BAITUL MAAL WA TAMWIL (BMT) AL FALAH

SUMBER, CIREBON

Author:

Herika Rainathami, S.Sos., M.Si.

Module IV.

Integrated Microfinance Management for Sustained Poverty Reduction

INTEGRATED MICROFINANCE MANAGEMENT

UNIVERSITAS PADJADJARAN

2011

BAITUL MAAL WA TAMWIL (BMT) AL FALAH

SUMBER, CIREBON

By Herika Rainathami

1. INTRODUCTION

As originally visualize, microfinance is the condition of tiny loans to

poor individuals who establish or expand a simple income-generating

activity, thereby supposedly facilitating their breaking out from

poverty. It is believe that microfinance has been essential to the fate

of the poor in many developing countries, creating jobs and raising

incomes in the poorest communities, helping to empower the poor,

and generally starting a bottom-up economic and social development

process.

When Muhammad Yunus started making small loans to local

villagers in the 1970s, it was doubtful where the idea would go.

Around the world, many state-run banks had already tried to provide

loans to poor households, and they left a legacy of inefficiency,

corruption, and millions of dollars of worthless subsidies. Economic

theory also provided plenty warnings against lending to low-income

households that lack of collateral to secure their loans. But Yunus

vowed to one day make profits—and he argued that his poor clients

would pay back the loans reliably.

Today, Muhammad Yunus is recognized as a visionary in a

movement that has spread globally, claiming over 65 million

customers at the end of 2002 (Armendáriz de Aghion, 2008). The

clients are served by microfinance institutions that are providing

small loans without collateral, collecting deposits, and selling

insurance. Most surprisingly the customers are those who had been

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written off by commercial banks as being unprofitable. Many beliefs

and see the changes as a revolution in thinking about poverty

reduction and social change, and not just a banking movement.

Islamic economy also participated in developing the economy in

order to support the business. One of the Islamic financial institution

that continues to grow in accordance with economic development

and population is the Baitul Maal Wattamwil (BMT).

“Baitul Maal Wa tamwil (BMT)" is a small finance institution which

operates using a mix concepts of “Baitul Maal” and “Baitul Tamwil”

with the targets, aims and scale on small business sector. The term

“Baitul Maal" originally means House of Money and “Baitul

Tamwil” means House of Expense or Islamic Bank. The term “Baitul

Tamwil” has a strong root from Islamic movement since 1940.

The main purposes of BMT is to ensure that the money are being

used accordingly to its productivity not by time constraint as

common bank usually operate. If we borrow money from banks, the

interest are set by the banks and calculated by time constraint. If we

borrow money from BMT, there will be no interest. Instead, BMT

will calculate the productivity of the money borrowed and then make

agreement to share the profit.

Islamic Economics is the economic concept that originates in the

Quran and sunnah (hadith). The main features of Islamic Economic

transaction is to avoid or delete these practices:

1. Maisyir

2. Gharar

3. Risywah

4. Riba

- Gambling

- Speculative

- Bribe

- Interest

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2. FOUR CRITICAL CHALLENGES

We can reduce all the many questions just mentioned into four challenges

inherent in providing financial services to BOP customers:

2.1. Understanding the clients.

Generally, the poor need the same kinds of financial services as

middle-class customers. However, it is a classic mistake to treat

products for the poor simply as scaled-down versions of those for

higher-income customers. As with any market, a deep understanding

of specific needs is required to get product design right. Local

customs and economies, literacy, gender roles, religious taboos, or

ethnic discrimination may need to be addressed. For example,

microfinance institutions in the Middle East have learned how to

approach Muslim clients who worry that it might be a sin to pay

interest or riba.

2.2. Reducing costs

The small size of accounts and transactions associated with the poor

is the fundamental challenge to profitability. The cost barrier is

highest for the poorest clients and those in ruraland remote areas.

Rather than just squeezing costs down, seriousrethinking is needed.

Radical product simplification is one key, and technology may be

another. When a Nepali woman can receive money from her

husband working in Delhi without leaving her village, it will be

technology and creative distribution channels that make it possible

2.3. Informality and risk management

BOP (bottom-of-pyramid) clients appear risky because they are

economically vulnerable and operate informally. Much of the risk is

only a perception, however, and actual risks can be managed with

the right techniques. Microfinance institutions using these best

practices demonstrate consistently high repayment performance, so

much so that in a 2008 survey of top risks, microfinance providers

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and investors ranked credit risk only tenth, well behind costs (which

was fourth) and a range of institution management issues (Rhyne,

2009).

