ISO/ COPOLCO WORKSHOP

BMT (Baitulmaal wa Tamwil)

ISLAMIC MICRO FINANCIAL SERVICES
FOR THE POOR

Prepared by:

Ahmad Juwaini
Mursida Rambe
Nana Mintarti
Rury Febrianto

BALI – INDONESIA
MAY 26, 2010
 CONTENTS

1. Introduction
1.1 Microfinance and Poverty Alleviation
1.2 The basic principle of Islam and Islamic Microfinance
1.3 BMTs as Islamic Microfinance in Indonesia

2. Foundations of BMTs
2.1 The Key Factors of Successful BMTs
2.2 Shariah-Compliant Instrument of BMTs
2.2.1 Instruments for Mobilizing of Fund
2.2.2 Instruments of Financing
2.2.3 Instruments of Risk Management
2.3 The legal and regulatory context for BMTs

3. Challenges of BMTs

4. Case study of BMT Best Practice: BMT Bina Dhuafa Beringharjo, Yogyakarta
INTRODUCTION

Microfinance and Poverty Alleviation

Poverty is the biggest moral challenge of this century. More than three billion human beings in
this world live in abject poverty. Poverty levels have also been associated with high inequality
alongside low productivity. In Indonesia alone with world’s largest Muslim population, over half
of the national population - about 129 million people are poor or vulnerable to poverty with
incomes less than merely US$2 a day.

Microfinance (MF) is a powerful poverty alleviation tool. Microfinance initiative is acclaimed as a

new approach to poverty alleviation and to bring about development. Central to the challenge
of ending poverty is creating wealth through development of microenterprises. Microfinance is a
critical input in this wealthcreation process. It implies provision of financial services to poor and
low-income people whose low economic standing excludes them from formal financial systems.
The banks are not interested in financing microenterprises since the transaction cost per unit of
credit is high. Microfinance is a new concept in banking and has distinct characteristics.

Microfinance institutions provide to the entrepreneurial poor financial services that are tailored to
their needs and conditions. Access to services such as, credit, venture capital, savings,
insurance, remittance is provided on a micro-scale enabling participation of those with severely
limited financial means. The provision of financial services to the poor helps to increase
household income and economic security, build assets and reduce vulnerability; creates
demand for other goods and services (especially nutrition, education, and health care); and
stimulates local economies.

Good microfinance programs are characterized by small, usually short-term loans; streamlined,
simplified borrower and investment appraisal; quick disbursement of repeat loans after timely
repayment; and convenient location and timing of services.

The basic principle of Islam and Islamic Microfinance

The principles of Islamic finance are laid down in Islamic law, the sharia, ‫ةعيرش‬. Islamic
finance is based on the concept of a social order of brotherhood and solidarity. Islam
emphasizes ethical, moral, social, and religious factors to promote equality and fairness for the
good of society as a whole. Principles encouraging risk sharing, individual rights and duties,
property rights, and the sanctity of contracts are all part of the Islamic code underlying the
financial system.

There are a number of key Shari'a principles and prohibitions relevant to finance and
commercial transactions which distinguish Islamic finance from the conventional forms. The key
Shari'a principles which underpin Islamic finance, and have led to the creation of a separate
finance industry, are as follows: prohibition on usury and interest (riba), prohibition on realising
a gain from speculation (mayseer), no uncertainty (gharar) in commercial transactions, and, all
activity must be for permitted purposes (halal).

Most of the microfinance institutions (MFIs), however, have non-Islamic characteristics. Their
financing is interest-based. Interest (one form of riba) being prohibited in Islam. Islamic
microfinance offer micro-credit using a variety of Shariah-nominate mechanisms.
The Islamic approach to poverty alleviation is more inclusive than the conventional one. It
provides for the basic conditions of sustainable and successful microfinance, blending wealth
creation with empathy for the poorest of the poor. There are certain aspects of the Islamic
approach that need added emphasis. First, transparency through meticulous accounting and
proper documentation is a fundamental requirement of financial transactions in the Islamic
framework. Second, a common feature of successful microfinance experiments is group-based
financing and mutual guarantee within the group. This is a highly desirable feature of Islamic
societies. Mutual cooperation and solidarity is a norm central to Islamic ethics. Islamic
microfinance institutions (IMFIs) can retain the innovative format of operation of conventional
MFIs and orient the program towards Islamic principles and values.

