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The Challenges of Islamic Microfinance in Indonesia

The Challenges of Islamic Microfinance in Indonesia. The Milestone in Indonesia. The establishment of Islamic Financial Cooperative namely, “Bait at Tamwil Salman” in 1980 Established by student activist of Bandung Institute of Technology (ITB) at Masjid Salman, Bandung.

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The Challenges of Islamic Microfinance in Indonesia

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  1. The Challenges of Islamic Microfinance in Indonesia

  2. The Milestone in Indonesia • The establishment of Islamic Financial Cooperative namely, “Bait at Tamwil Salman” in 1980 • Established by student activist of Bandung Institute of Technology (ITB) at Masjid Salman, Bandung

  3. The Milestone in Indonesia • The establishment of the first Islamic bank in Indonesia BMI (Bank Muamalat Indonesia) in 1991. • It geared up the development of Islamic microfinance both in form of Islamic Financial Cooperative (BMT) and Islamic Rural Bank (BPRS) during 1990’s

  4. Typology of Islamic Financial Institution in Indonesia Two types of institutions: • Banking Institution • Financial Cooperatives

  5. Typology of Islamic Financial Institution in Indonesia • Banking Institution • Full fledged Islamic Commercial banks • Islamic Banking Units of commercial banks • Islamic rural banks (fully perform microfinance)

  6. Typology of Islamic Financial Institution in Indonesia • Financial Cooperatives • BMT : Baitul Maal wat Tamwil comprising 95% of Islamic cooperatives • BTM : Baitul Tamwil Muhammadiyah, comprising 5% Islamic cooperatives guided since 1999 by Muhammadiyah. Informally supervised by Pusat Pengembangan Ekonomi Muhammadiyah (PPEM) BMT usually have a mixed and commercial and social orientation while BTM have a more definite commercial orientation

  7. Achievement and Development – Islamic Rural Banks (BPRS) Source: Seibel & Agung, 2005, modified with data 2007

  8. Achievement and Development – Islamic Rural Banks (BPRS) As of October 2008: • There are 128 BPRS in Indonesia. • The total asset of BPRS is IDR 1.57 trillion; comprises 4.17% of total aset of BPR

  9. Achievement and Development – Islamic Financial Cooperatives (BMT) Source: Seibel & Agung, 2005, modified with data 2007

  10. Achievement and Development – Islamic Financial Cooperatives (BMT) As of 2007: • There are approximately 3200 BMTs in Indonesia. • The total asset of BMTs is approximately IDR 2 • trillion; • with average of asset growth is 10 percent per annum. • These BMTs are scattered to all the provinces in Indonesia • Most of BMTs (65.7%) are located in Java Island.

  11. Achievement and Development – Islamic Financial Cooperatives (BMT) • 41 percent of BMTs are having asset between IDR 50 million to 250 million (approximately US$ 5,555 to US$ 27,777) • 40 percent of BMTs are having asset between IDR 250 million to 500 million (approximately US$ 27,777 to US$ 55,555)

  12. Overall Overview of Microfinance Institution in Indonesia - 2000 Source: Seibel & Agung, 2005

  13. Demand & supplyOutreach of Islamic microfinance by country (as of 2007) 13 Source: CGAP, Focus Note No.49, August 2008

  14. Demand & supplyOutreach of Islamic microfinance by country (as of 2007) 14 Source: CGAP, Focus Note No.49, August 2008

  15. Affiliations and Support PINBUK (Pusat Inkubasi Usaha Kecil): • An NGO and has become the most promoter of Islamic cooperatives since 1995 • Provides basic, intermediate and advance training, and training for trainers • Published manuals for the establishment of BMT, regulation and statute of BMT, management, computerization and performance assesment. • Suplies BMT with MIS

  16. Affiliations and Support PNM (Permodalan Nasional Madani) • is a commercially operating state owned corporation • Acting as wholesale apex for financing small and medium enterprise programs or projects of commercial banks, rural banks (BPR) and cooperatives. • It plans to emphasis on providing both financial and social capital for BPRS and BMT

  17. Affiliations and Support INKOPSYAH (Induk Koperasi Syariah): • Is a secondary level cooperative since 1997 • Facilitate access of BMT to credit, monitoring members and BMT that are non members, channeling fund form PNM to BMT ASBISINDO (Asosiasi Bank Syariah Indonesia) • Is an association of Islamic rural Banks since 1992 and since 2002 also include Islamic commercial banks • Provides training of management and staff of the members

  18. Problems of BMT • There is no formal regulation • Lack of supervision both management and shariah compliance • A number of them are run by relatively inexperienced personnel • There is no deposits Insurance Corporation just like commercial banks.

  19. Problems of BPRS • Capital shortage: the average size of Islamic BPR is less than half of the size of the average conventional BPR • Lack of management skill and dynamics

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