Basically there are three phenomena pertaining to the emergence of Islamic financial institution in Indonesia. Those phenomena are represented by three Islamic financial institutions which offer financial services to different scales of enterprises in term of their asset values. First, it is Bank Muamalah Indonesia (BMI) – established since 1990 – which offer services to medium and small scale enterprises. Second, Bank Perkreditan Rakyat Syariah (BPRS), which offer services to micro scale enterprises. Third, Bay al-Māl wa al-Tamwīl (BMT), first established in 1986, offers service to super micro scale of enterprise (Akhyar et al., 2003 and Ascarya et al., 2007).
Among those three different financial institution, the BMT, first Islamic financial institution, interestingly is considered the most endured and strongest institution during economic crisis hitting south-east Asia in 1998. It is partly because most of BMT’s client are super micro enterprises, which despite crisis shock, still run their business with any serious effect. It also is regarded as the most proper Islamic financial institution to provide Islamic financial services (Ascarya et al., 2007). In what follows, then, the nature of BMT, its weaknesses and strengths will be explored briefly.
The Development of BMT
It is in 7 December 1995 that the president of Republic of Indonesia, Soeharto, launched BMT with the reason that it would be an alternative poverty alleviation tool that could be integrated into the national development plan. Since then, the establishment of ten units of BMT, especially when Dompet Dhuafa (DD) introduced the Islamic economy and the BMT concept to a group of young Islamic activists and provided seed capital to support the BMT institution, was announced by BJ Habibie, the Minister of Research and Technology and the Chairman of ICMI. Nevertheless, the notion of BMT system actually had been first initiated since 1980 by an Islamic Student Association of the Bandung Institute of Technology when they established the Baitul Tamwil Teknosa (BTT) and 1988 when a group of Islamic activists established Koperasi Ridho Gusti (KRG).
The establishment of BMT system by and large is inspired by the success of the Mit Ghamr community-based Islamic Bank in Egypt in early 1960 and the Grameen Bank group-based microcredit model and gender-oriented poverty alleviation and empowerment programme in Bangladesh. Yet, it is in fact triggered chiefly due to several impetuses: 1) the socio-religious motive in order to improve the socio-economic condition on the majority of Muslim population, 2) an awareness to provide the Islamic-based profit and loss sharing (PLS) mechanism in order to eliminate the money lender practice in the informal microfinance market, hence abolishing riba practice committed by informal money providers who take advantages of low-income and poor people by means of short-term loans with very high-interest rate that eventually leads the borrowers into over-indebtedness problem.
Later in practice, BMT system after its launching, according to its purpose, is conceptually divided into two different modes, i.e., Bayt al-Māl which functions as depository of zakah, infaq and shadaqah and distributes it effectively, and Bayt al-Tamwīl which involves in productive activities in order to increase the welfare of small and micro enterprises by encouraging them to do saving more than to spend it away. By means of both functions, BMT institution, then hitherto, can be classified into three variants, viz., firstly, BMT which is motivated by socio-religious motive, so that its function is only as Bayt al-Māl, secondly, BMT which is motivated by profit motive, so that its function is only as Bayt al-Tamwīl, and thirdly BMT which is motivated by both socio-religious and profit motives, so that its function is not only as Bayt al-Māl but also Bayt al-Tamwīl. Above all, the BMT institution eventually attempts to provide the welfare, peaceful, and prosperous society by means of creating a Muamalah commercial community which is secure, trustworthy, convenience, transparency, and prudence.
BMT’s Advantages As An Unique Financial Institution
Since its initial development, BMT now has grown in rapid and wide manner until rarely cannot it be found in a remote village. The condition seems due to the fact that the increasing demand from small entrepreneurs to obtain financing from BMT to develop their business, because they might not be bankable enough to get it from Islamic commercial banks. In short, there are three main reasons why BMT has grown so tremendously: 1) BMT usually does not impose strict and rigid legal form, 2) BMT can penetrate into small-scale enterprises financing uncovered by bank service, 3) BMT offers basic skill training and financing at the same time to its clients, hence it is more favourable to society than other microfinance institution.
Apart from three aforementioned advantages possessed by BMT, there are several matters that allow BMT continuing its persistence and sustainability:
- Capable of performing Sharia Principles continuously.
- Commitment and eagerness of the BMT founder and his employees
- Worshipful orientation
- Wide support from local people of authority and the rich.
- Having technical skill and ability to manage such institution.
- To follow Guidelines on BMT establishment.
- Having ability to raise funds in Islamic and Ethical manner.
- To strive to become better intermediary institution between employees, management, and member of BMT.
Some Weak Performance Indicators Leading to BTM’s Failure
Despite strong acceptance from society BMT gained, some BMTs indeed failed in maintaining their sustainability. Abundant studies have been conducted in examining BMT’s deficiencies. The overall results reveal that some factors come internally and others come externally. The internal ones, are: 1) lack of capital and source of funding, 2) sickness in performance of duties of BMT’s employee, 3) lack of marketing banking product, and 4) lack of facilities and technology. Whereas the external ones, are: 1) stiff competition between BMTs, 2) low level of public trust towards BMT performance, 3) lack of networking and cooperation among other financial institution, 4) lack of supervision and guidance from applying Sharia.
*composed by me and brother Elit Ave Hidayatullah.