BMT as Islamic Microfinance in Indonesia

Islamic microfinance institutions in Indonesia may be placed in three categories- the

microfinance divisions of Islamic banks, the Islamic rural banks (BPRS) a subcategory of the
rural banks (BPR); and the Islamic financial cooperatives that are not part of the formal financial
sector. They are generally referred to as Baitul Maal wal Tamwil (BMT). Islamic credit
cooperatives (Baitul Maal Wat Tamwil or BMT) are an emerging provider of micro-finance in
Indonesia.

BMTs are grass-roots developments programs supported by funds from Islamic community
members. Muslim economic activists are the main drivers of the BMT movement in Indonesia.
BMTs are often regarded as Islamic micro-financing institutions, with a similar legal basis to
cooperatives. BMTs usually operate on the principle of profit-loss sharing instead of charging
interest rates, and use Islamic moral values and group solidarity to encourage repayment of
loans. Group solidarity is fostered through regular meetings and counseling. BMTs sometimes
themselves also run retail businesses to support micro-finance schemes. In Indonesia, the BMT
movement has been developing without much support, systematic supervision or regulation
from the Indonesian government to date.

The majority of business activities in Indonesia are micro, small and medium enterprises. Their
ability to absorb labour means they have great potential to create employment and reduce
poverty. But microenterprises have limited access to financial institutions. Consequently,
microentreprises need other alternatives to access finance. Microenterprises prefer using BMTs
due to their convenience and faster loan approval. As a community financial institution, BMTs
offer microentreprises a wider range of services to support their growth such as
entrepreneurship training and social empowerment programs.

FOUNDATION OF BMT

The Key Factors of Successful BMT

Social entrepreneurship is an emergent subfield in entrepreneurship studies. It is ‘a process

involving the innovative use and combination of resources to pursue opportunities to catalyse
social change and/or address social needs’ (Mair and Marti 2006:37). The defining
characteristic of social enterprises is that they are driven by a sense of mission and social
values, not solely by maximising private gains (Certo and Miller 2008:267).
Most BMTs are run by social entrepreneurs with a strong commitment to establishing social
justice based on Islamic principles. Identifying BMTs as social enterprises is important for two
reasons. Firstly, social entrepreneurs and their ventures, are capable of finding effective
solutions to social problems, if public policy ‘recognises and deliberately harnesses’ their
potential (Dees 2007:29). The implication is that we need to be cautious about creating a more
rigid regulatory environment, as previously recommended. This is because BMTs have
developed as cooperatives, offering more flexible financing schemes than banks. Enforcing the
same regulatory rules to the financial services of the BMTs would therefore make BMTs’
services less attractive.

Secondly, identifying BMTs as a social venture will necessitate a new framework to evaluate
and identify the capacity-building needs of BMTs. This is because the operators of social
ventures gauge their success not solely by typical business growth measurements such as
profitability, employee numbers and asset size (Sharir and Lerner 2006). BMT operators are
strongly concerned with offering entrepreneurial skills, promoting Islamic values and much-
needed funds to a larger number of clients in a viable way (Sakai and Marijan, 2008).

In order to achieve this social justice objective, most BMTs offer three services (microfinancing,
zakat and social welfare programs, and business/entrepreneurial training) to their members and
the community. They are fundamentally social enterprises, distinctively different from business-
oriented ventures. The nature of BMTs, as not merely microfinance institutions, but also as
social institutions. Lack of promotion of BMTs’ services in general has hampered the growth of
BMTs. It has created the perception that BMTs are charity organisations. Such perceptions
have created problems for BMTs in ensuring repayment of loans.

