability of feed will be abundant, but in

dry season the availability will be limited. If we save it in dry conditions, the forages

can be used in dry season (Kuswandi et al, 1990). When the harvest time, the dried

sugarcane leaves will be overflow, so we need to cultivate that by make a silages

with fermentations process. Fermentation process can increase proteins, palatable



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and saving time. In the other hand, if we make fermentation’s feed, we can use

probiotic microbiology to increasing palatable and to repair cattle’s gastric intestine

system (Rusdi, 1992).

With the availability of agricultural potential areas, it is good enough to develop as a

cattle’s farm. There are many positive effects for the people, it can be a business

opportunity to the people and increasing the income for the surrounding people who

lived there. So, we need a systems which has mutualism symbiosis between

sugarcane’s farmer and cattle’s farmer to recycle any bye products from sugarcane’s

farm and guarantee for the availability of cattle’s feeding in dry season. . “Supply

Chain Management Based on Islamic Microfinance for Sustainable Feeding” is a

solution that can be options to face the problem above. Animal feeding insurance

based on Islamic Microfinance which given to the member as a claim if they doing

premium payments. If they doing premium payments cattle’s faeces they will get

dried sugarcane leaves fermentation as animal feed. It can applied as a new

innovation to reach the sustainability animal feed in Indonesia.

SUPPLY CHAIN AND SUPPLY CHAIN MANAGEMENT

Supply chain and supply chain management have played a significant role in

corporate efficiency and have attracted the attention of numerous academicians over

the last few years. Connecting and informing. Connecting and informing on Supply

Chain, Supply Chain Management and distribution Management characteristics have

contributed to the Supply Chain integration. This integration has generated the

approach of extended corporate and the supply chain is nowadays manifested as the

cooperative supply chain across intercorporate borders to increase the value across of

the whole supply chain

Ayers,J. B.(2001) defines Supply Chain as life cycle processes involving physical

goods, information, and financial flows whose objective is to satisfy end consumer

requisites with goods and services from diverse, connected suppliers. Mentzer, J.,

Witt, W. D., Keebler, J., Min, S., Nix, N., Smith, D. & Zacharia, Z.(2001) defines

Supply Chain as a set of entities (eg. organizations or individuals) directly involved

in the supply and distribution flows of goods, services, finances, and information

from a source to a destination (customer).

According to Grant, D., Lambert, D., Stock, J. and Ellram, L. (2006), Supply Chain

management refers to corporate business processes integration from end users

through suppliers that provides information ,goods, and services that add value for

customers.. The Supply Chain Management Professionals’ Council (2009) asserts

that Supply Chain management (SCM) includes the designing and management of all

activities involved in sourcing and purchasing, transformation, and all logistics

management activities. Principally, it also includes coordination and partnership with

network partners, which can be suppliers, mediators, third party service providers

and customers. Fundamentally, Supply Chain management (SCM) coordinates

supply and demand management within and across corporate

Actually the theoretical framework of SCM is large. Yet, it is still about how to

manage goods, services, or information in order to have added value. Therefore the



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crisis of feed for cattle can be solved by the Supply Chain Management Model

integrated with Islamic Insurance (Takaful) based on Islamic Microfinance (Baitul

Mal Wattamwil).

ISLAMIC INSURANCE (TAKAFUL)

According to ushl fiqh, the original legal position on any matter is halal until there is

evidence prohibiting it. Cooperative insurance should thus be allowed since it is

intended for a good cause and cannot be declared unlawful based on a mere

presumption – that is, without any specific injunction in the Qur’an. The academy

further elaborated that the Shariah permits shareholding of capital, as Islam

encourages movements of capital for the benefit of society as a whole. The Qur’an

states that all resources must be put to optimum use, that all men are equal partners

and must receive fair benefits from the use, and that everyone must help others who

suffer from a misfortune. Insurance mechanisms founded on the basis of charity and

cooperation is thus a means to bring equality to the participants of the mechanisms,

as they alleviate the losses of the unfortunate through the pooling of member

contributions.

According to Indonesian Halal Council Fatwa’s,(DSN-MUI) 21/DSN-MUI/X/2001

Islamic Insurance (Ta’min, Takaful, or Tadhamum) is a medium to help each other

between personal or party by investment in asset or tabarru’ which provide a return

scheme to face a particular risk by Islamic Contract (akad).

The word, takaful, originates from the Arabic word al-kafala, meaning “joint

benefit” or “shared responsibility.” To confirm to the Shariah, tahakaful insurance

must be policyholder-oriented, not shareholder-oriented. The contract must be of

certainty; that is, the lenghth of the policy period is finite, and the amount of

exchange. The contract must possess not only an element of mutual cooperation

(shared responsibilities) among participants in dealing with losses but also an

element of sharing investment income between the insurer and its policyholders

according to a predetermined ratio (Kwon: 2007).

