Supply Chain Management Based on Islamic Microfinance for Sustainable Feeding

1. ISBN 978-967-394-230-5 [PROCEEDINGS OF IDMAC2015]
9th ISDEV International Islamic Development Management Conference
(IDMAC2015)
654
SUPPLY CHAIN MANAGEMENT BASED ON ISLAMIC MICROFINANCE
FOR SUSTAINABLE FEEDING
Malik Abdul Jabbar Zen1
, Ade Irma Diana2
, Khoirul Zadid Taqwa3
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
malik.abdul-13@fkh.unair.ac.id
2
ade.irma-13@fkh.unair.ac.id
3
khoirul.zadid-12@feb.unair.ac.id
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

2. ISBN 978-967-394-230-5 [PROCEEDINGS OF IDMAC2015]
9th ISDEV International Islamic Development Management Conference
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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

3. ISBN 978-967-394-230-5 [PROCEEDINGS OF IDMAC2015]
9th ISDEV International Islamic Development Management Conference
(IDMAC2015)
656
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

4. ISBN 978-967-394-230-5 [PROCEEDINGS OF IDMAC2015]
9th ISDEV International Islamic Development Management Conference
(IDMAC2015)
657
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

5. ISBN 978-967-394-230-5 [PROCEEDINGS OF IDMAC2015]
9th ISDEV International Islamic Development Management Conference
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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.

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

8. ISBN 978-967-394-230-5 [PROCEEDINGS OF IDMAC2015]
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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
Source: Author doc. 2014
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
Source: Author doc. 2014
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 files1
Receive and File
Checking2
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
Source: Author doc. 2014
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.