Social capital is the foundation upon which the BMT industry is built. Success is highly
dependent on the quality of leadership and the ability of leaders to generate and direct social
capital. The research of Sakai and Marijan (2008) has found that the currently successful BMTs
still have their founders involved in their day to day operations. Leadership and commitment
significantly affect operational success as much as the presence of regulations.

BMT managers view Islamic values as important in improving human resources. Some of BMTs
run training programs for their employees on a regular basis. One of the training programs
emphasises self-discipline. In order to promote professional conduct among their employees,
values taken from the Qur’an are directly linked to operational activities. Employees are
constantly reminded that they have to be accountable in the eyes of God. The employees, as
such, not only work to earn a living but also take the work as part of their religious duty. This
acts as an incentive to work effectively and decreases the shirking behavior of the staff
members of BMT.

Shariah-Compliant Instrument of BMT

a. Basic rule
1) Prohibition of interest as riba. No contractual guarantee(s) on investment. No
taking profit from time value of money
2) Profit creation equivalent with counter-value (no risk no gain)
3) Elimination of uncertainties/ ambiguities (gharar) in contractual agreement
4) Prohibition of Gambling (maisir)

5) Committing to knowledgeable consent on the contrac

 6) Avoiding the production of prohibited commodities e.g. alcoholic beverages

7) Comply with Islamic Ethic e.g. equality, avoid bribery and robbery

Interest Profit Sharing

† Based on capital † Based on profit gained

† Fixed † Based on profit and Loss

† Rate setting when † Portion/nisbah is defined when

transaction is made with transaction is made with assuming
assuming profit profit and loss

† Bank interest is debatable † Profit & loss sharing is not disputable

by all religion

b. Instruments for Mobilizing of Fund

Instruments for mobilization of funds may be broadly divided into (1) charity that includes
zakah, sadaqah, awqaf; gifts that include hiba and tabarru; (2) deposits that may take the
form of wadiah, qard al-hasan and mudarabah and (3) equity that may take the form of
classical musharakah or the modern stocks.

While sadaqah, hiba and tabarru have parallels in conventional microfinance, such as,
donations or contributions, zakah and awqaf have a special place in the Islamic system and
are governed by elaborate fiqhi rules. Zakah is one of the five pillars of Islam and is meant
to finance the poorest of the poor. Awqaf creates and preserves long-term assets that
generate income flows or indirectly help the process of production and creation of wealth. By
targeting its benefits towards the poor, awqaf can play an important role in poverty
alleviation. Though there has been significant improvement in management of zakah and
awqaf in recent years, their role as vehicles of microfinance and poverty alleviation is grossly
underestimated. Their growing popularity evidenced through establishment of many a zakah
fund and awqaf fund is an indication of their vast potential in Muslim societies.

Deposits in the form of wadiah, qard al-hasan and mudarabah have their parallel in savings,
current and time deposits respectively and are a regular source of funds for Islamic
microfinance institutions. Wadiah deposits attract gifts to compare favorably with returns
available on interest-bearing deposits. Qard-based deposits do not provide any return and
in some cases, involve a charge. Mudarabah deposits are based on profit-loss sharing with
the depositor as rabb-al-mal and the microfinance institution as the mudarib.

Microfinance institutions also have the option of raising funds through participatory modes,
such as, musharakah or modern equity. Villagers buy shares and become owners of the
 program. Financing of course is made using the murabahah methodology and dividends are
distributed annually to the shareholders if profits are sufficient.

c. Instruments of Financing

Instruments of financing may be broadly divided into (1) participatory profitloss-sharing (PLS)
modes, such as, mudarabah and musharakah; (2) sale-based modes, such as, murabahah; (3)
lease-based modes or ijarah and (4) benevolent loans or qard with service charge.