2.4. Building the industry

Few contributors have the strength to create or enter a virgin market

alone. Other contributors help develop the market, attract partisan

(for example, information-technology providers or payments

networks), and speak with a united voice before regulators.

Possibilities for cooperation in industry-building need to be

identified

3. BMT AL FALAH PROFILE

The Meaning of BMT:

1. Baitu

2. Al-Maal

3. At-Tamwil

- home

- Property (social)

- Property (commercial)

BMT = Institute for Independent Business, Integrated Microfinance

Institutions that operate under the principles of Sharia that help

community managed their commercial property as well as social

aspects.

3.1. Location:

BMT Al Falah operated on its own building in Jl. Sultan

Agung 9, Sumber, Cirebon, West Java.

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Pic. 1. Front of BMT Al Falah

3.2. The Meaning of the Logo:

The Yellow pillar represents the economic

states that already bend over and have to be

supported by the green pillar in order to be

able to stand strong.

3.3. The History:

BMT Al Falah was established as part of the 1000 BMT Movement

proclaimed by President Soeharto. BMT Al Falah was inaugurated by

Mr. Ir. Tb. Hisni on 10 November 1995 (17 Jumaditsts Ani 1416H)

and began operations on December 14, 1995 (22 Rajab 1416H).

Originally sheltered under the supervision YINBUK - PHBK Bank

Indonesia, BMT Al Falah was established by the initial investors as

followed:

1. Ir. H.Tb.Hisni (Head BAKORWIL Priyangan)

2. H. Oman Sahroman (KADIN Chairman Kab. Cirebon)

3. H. Syurief AM (Entrepreneur)

4. H. Ahmad Kusaeri (Employers)

5. H. Didi Karsidi

6. H. Masrana (Young Executive ASTRA INTERNATIONAL)

7. Hj. Hilda

8. Hj. Susie

9. H. Misro (RIP)

3.4. The Founding Fathers

The Founding Fathers, or shall we say Managers, are consist of

four persons from four different education backgrounds:

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Pic. 2. BMT Al Falah Logo

1. Ir. Ida Widiahastuti (Chemical Engineering)

2. Marini, SH. (Law)

3. Tarjodipuro, SE. (Economy)

4. Ahmad Hamdan, S.Ag. (Religion)

3.5. Vision

"Being Islamic financial institution with quality and blessing"

3.6. Mission

a. Popularizing the model of Islamic economics

b. Providing professional services

c. Expansion of networks and partnerships

d. Provide more value to the harmony and prosperity of the

community

3.7. Law and regulation

BMT Al-Falah Islamic Financial Services Institution is

incorporated under the laws of the cooperative. BMT Al Falah

was started with legality as Self-Help Groups under the

supervision of PINBUK based on the script co-PHBK YINBUK

with Bank Indonesia. In 1998 received the legality of Legal

Cooperation with Number 09/BH/KDK-10.17/IX/1998 on

September 23, 1998.

Hopefully, BMT contribution to the economic communities is to

introduce and make the Islamic financial institutions as a

compulsory option in Economy of Islam. BMT Al-Falah

Establishment background in the presence of Indonesian Muslim

Intellectuals Association program (ICMI) Cirebon District in

order to alleviate poverty through the establishment of a BMT in

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Sub-Region of Cirebon, and the introduction of national

movement by President Soeharto in December 1995.

3.8. Product provided by BMT Al Falah

3.8.1. Financing Products:

1. Financing Murabaha (Sale and Purchase): Financing provided

to members for purchase goods that will be used as working

capital. Financing is provided for the short term should not be

over 6 (six) to 9 (nine) months or more. The advantage for

BMT is obtained from the elevated price.

2. Musharaka Financing (Profit Sharing): Financing provided in

the form of partial capital to members of the overall capital.

Parties can BMT involved in the process of management.

Division keun proportional profits made in accordance with

agreement of both parties

3. Ijarah Financing: lease financing

4. Qard Financing: Is the soft loans granted to members who

truly lack the capital/ to them desperately in need for purposes

of emergency nature. Customers (members) sufficient to

restore loan in accordance with the value given by BMT.

5. Ar-Rahn Financing: Ar Rahn means BMT can take collateral

to make sure that member who have loan remember to

maintain their productivity, on the other hand, work harder to

fullfil their obligation and promises to the BMT.

