Challenges Sharia Microfinance Institutions: Evidence from Indonesia

This case study seeks to analyze the functioning of Baitul Mal Wa Tamwil (BMT) in Indonesia. BMT represents MFIs that carry out activities based on Islamic principles. The case study seeks to provide inputs for such MFIs with an objective of defining their purpose, identifying the challenges they are likely to face in the future, and the advantages that they enjoy. It discusses the different roles and tasks of BMT MFIs and also provides recommendations to overcome the challenges they may face. Key findings of the study include:

• BMT MFIs perform a wide range of tasks such as identifying needs and business opportunities, planning and providing business consulting, mobilizing funds from public, and disseminating information and providing training;
• Some of the challenges that Islamic MFIs are likely to face in the future include targeting low-income communities, developing methods to finance low-income communities, bringing about organizational changes, and looking for new sources of funding;
• In order to bring about significant impact on economic growth and poverty reduction, there is a requirement of improving the reputation of BMT MFIs in Indonesia.