Musharaka (partnership)
Musharaka involves investors injecting equity into a business venture and sharing any profits
and losses from that venture according to predetermined ratios. Each partner retains (though is
not obliged to exercise) management rights in the venture, must receive accounting and other
information on business activity, must authorise the raising of capital from any new partners and
may receive a salary in return for participating. This is not a popular structure, however, in the
context of microfinance as the thorough reporting and transparency requirements surrounding
the just distribution of any profit and loss can result in substantial operating burdens and costs
on small enterprises unaccustomed to formal accounting.

Mudaraba (trust financing)

Mudaraba involves an investor or investors providing funding for a business venture and a
manager with fiduciary responsibilities providing managerial or market specific expertise (and
sometimes additional funding). Investors retain ownership of the assets but have no
management rights. The investor(s) and the manager share any profits according to
predetermined ratios. The investor(s) share any losses according to their respective funding
contributions. As with the musharaka, however, this is not a popular structure in the context of
microfinance as the thorough reporting and transparency requirements surrounding the
just distribution of any profit and loss can result in substantial operating burdens and costs on
small enterprises unaccustomed to formal accounting.

Murabaha (cost-plus mark-up)

Murabaha involves a finance party purchasing tangible assets from a seller and selling them to
a buyer at a predetermined profit margin. In the context of trade finance, the buyer will settle the
marked-up purchase price by way of immediate lump sum payment. In the context of consumer
finance, the buyer will settle the marked-up purchase price by way of deferred instalments.
Using a tawarruq structure and an asset for which there is a highly liquid market, the buyer will
settle the marked-up purchase price by way of deferred instalments but will also appoint the
finance party as its agent to on-sell the assets on a spot basis andremit to the buyer the
proceeds of any such sale. Murabaha is the most popular and flexible Shari'a-compliant
structure and is used in microfinance initiatives. However, it is costly to implement and a
growing number of Shari'a scholars do not approve of it, especially in tawarruq structure, on the
basis that it is merely disguised lending where the participants have no interest in actually
acquiring the underlying commodities. This applies all the more in the context of providing
microfinance to start-ups and small companies whose businesses do not involve the sale and
purchase of commodities and which do not have sufficient surplus funds to be credibly investing
in commodities.

Ijara (sale and leaseback)

Ijara involves making available a known benefit arising from the use, possession and/or
occupation of a specified asset in return for a payment. In the context of consumer financing, a
finance party will purchase an asset from a client and lease it back to the client at a
predetermined rate at predetermined intervals over a predetermined period of time. The finance
party is responsible for maintaining and insuring the asset (though may engage another (often
the client) as its servicing agent) and the asset must exist for the duration of the lease. The
financier may grant the client a sale undertaking and the client grant the financier a purchase
undertaking, giving the client the option to purchase the lease assets for a pre-agreed residual
sum at the end of or during the lease. It is also possible to structure the lease so that the leased
asset is simply transferred to the client at the end of the lease.

Istisna (construction / manufacturing)

Istisna involves the construction or manufacture and deferred delivery of specified madeto-
order assets of predetermined quality and quantity in return for instalment or lump sum on
delivery payments. The manufacturer must procure his own goods but, unless those goods do
not conform with the contracted terms, the contract is irrevocable after the commencement of
manufacture.

Salam (future delivery)

Salam involves one party making an upfront payment to another party for the future delivery of
assets of predetermined quality and quantity. The contract is irrevocable after the payment of
the purchase price. Although not accepted in many jurisdictions, in a parallel salam structure,
the finance party will enter into a parallel but unrelated contract to on-sell the assets on delivery
at a profit. However, salam is costly to implement and, in the context of forward crop-financing in
agrarian societies, it covers little more than production costs and it is the financiers rather than
the clients that realize any potential gains at (post harvest-season and post asset-delivery)
market maturity.

