FINANCING SMALL AND MEDIUM-SIZED ENTERPRISES IN UZBEKISTAN AND INDONESIA: CHALLENGES OF CONVENTIONAL LENDING AND THE POTENTIAL OF THE ISLAMIC PARTNERSHIP (MUSHARAKAH) MODEL

Abstract

Small and medium-sized enterprises (SMEs/MSMEs) play an important role in the economies of both Uzbekistan
and Indonesia; however, they still face difficulties in accessing credit. This article examines the potential of the Islamic
partnership model of Musharakah as a development-oriented alternative to conventional lending. The study employs a
comparative descriptive design based on secondary data and contemporary literature published between 2020 and 2025.
Official statistics, World Bank materials, OECD reports, and publications of the Otoritas Jasa Keuangan (OJK) are used
to compare the economic significance of SMEs, the nature of conventional credit constraints, and institutional readiness
for profit-sharing finance. The findings show that SMEs are economically important in both countries, while conventional
lending is still shaped by collateral requirements, fixed repayment obligations, information asymmetry, and high screening
costs.
Indonesia provides stronger operational evidence for Musharakah, as its sharia banking system is already scaled,
standardized, and supervised. Uzbekistan has significant potential in this area, but further improvement is needed in
legislation, product standards, tax neutrality, accounting practices, and mechanisms for testing new financial models.
The article argues that Musharakah should not be viewed as a simple replacement for bank loans. Rather, it should be
considered a complementary financing mechanism for viable but collateral-constrained SMEs, particularly in productive
sectors where partnership-based monitoring can create value for both parties.