3.8.2. Savings Products:

1. Mudharabah savings:

Working capital financing provided by BMT to members,

where business management is fully handed to members as

debtors. In these members (customers) to provide business and

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systems management. The results and benefit will be divided

in accordance with collective agreement.

i. Education Savings (Simpanan Pendidikan)

ii. 'Eid al-Fitr Savings (Simpanan Idul Fitri)

iii. Qurban Savings

iv. Hajj Savings

2. Mudharabah Deposits

i. Savings Deposits Mudharabah (SiTobah)

ii. Education Savings Plan (SiReady)

3. Wadiah Savings

i. Principal Deposits

ii. Compulsory Deposits

iii. Principal Deposits of Candidate Members

iv. Simpati

3.9.3. Baitul Maal Program:

3.9.3.1. Zakat, fund raising, Infaq and Shodaqah

Mostly distributed to poor people near BMT Al Falah.

3.9.3.2. Distribution of Zakat funds, Infaq and Shodaqah in the

program:

a. Working capital assistance through the fund

Qhordul Hasan, mostly for the customer in needs.

b. Providing scholarships and compensation for

orphans and children of poor families

c. Quick action response to the disaster relief

program, people who were in debt, the cost of

birth, death expenses, scholarships, etc.

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3.10. Inclusive Finance

The vulnerability threat the lives of low-income people. Without

insurance, any shock such as illness, accident, death, or natural

disaster such as flood and fire can send a family into a descending

economic spiral. Uninsured shocks can also turn a good borrower

into a defaulter, so BMT as lenders have a special interest in

making sure that their clients are insured.

3.10.1. Welfare Insurance

But knowing the risk and benefit of it, BMT Al Falah has

not yet have the kind of insurance needed, such as life

insurance or health insurance. Instead, because of lack of

human resources and funds, BMT Al FAlah have a

product that is called a welfare insurance. With Rp.

5.000,- (USD 0.6) per month for 3 years, welfare

insurance gives around Rp. 25.000,- (USD 3) per day per

person for maximum of 10 days per year incase some

shock such as illness and accident happens.

3.10.2. Health Insurance

On the first quarter of 2011, BMT Al Falah receive Rp.

15.000.000,- aid from the government (Social

Department) to be used for health insurance known as

Askesos or social health insurance for its member.

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3.11. Organization Chart

Pic. 3. Organization Structure of BMT Al Falah

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3.12. Membership

BMT Al Falah is a cooperative organization, therefore all of its

customer is also its member. Most members is from the nearby

market where they make their money productive each and every day.

They also consists of micro enterprises and small enterprises as the

tabel 1 shown bellow. According to Armendariz (2008), in 2006

Microcredit Summit Campaign report, seven out of ten microfinance

clients are women. In BMT Al Falah, the number is somewhat

similar. Around 64,87% of the customers are women.

Tabel 1. Cooperative Member

No. Membership Male Female Total1. Micro enterprise 3.066 5.694 8.760

2. Small enterprise 2.074 3.796 5.840

Total 5.140 9.490 14.630

Percentage 35,13% 64,87% 100%

The customers are 79.83% from microenterprises from the nearby

market, as follow:

Tabel 2. Customer Location

No. Market Name No. Market Name1 Pasar Arjawinangun 10 Pasar Lemahabang

2 Pasar Astanajapura 11 Pasar Mandirancan

3 Pasar Cipejeuh 12 Pasar Pagi

4 Pasar Gebang 13 Pasar Pabuaran

5 Pasar Harjamukti 14 Pasar Perumnas

6 Pasar Jagasatru 15 Pasar Plered

7 Pasar Kanoman 16 Pasar Plumbon

8 Pasar Karangsembung 17 Pasar Sumber

9 Pasar Kramat Dukupuntang

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Tabel 3. Reason for Saving

No. Reason Rank

1. Interesting Profit sharing 1

2. The procedure is easy 3

3. The location is easy to reach 4

4. According to Syariah (Islamic Law) 6

5. It is safe 5

6. Closeness and trust to the managers 2

Tabel 4. Reason for Financing Transaction

No. Reason Rank

1. Interesting Profit sharing 5

2. The procedure is easy 1

3. The location is easy to reach 3

4. According to Syariah (Islamic Law) 6

5. It is safe 4

6. Closeness and trust to the managers 2

As we can see in tabel 3 and 4, closeness and trust to the managers

hold a significance role in running a financial institution such as

BMT. Ibu Ida, the manager, said it took them almost five hard

working years to gain trust from the community.