Qard Hasan
Charitable loans free of interest and profit-sharing margins, repayment by installments. A
modest service charge is permissible.

Instrument Suitable Cost of Risk to Risk to Remarks

For Capital Borrower Institution
Mudarabah/ Fixed assets, Very high Low Very high Costs of loan administration and
Musharakah Working capital monitoring are high given the
(Declining form complexity of the repayment
suitable for schedule and lack of proper
housing accounting;
and equipment Perceived to be ideal but not
finance) popular in practice
Ijarah Fixed assets Moderate High Moderate Costs of loan administration and
monitoring are low given simple
repayment schedule allowing for
flexibility and customization based
on client preferences; Popular
among Islamic MFIs and potential
for easy adaptation by
conventional MFIs
Murabahah Fixed assets and Moderate High Moderate Costs of loan administration and
Working capital monitoring are low given simple
repayment schedule; multiplicity
of transactions in working capital
financing can push up costs;
Highly popular in practice
notwithstanding popular
perception of it being a close
 substitute of riba-based lending
Qard All-purpose Very low Very low Moderate Charity-based usually combined
with voluntarism; low overheads;
Popular because perceived to be
the purest form of financing
Salam Working capital High High High Back-to-back nature creates risk
of lack of double coincidence;
Untried
Istisna Fixed assets High High High Back-to-back nature creates risk
of lack of double coincidence;
Untried
Istijrar Working capital Moderate Moderate Moderate Ideal for micro repetitive
transactions; Complexity not
easily understood by parties;
hence not a popular mechanism

d. Instruments of Risk Management

Instruments of risk management and insurance in Islamic microfinance are based on the
concept of guarantee (kafalah) and collateral (daman). In case of financing individuals,
guarantee is used as an alternative to collateral and as a tool to manage the risk of default and
delinquency. Mutual guarantee (kafalah) is used by almost all microfinance institutions – both
conventional and Islamic.

A relatively smaller number of Islamic microfinance institutions require collateral in the form of
physical assets. For protection against unforeseen risks by borrowers/ members, micro
insurance would take the form of micro-takaful based on mutual guarantee. However, micro-
takaful products are yet to appear in the market place. In the absence of micro-takaful products,
real life projects seek to protect their members in a variety of ways that are informal and
perhaps inefficient.

The legal and regulatory context for BMTs

While Islamic banks and BPR Syariah are regulated by Banking Law and supervised by the
Bank of Indonesia, the regulations for the BMT sector involve a more complex arrangement as
described below:
• From an institutional perspective, the establishment of a BMT is based on a Letter of the
Minister of Home Affairs No 538/PKK/IV/1997 issued on 14 April 1997, concerning the Legal
Status of Syariah Financial Institutions (Status Badan Hukum untuk Lembaga Keuangan
Syariah).
• Norms for regulating membership of BMTs are regulated by Islamic Law under KUHD (Kitab
Undang-undang Hukum Dagang).
• Arrangements for initial capital funds and members’ savings are regulated by Law No 25
1992 on Cooperatives.
• The Baitul Maal (house of treasury) function is controlled by Law UU No 38/1999 on
Management of Zakat.

Due to this legal complexity, the micro-finance services of BMTs suffer from a lack of
supervision and reporting. In order to improve this situation, various options are under
discussion.
The Bank of Indonesia is keen to encourage BMTs to convert into banks (BPR Shariah). Under
the Banking Law, BMTs would need greater capital to operate, and this would likely precipitate
several mergers of BMTs. The Banking Law would also require modern management with
managers needing to pass an examination.

The Ministry of Cooperatives intends to accommodate BMTs under its jurisdiction as

cooperatives. For this, the Deputy Minister of Cooperatives and SMEs, Marsidi Rahardjo, has
proposed an amendment of Law No.25 1992 on Cooperatives to clearly incorporate BMTs
within the existing Law (Aziz 2008).
• The Department of Finance is considering special regulations for micro-financing services
which would apply to BMTs. This would mean BMTs were to be viewed in the same manner
as any other microfinance institution.
• The BMT sector itself is determined to seek a law on BMTs which reflects their multiple
functions as both microfinance and social institutions.

