1 Empirical Role of Islamic Cooperatives in Financing Micro and Small Scale Entrepreneurs in Indonesia: Case Study of KOSPIN Jasa Syariah Pekalongan Irfan Syauqi Beik 1 Indah Purnamasari 2 One of the major problems faced by micro and small scale entrepreneurs (MSE) is lack of financial access. The presence of Islamic microfinancing institution (IMI) is extremely important. IMI offers simpler administrative and requirement procedures as compared to the commercial banks. One of the IMIs that exist in Indonesia is Islamic cooperatives. This paper attempts to observe empirical role of Islamic cooperatives in the country by taking a case study of Kospin Jasa Syariah in Pekalongan city, Central Java. It is the biggest Islamic cooperative based on the assessment of Ministry of Cooperatives and Small and Medium Scale Enterprises. The study aims at analyzing effectiveness level of financing given to the MSI and factors affecting the financing amount taken by these MSE. A survey on 100 micro and small scale entrepreneurs was conducted on February, 2011. Likert scale and path analysis were employed as analytical tools. The study found that financing procedures and financing impact on the entrepreneurs were effective. Administrative cost and education level are also found to be the most significant factors affecting financing amount proposed by the MSE. On the other hand, the study concluded that business income, profit earned and household consumption, had significant impact on post-financing income level of the MSE. In general, Kospin Jasa Syariah was empirically proven to be able to increase income level of the MSE. Keywords: Islamic cooperatives, Islamic financing, path analysis I. INTRODUCTION The role of micro, small and medium scale enterprises (MSME) in Indonesia’s economy is undeniably important. This can be observed from economic contribution of MSME towards Indonesia’s GDP and absorption of labor force. As has been depicted in the Table 1 below, the number of MSME operating in the country reaches 52.76 million units in the year 2009, or equals 99.99 percent of total business unit. They are able to contribute 56.53 percent to the total GDP, although their export is less than one-fifth of the total non oil and gas export (Central Board of Statistic, 2010). In terms of labor force, majority of them are working in MSME. MSME can absorb 96.2 million workers, which equals 97.30 percent of the total national work force. These facts indicate that the presence of MSME is highly influential in the country’s economic development. 1 Head of Islamic Economics Program, Department of Economics, Executive Secretary, Centre for Islamic Business and Economic Studies Bogor Agricultural University, Indonesia, Email: qibeiktop@yahoo.com 2 Researcher, Centre for Islamic Business and Economic Studies, Bogor Agricultural University, Indonesia, Email: queenpink.black@gmail.com