Micro Finance Essay

10239 Words 41 Pages
Sustainability of BMT financing for Developing Micro-enterprises
Widiyanto b. Mislan Cokro1 Abdul Ghafar b. Ismail2 School School of Economics Universiti Kebangsaan Malaysia Bangi, 43600 Selangor D.E., Malaysia

E-mail : agibab@ukm.my

This draft, February 2008

Abstract The aim of this study is to analyze the sustainability of Islamic micro-financing for developing micro-enterprises (ME). We use the sample of Baitul Mal Wat Tamwil (BMT), as Islamic microfinance institution in Indonesia. Two approaches will be used to explore the sustainability, i.e., technical efficiency (using data envelopment analysis (DEA) and level of outreach. The results indicate that: first, generally the efficiency of BMTs is relatively low. Scale
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The study done by CAMEO (2004) shows that 44 percent of new job growth in California was created by MEs. It also generates extra income for owner and their families. While, Budiantoro (2004) finds that 30 percent of GDP in Indonesia was contributed by MEs. However, MEs have difficulties in developing their businesses since they only have small amount of capital. Whereas, building a strong business presumably requires access to sufficient capital. As stated in Ramzan (1997), Roberts and Roberts (2003), and Afrane (2003), the injection of capital into ME not only has positive impact on business turnover, but also on the monetary value of MEs’ inputs, raw material or machinery and employment.

Within the ME field, micro-financing is the best known approach to providing financial services.3 The provision of financial services would help ME to start or to strengthen their business. We believe that the rate and level of success of early stages businesses would enhance the operational sophistication of ME and increase the operational effectiveness, and lead to improve their performance. Nevertheless, in achieving the success, MEs need long-term access to financial services, and therefore, the sustainability of micro-financing is very important for these purposes. So far, the studies on the sustainability are limited to two aspects: first, the studies focus on a sample of

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