CHALLENGES OF BMTs

BMTs have displayed their sustainability and robustness in the face of grave financial crises
even when the mainstream banks had to depend on governmental assistance to tide over
serious financial problems. It should be noted that BMTs at the grassroots largely fall outside
the financial regulatory mechanism since they operate as member-based cooperative
organizations (similar to a musharakah structure) without governmental assistance or
intervention. These organizations have been found to be less vulnerable to systemic risks that
arise due to interdependence, as each BMT is an independently operating entity. As such, the
system poses a serious challenge to the regulator – how to strike a balance between the need
to strengthen the linkage between formal financial system and the BMTs while retaining the
benefits of flexibility and independence.

A significantly large number of microfinance institutions (especially in Indonesia) are organized

as cooperatives registered under the Cooperatives Act and come under the purview of the
Ministries of Cooperation and not the Ministries of Finance. Many are not registered at all and
operate in an informal manner, especially where they perceive additional hassles subsequent to
the registration.

Unlike mainstream Islamic bankers, many Islamic microfinance providers with multiple bottom-
lines are not comfortable with techniques like murabahah and ijarah (lease-purchase and
financial lease variety) and view them as interest-basedloan-substitutes. The Islamic alternative
to them is qard al-hasan – what attracts them is its benevolent nature. Use of qard al-hasan
where only the “actual” service charge is recovered from the beneficiary, does not allow the
portfolio of financings to grow while inflation is likely to erode their real value, seriously
threatening their long-term survival. Some suggestions like linking the loan amount to a physical
commodity have been made; but without much of a consensus.

Client perception towards qard al-hasan is no less worrisome. It is perceived to be “free” by

many borrowers even when Shariah clearly distinguishes between qard al-hasan and sadaqah.
There are still others who are aware of the difference and realize the need to repay the loan; but
assert that qard al-hasan in its “pure” form provides them with flexibility (right) in deciding when
to repay.
An important factor contributing to the lack of interest in microfinance is the absence of
institutional credit guarantee systems in most Muslim countries. The individual borrower
guarantee that is prevalent lifts the burden of loss of the business due to natural hazards, death
or disability of the borrower. Nevertheless, the “portfolio” guarantee approach, whereby the
guarantor covers whole or part of the default of the microfinance institution according to a
specific agreement, is non-existent.

Lack of liquidity and capital are among the perpetual problems confronting the Islamic
microfinance players. The absence of any real capital market activity by Islamic microfinance
providers may be due to various possible reasons, such as, the lack of awareness on the part of
microfinance providers and/or lack of conducive legal and economic environment. Rating
agencies that play an important role in raising of debt capital by providing indicators of default
risk are also conspicuous by their absence in the Islamic microfinance sector.

There is need and considerable scope for Islamic microfinance providers to develop new
products as solutions to a variety of financial problems. However, the right approach to product
development is a strategic one that takes a holistic view of microfinance as a composite product
meeting the needs for financing, savingsand-investment, insurance, remittance and other
services.

Mission: The BMTs mission to help the enterprising poor in the vicinity and to empower them
economically. Their particular target market are very small micro-entrepreneurs including
itinerant traders and food vendors (kaki-lima). The majority of BMT customers are urban-based
and provide services to both poor and non-poor households.

Legal status: According to Bank Indonesia, only about 500 of the 3,000 BMT are registered as
KSP (savings and credit cooperatives) with the MoC. All others are regarded as “pre-
cooperatives”. With reference to the draft MFI law of 2001, BMTs are as sharia/ Islamic MFIs,
which may be considered as semiformal institutions: recognized but not regulated.

