Analyzing technical efficiency and outreach of Islamic microfinance
This study analyzes the sustainability of Islamic microfinance for developing microenterprises.
The study examines Baitul Mal Wat Tamwil (BMTs), Islamic MFIs in Indonesia. The study uses indicators of technical efficiency and level of outreach to measure sustainability. Technical efficiency is measured using data envelopment analysis (DEA). Results indicate that BMTs:
Have relatively low efficiency;
Are operating far below their optimal scale;
Face managerial problems;
Need to improve efficiency in allocating resources;
Are paying employees too much, thus decreasing efficiency;
Serve too many microenterprises, thereby increasing operational costs;
Operate with a manual system resulting in decreased efficiency.
Finally, Islamic microfinance is useful for developing microenterprises, and is also socially beneficial. BMTs have helped households increase their income and savings, provided financing and created job opportunities. Although the profitability of BMTs is relatively low, they have made profits, proving that Islamic financing is sustainable and viable.