According to Kwon (2007) Takaful operations in the primary insurance market can

be broadly classified into one of the three models: a mudharabah model, a wakala

model and a hybrid model. This paper will purpose mudharabah model without

using money. The scheme will be explained below.

ISLAMIC MICROFINANCE

Since inception, Islamic seen as an important phenomenon in the process of

development, especially in the context of globalization and liberalization whereby

subsidy and grant based programs/schemes are losing their importance. Islamic

microfinance sector is seen as the best option based on saving mobilization of the

poor people and its linkage with income generating activities. The goal of Islamic

microfinance is to target the poorest who worked in the informal sector of the

economy. The marginal farmers, labors who sell locally grown foodstuffs; make

brooms, tailoring in their little shops, etc. are coming under the jurisdiction of

informal sector. Historically, these workers in the informal sector have been excluded



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from formal banking due to several possible factors. First they lack of the literacy

and necessary connections to get loans. Second, such tiny loans is seen as financially

unsustainable due to the high transaction costs that the bank has to face. In order to

meet those costs, many conventional bankers believed that interest rates would have

to be high. Third, workers in the informal sector were perceived as having credit

risks because they do not possess physical collateral

According to Hassan (2014), in holistic perspective, Islamic microfinance is a

process of social intermediation and building social capital. Process of social

intermediation is an investment that is made for development of both human

resources and institutional capital to make marginalized groups to be self-reliant in

preparing them to engage in formal financial intermediation. According to Elaine and

Barton (1998), social intermediation is a financial intermediation with a capacity

building component, aimed at those sectors of society that lack access to savings and

borrowing facilities. It can be understood by transformation of beneficiaries into

clients or customers and creation of local institutions that bridge the gap between the

formal financial institutions and marginalized groups Islamic Microfinance which

included Islamic Insurance makes this institution can develop the village in Malang,

Indonesia. Islamic insurance ensures the cattle feed. Islamic microfinance gives

added value in cattle product.

PRODUCTION PROCESS FEED FERMENTATION AND ORGANIC

FERTILIZERS

"And verily in cattle that are important lesson for you. We give you to

drink of milk in his stomach, and (also) on the animal there are many

benefits for you, and some of it you eat". (al- Mukminun, 23:21)

Waste dry sugarcane leaves can be used as ruminant feed quality. According

Pangestu (2003), there are some advantages if sugarcane waste into a source of

choice for the development of ruminant feed, which is tolerant of summer, resistant

to pests and diseases, as well as readily available during the dry season when other

forage is not available. But, dried sugarcane leaves also has the disadvantage of low

levels of protein and dry matter digestibility. So it is necessary to find a solution

efforts, among adding concentrate feed source of protein, energy, vitamins, minerals.

Because the material is damaged, it should be done one way preservation wafer

formation (Trisyulianti et al, 2003).

According to Setiawan (2011), dried sugar cane leaves are used as a wafer, has a

texture that is not too dense. According to Setiawan (2011) also, the content of

nutrients present in the dry sugarcane leaves wafer better and in accordance with the

standard nutritional needs of ruminant feed compared with the cane shoots wafer,

wafer elephant grass and concentrate. In terms of nutritional content, the results

obtained through the proximate analysis are as follows on table 1.

Nutrient Content Percentage (%)

Water Content 13,21

Crude Protein 10,45

Crude fat 4,31



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Crude fiber 19,93

Ash 12,97

Carbohydrate 59,06

Table 1: The Nutrient Contents of Dried Sugarcane Leaves

MECHANISM OF FEED INSURANCE

With the animal feed and fertilizer insurance program based on Islamic

microfinance, it need to get some facilities from various parties, in order to develop

their business and it can be a scale favorable economic, such as strategic planning,

strengthening liquidity and capital development partnership network. Feeding and

fertilizer insurance program based on Islamic microfinance also must have raw

workflow activities, such as follows on picture 2.

Prospective customers are cattle breeders. They must register as a customer in order

to get this insurance facilities. After registering with tabarru’ in their insurance

agreement is also required to pay premiums regularly. The premiums of the

participants, in the form of a premium cow dung is converted into monetary value.

Which then converted again in the form of food preservation The management

(insurance) is also working with sugarcane farmers, to utilize sugarcane leaves, with

organic fertilizer barter system in accordance with the contract agreement. The

manager doing the processing premium in the form of livestock dung into organic

fertilizer and do the processing of dry sugarcane leaves into organic fertilizer Further

preservation of feed, is paid to sugarcane farmers with organic fertilizer accounts

system.

Feed preservation processing results stored in the warehouse, to wait for a claim, if

there is no claim that the preservation of the feed will be sold, the results will be

shared with insurance. The system is an implementation system tafakul and

mudharabah so avoid gharar and gambling. Profits from the business management is

divided according to the principle of mudaraba biodiesel as example 30 percent for

cooperatives and 70 percent to the insurance fund further development.



