Implementation of the Micro-Scale Profit-Sharing Principle: Ethnography of Islamic Arisan and Farmer Group Financing in Rural Java

Abstract

This ethnographic study examines the implementation of the profit-sharing principle at the micro level in two traditional financial schemes in rural Java: Islamic arisan (social savings) and musharaka-based farmer group financing. The issues raised relate to the difficulties formal Islamic microfinance institutions face in implementing profit-sharing contracts, while informal community financial practices have successfully implemented this principle for generations but have been under-researched. The methods used include participant observation over twelve months (July 2024–June 2025) in Taji Village, Karas District, Magetan Regency, East Java, semi-structured interviews with sixty-eight informants, observations of forty-eight arisan meetings and twenty-two cooperative farming activities, and analysis of group financial documents. Data were analyzed through thematic coding and re-verified through member checking and validation based on Islamic jurisprudence (fiqh muamalah). The results show that Islamic arisan applies a one-to-one ratio based on qardh hasan with a selapan cycle and open accountability rituals, while the farmer group uses a double musharakah model, namely a fifty percent profit sharing when the farmer only provides labor and seventy-thirty percent when the landowner also bears input costs. The community murāqabah mechanism through social sanctions and deliberation decisions effectively replaces written contracts. Both schemes recorded a zero percent arrears rate, a thirty-two percent increase in average income for arisan participants, and a forty-five percent decrease in irrigation conflicts. The novelty of the study lies in the conceptualization of community murāqabah as an informal monitoring mechanism and the integration of Javanese mutual cooperation values with sharia principles. The practical implications emphasize the need to formalize traditional mechanisms as wadiah yad dhamanah products in Baitul Maal wa Tamwil to expand sharia microfinance inclusion.