Another important factor is that the payment arrangement in BMT is

according to syariah or Islamic Law, where there are no interest,

even though if we calculate the revenue could reach as high as 4%

per month, that is higher than common banks. But the customer feel

satisfied because every revenue is based on discussion and agreement

between BMT and its customers.

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4. BMT AL FALAH, FINANCIAL

BMT Al Falah started fifteen years ago with only four personels and

five million rupiah grant from ICMI has now have 40 personels and

assets value worth more than ten billion rupiah. The profit sharing is

3,5% with revenue of profit around 2,3% in 2010. As stated by

Robinson (2002) about 8,699 generic rural bank continued to serve 5.6

million clients in 1998—as the country’s financial system collapsed, so is

BMT Al Falah that still survived in its 3rd year.

Tabel 5. Own Capital

Own Capital Rupiah (Rp.)a. savings 102.529.485,00

b. compulsory savings 23.122.132,00

d. reserve fund 12.670.966,00

e. Grant 20.000.000,00

Total 158.322.773,00

In principle, the compulsory saving program is meant to help clients

build up assets over time and develop the discipline of saving. But to

many, these involuntary savings accounts look instead like a way for

the bank to acquire relatively cheap capital and to secure a form of

collateral from borrowers (Armendariz, 2005). The same principle is

used in BMT Al Falah.

Tabel 6. Loan Capital

Loan capital Rupiah (Rp.)a. Bank credit 1.118.936.173,00

b. NBFI Credit 680.633.335,00

c. Capital investments 736.309.269,00

Total 2.535.879.177,00

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Tabel 7. Value of Business Volume

No. Business Rupiah (Rp.)1. The principal business, savings

and loans

12.460.085.000,00

2. Other business, mortgage and

consumer

100.000.000,00

Total Value 12.560.085.000,00

Tabel 8. Asset Value

No. Asset Value in Rupiah (Rp.)1. Asset value in 1995 5.000.000,00

2. Asset value in 2010 10.970.085.000,00

Total Asset 10.975.085.000,00

5. BMT AL FALAH, SOCIAL ACTIVITIES

As mentioned earlier that Baitul Maal Wa tamwil also have means as

House of Social Activities, BMT Al Falah also have a few social

activities such as:

a. Distribution of free food in the area of Cirebon Sindanglaut

b. Free Ta'jil (food for breaking the fasting) division in the Sumber

Region of Cirebon District.

c. Providing aid to disaster-stricken areas

d. Compensation for the elderly majlis taklim (praying group)

e. Distribute meat from qurban (scarificed meat)

6. COMPUTERIZED SYSTEM AND SYSTEM OPERATING

PROCEDURE (SOP)

Nowadays, BMT Al-Falah already have 3 branches and 1 help

branch. It has used computer application systems, namely a computer

application programs to handle operational and administrative

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activities of BMT is user friendly because it uses Bahasa Indonesia,

flexible, and have high accountability. All transactions have been

using the On-line computer application system. In carrying out all

work activities, BMT Al-Falah has been using the Standard

Operations Management (SOM) and Standard Operating Procedure

(SOP), where all activities referring to.

Further on, BMT Al Falah have a plan to build IT system to reach

their customers in da’wah or spreading the words of God. Hoping

that it will also remind them to keep their promises to BMT.

With the support and supervision of the various parties, BMT AL

Falah are expected to become a leader for other BMT and became a

healthy, quality and blessings institution, and also have high

accountability and can rise the belief in promoting the weak

economic welfare of society.

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BIBLIOGRAPHY

Armendáriz de Aghion, Beatriz and Jonathan Morduch. 2005. The Economics of Microfinance. Massachusetts: The MIT Press.

Armendáriz de Aghion, Beatriz and Nigel Roome. 2008. “Gender empowerment in Microfinance”, Microfinance: Emerging Trends and Challenges. Massachussets: Edward Elgar Publishing.

Bateman, Milford. 2010. Why Dosen’t Microfinance work? the destructive

rise of local neoliberalism. London: Zed Books.

Rhyn, Elisabeth. 2009. Microfinance for Bankers and Investors: understanding the opportunities and challenges of the market at the bottom of the pyramid. New York: McGraw-Hill.

Robinson, Marguerite S. 2002. The Microfinance Revolution Volume 2: Lessons from Indonesia. Washington DC: The World Bank.

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