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Figure 2: Process System

Source : Author doc, 2014

Claim process

1. Members

Members must completes the clompleteness of the submission of claims. At

the time of filing a claim, the member is required to complete the files of

claim, accordance with act 14 about supporting documents of claim in the

Standard Polis (General Taqaful : 9). The member give this documents to

Claim department to processed.

Members consist of cattle’s farmer; they must pay the premium in this case,

the cattle dung. Members can filed a claim to obtain cattle feed.

2. Claim Department

i. Receive and check documents that had been furnished by the

members, if documents incomplete or does not correct it will be

returned to the members to be completed.

ii. If the documents are correct, so it will do survey to any losses from

the members

iii. Next, they doing some verification members claim documents,

whether the claim is worth paying or not. Members claim document

are: claim document, in force polis, events still under contract, loss

event is not in the exclusion policy.

iv. They doing data input

v. They establish estimates of the number of claims

vi. They make claims payment

3. Payment of Takaful Department

i. Received payment voucher, and they send the feed soon, no more than

5 hours after they receive payment voucher

ii. Send the feed regularly until suitable with the claim estimation total.

4. Inspection Department

i. Monitoring and inspection to the passage of the distribution of claims

to members

ii. They check the health of cattle and feed conditions

To realize Feed and Fertilizers insurance based on Islamic microfinance, required the

cooperation and active participation by various parties as follows:

1. Investor and government, local or foreign investors that play a role in the process

of initial funding, monitor progress and adjust the regulation as Islamic bank and

sharia insurance.

2. Research institutions, if make the fermentations of feed and fertilizers it is

necessary to facilitate the guidance of research institutions in order to meet

processing standards.



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3. Agriculture and livestock experts, serves as extension workers and supervisors in

the field, the role of agriculture and animal husbandry experts it is in need to

assist in conducting the assessment process claims.

4. The farmer has a dual role as a member and the cooperative management, and as

participants. The farmer has a strategic role in the animal feed and fertilizer

insurance program, since farmers were targeted establishment of cooperative.

Figure 3: Member’s claim process

Source: Author doc. 2014

FINANCIAL SIMULATION IN MALANG REGION

Type Volumes Totals

Sugarcane Leaves 30.8 ton / Hectares / Year

X 36.999 Hectares

1.139.569,2 Tonnes / Year

Cattle’s faeces 20 kg / tails / days X

240.117 tails X 365 days

1.752.854 Tonnes / Year

Table 2: Potential in Malang Region


Type Volumes Totals

Cattle’s feed 10 kg / day X 240.117

tails

2.401.170 kg / day

or 876.427.050 kg/year

Organic Fertilizers 2000 kg / HA X 36.999

HA

73.998.000 kg / Year

Table 3: The needed in Malang Region


Type Price

Sugarcane leaves Rp 100,00 / kg

Cattle’s Fertilizers Rp 200,00 / kg

Cattle’s feed Rp 800,00 / kg

Start

Claims submission of complete files

1

Receive and File Checking

2

Conducting surveys2

Verification2

Determine Estimated Total

Claims

Feed delivery3

Monitoring4

End



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Organic Fertilizers Rp 1300,00 / kg

Table 4: Monetarization value


To see the larger potential production than the needed for insurance, so there

wouldn’t be a deficit or a default insurance manager. The price of animal feed and

organic fertilizers insurance that can compete with the rest of the market price makes

the customer demand as well as sugarcane farmers make the cooperative in selling

insurance products so that they can finance all the needs of fertilizer and feed

processing operations also insurance operations.

THE MECHANISM OF FEED INSURANCE PAYMENT AND

MICROFINANCE ALSO PROFIT SHARING

Figure 4: The flow of payment with agreement

Source: author doc.

Figure 5: The Concept of animal feed insurance

Source : author doc.

Animal feed and microfinance insurance have a fairly large set-up costs to support

this concept. Agreement can be done for the establishment of feed and microfinance

insurance is mudharabah muqayyadah. The investor, invested as capital to establish

insurance, microfinance and the existing system in it. Therefore future profit sharing

on sales profit animal feed and organic fertilizer by the cooperative will be shared

with investors.

Microfinance

Feed Insurance

Microfinance members



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A big opportunity to develop animal feed and this microfinance is including through

increasing the capital with cheap capital. The only cheap capital is through ZISWAF.

Through a system of voluntary withdrawl ZISWAF from members and insurance

partners will get a large capital.

When the cooperative is already running, then the financing of the cooperative

efforts can be carried out by members of the cooperative with the agreement wadiah

yad dhammah. Through this agreement, the cooperative also has additional capital to

improve its performance, also the members and investors get any benefits from the

cooperative with a predetermined contract profit.

ACKNOWLEDGEMENT

The first acknowledgment is for God Almighty. Then to our parents, DVM,

respondents of E-Vet Smart Rapid System, and all those who cannot be mentioned

one by one. Hopefully, this work can be beneficial for the society

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Hassanudin.

Economy & Finance

Malik Abdul Jabbar Zen, Ade Irma Diana & Khoirul Zadid Taqwa