Efficiency of Baitul Maal Wa Tamwil (BMT): An Effort Towards Islamic Wealth Management in Microfinance Institution

Abstract

The primary objective of most microfinance program is alleviating the poverty by assisting the poor to be economically independent. Measuring efficiency of microfinance program is important for enabling the microfinance institutions (MFIs) to strengthen management, generate the profits and maintain an efficient operation to ensure its sustainability. In the last twenty years, the growth of BMTs increased significantly and has contributed positively to the development of
socio economic of the country. Recently, there are around 4,000 BMTs operate and have enhanced thousand poor people life. BMTs are responsible in collecting, managing and distributing the funds either for charity or providing financial services for the poor. The main objective of the paper is to examine the efficiency of Baitul Maal wa Tamwil (BMT) as Islamic microfinance institution in Indonesia and explain BMT’s effort towards Islamic wealth management by applying Islamic principles on its programs. Data Envelopment Analysis (DEA) is used to examine the relative efficiency of the selected BMTs. DEA is a non-parametric method which utilizes the linear programming method to measure technical (technological) efficiency and requires inputs and outputs data. Fourteen BMTs are chosen as the sample of the study as it represents the biggest BMT’s operated in the poorest provinces. The study indicated that financing and human resources were some sources of inefficiency in BMT. It also indicated that the efficient BMTs applied the Islamic wealth management where focus on wealth of members and customers based on Islamic principles are the priorities. Inefficient BMTs are expected to optimize its operations by emulating the input minimization and output maximization practices adopted by efficient BMTs.