Ownership: As cooperatives, BMTs are owned by their members. However, many BMT make a
distinction between members with voting rights and partnership members without.

Board and management: Board size and composition of BMT are not standardized.

Internal control is generally in the hands of a supervisory board, which either meets monthly or
on an ad hoc basis.

External auditing and supervision vary widely. BMTs which are registered as cooperatives with
the MoC, are required to send annual reports, formerly to the MoC as the official supervisor.
And now, under decentralization, to their respective provincial and district cooperative authority
(Dinas Koperasi). Their function is effectively limited to registration and the receipt of annual
reports. There are no auditing requirements; there is no effective supervision and no
enforcement of any norms; and to our knowledge no official closing of non-functioning
cooperatives.

BMT suffer from the same regulatory and supervisory neglect as the rest of the sector. After a
period of rapid growth during the 1990s, they are now in decline, with perhaps only one-fifth in
good health. In the absence of effective supervision, reliable data on both Islamic and
onventional cooperatives are missing.
The outreach of Islamic cooperatives is negligible, and their overall performance poor:
• There is a complete lack of regulation, supervision and reliable reporting
• Most are reported to be dormant or technically bankrupt
• Their outreach is negligible, accounting for 7.20% of all financial cooperatives, but less than
1% of the borrower outreach of the sector
• Their loan portfolio (much of it overdue) accounts for 1.10% of the financial cooperative
sector and 0.19% of the microfinance sector
• The savings of depositors are at great risk.

A comparison of Islamic and conventional financial cooperatives reveals that both have been
doing poorly:
• The whole cooperative sector has historically suffered from a complete lack of regulation
and supervision, paralleled by excessive government interference and subsidies which have
distorted rural financial markets and undermined self-help.
• The majority of Islamic cooperatives are reportedly dormant or technically bankrupt.
• Outreach and volume of services of Islamic cooperatives are negligible compared to
conventional cooperatives, which are also in a state of acute ill-health.
• The savings of depositors are at great risk; cooperatives should not be authorized to accept
savings of non-members.
• No remedy is in sight, except perhaps in the framework of a total overhaul of the cooperative
system, which in fact is now under serious discussion.

CASE STUDY of BMT BEST PRACTISE:

BMT Bina Dhuafa Beringharjo, Yogyakarta

BMT Beringharjo is an established BMT, catering for the micro-financing needs of urban traders
including the Beringharjo market. It has been operating since 1994 and in 2009 its assets
reached 31 billion rupiah. BMT comprises 4 words which are taken from Arabic. The meaning of
Baitul is ’house’ Maal is ’wealth’ Wa is 'and Tamwil is Management . So the meaning is a
house where the wealth of social and business interest is managed. Social interest is a certain
kind of corporate social responsibility, is a division that give empowering program to the poor, it
is said to be Dhuafa.

This BMT has continued to assist small and medium enterprises through its Baitul Tamwil
(literally a house of business), while their Baitul Maal (a house of treasury) offers various
empowerment programs.

Since 2006 BMT Beringharjo has been offering not only saving schemes, but also investment
schemes, particularly targeting overseas workers in Hong Kong (Beringharjo Investasi Shariah
or BISA). Through this scheme, overseas workers (who are mainly female housemaids from
East Java) can become investment partners and establish a new BMT in their hometown. This
scheme led to the establishment of new BMT Beringharjo branches in Ponogoro, Madiun,
Bandung and Kediri in 2008. BMT Beringharjo describes its services as ‘Not only providing
financial assistance and saving facilities’, but also entrepreneurial motivation and training
sessions for its members.
Basic Information of BMT Bina Dhuafa (BMT Beringharjo)

Location of Operation Yogyakarta, Ponorogo, Madiun, Bandung,

Kediri, Caruban, Semarang, Ngawi, Nganjuk
Year of Establishment 1994
Number of Beneficiaries 18,000
Total Outstanding (for fiscal year 2009) 22,8 milyard
Total Funding 22,4 milyard
Number of Employees 107 persons
Female Beneficiaries (% of total) 80%

