Efficiency of Baitul Maal Wa Tamwil (BMT) as Islamic Microfinance Institution in Indonesia: an Application of Data Envelopment Analysis

Abstract

The primary objectives of most microfinance program is alleviating the poverty by assisting the poor to be economically independent. Different with conventional microfinance that offers the financing scheme based on interest (read: riba), Islamic microfinance offers the financing scheme based on shariah principles to enhance the business development of microentrepreneurs. Furthermore, Islamic microfinance assists the microentrepreneurs to applicate the Islamic ethics in daily life that effects to press the number default of payment. Recently, there are around 4,000 Baitul Maal Wa Tamwil (BMTs) operate and have enhanced thousand poor people life in Indonesia. They are Islamic Microfinance Institutions (Islamic MFIs) that responsible in collecting, managing and distributing the funds either for charity (e.g for the poorest) or providing financial services for the microentrepreneurs. In addition, measuring efficiency of microfinance program is important to enable the microfinance institutions (MFIs) to strengthen the management, generate sufficient profits and maintain efficient operations to ensure its sustainability. The main aim of the paper is to examine the efficiency of BMTs as Islamic microfinance institutions in Indonesia. Data Envelopment Analysis (DEA) is used to examine the relative efficiency of the selected BMTs. DEA is a nonparametric method which utilize the linear programming method to measure technical (technological) efficiency and requires inputs and outputs data . Twelve large size BMTs are chosen as 18 ISLAMINOMIC JURNAL Jurnal Ekonomi dan Perbankan Syariah the sample of the study and they have operated in the provinces of Indonesia with the highest number of poor people live. The study indicated that financing and human resources are the bases of inefficiency in BMTs. Inefficient BMTs are expected to optimize its operations by emulating the input minimization and output maximization practices adopted by efficient BMTs. The findings are not only relevant and applicable to Indonesia but also to other muslim countries and would be useful for further empirical research in this area.