Asset Structure of BMT Bina Dhuafa (BMT Beringharjo)

(in thousand)
Total (Rp) 31.115.062
Deposits with Bank (Rp) 3.218.790
(% of Total) 10.34%
Earning Asset (Rp) 629.753
(% of Total) 2.02%
Fixed Asset (Rp) 2.556.059
(% of Total) 8.21%
Cash (Rp) 799.234
(% of Total) 2.57%

Capital and Liability Structure of BMT Bina Dhuafa (BMT Beringharjo)

(in thousand)
Total (Rp) 31.115.062
Capital Fund (Rp) 22.466.304
(% of Total) 72.20%
Beneficiaries Accounts (Rp) 499.390
(% of Total) 1.60%
Net Borrowing (Rp) 5.675.635
(% of Total) 18.24%
Other Liability (Credit) (Rp) 25.159
(% of Total) 0.08%

Income and their Sources of BMT Bina Dhuafa (BMT Beringharjo)

(in thousand)
Total (Rp) 26.041.420
Deposits with Bank (Rp) 3.218.790
(% of Total) 12.36%
Musharakah (Rp) 16.162.015
(% of Total) 62.06%
Ijara (Rp) 5.833.477
(% of Total) 22.40%
Murabaha (Rp) 861.566
(% of Total) 3.31%
Characteristics of BMT Bina Dhuafa (BMT Beringharjo) Beneficiaries

Female (% of Total) 80%

Average Age of Beneficiary (years) 37 years
Literate (% of Total) 78%
Household Size (% of Total) 20%
Working Members (% of Total) 80%
Average Value of Assets (in Rp) 50.000.000

PERFORMANCE

Profitability and Viability of BMT Bina Dhuafa (BMT Beringharjo)

The viability of BMT Bina Dhuafa can be analyzed by examining its profitability and efficiency.
The following ratios to measure profitability and efficiency
1. Return on Assets (ROA) = (Net Income/ Assets)*100
2. Net Interest (Return) Margin (NIM) = [Total income from investment and interest-Total
borrowing Cost (interest payments)/ Total Assets]*100
3. Operating Costs as a Percentage of Loan Disbursed (OCL) = (Operating Costs/Loan
Disbursed)*100
4. Beneficiaries to Employee Ratio (BER) = Total Beneficiaries/Full-time Employees.

ROA is a measure of efficiency as it indicates how well the BMT’s assets (resources) are used
to generate income. NIM indicates the efficiency of the intermediation of funds from different
sources to users. Another measure of operating efficiency is the OCL. As BMTs advance small
size of loans/funds, this ratio will be larger than conventional banks. Among different BMTs,
however, if the field workers are efficient is covering a larger number of beneficiaries, this ratio
will be lower. BER is used to measure the efficiency of the employees in reaching the
beneficiaries. Note, however, that while a large number of beneficiaries may increase the
income per employee, it may also lead to lack of supervision and increase the default rate
affecting income adversely.

Income, Expenditure and Profit of BMT Bina Dhuafa (BMT Beringharjo)

(in thousand)
Total income (including Donations/grants) 5.632.410
(Rp)
Income from investment (Rp) 5.267.522
(% of Total) 93.52%
Income from Deposits (Rp) 190.596
(% of Total) 3.38%
Total Expenditures (Rp) 5.632.410
Borrowing Costs (Rp) 646.315
(% of Total) 11.47%
Operating Costs (Rp) 2.958.010
(% of Total) 52.51%
Total Profit (Rp) 629.753
Profitability and Efficiency of BMT Bina Dhuafa (BMT Beringharjo)

Return on Assets (ROA) 2.21%

Return on Equity (ROE) 37%
Overhead Cost (OHC) 1.28%
Cost of Fund (COF) 0.57%
Efficiency 93.21%