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Comparative Study of Financial Performance of Baitul Maal Wat Tamwill and Rural Credit Bank cases in Jember Regency, East Java, Indonesia
Field Study Abstract:
In Indonesia, the Baitul Maal wat Tamwill (BMTs) and Rural Credit Banks (BKDs) serve as sources of financing for small businesses and the informal sectors. Small businesses in the country number 33.4 million, distributed as follows: agriculture sector (63.8%), merchandising (17.4%), manufacturing (7.5%), service (4.8%), transportation (3.6%), real estate (2.6%), mining (2.6%), and financing and assurance (0.6%).
The research was conducted to evaluate the financial performance of BMTs, which implement profit-sharing systems, compared with BKDs, which implement the interest system. The financial data were obtained from Bank Rakyat Indonesia (BRI) for the 10 BKDs and directly from the eight BMTs included in the study.
The data were subjected to discriminant analysis using the following 12 ratios: leg reserve requirement (LRR), loan to deposit ratio (LDR), capital adequacy ratio (CAR), risk of asset ratio (RAR), deposit risk ratio (DRR), gross profit margin (GPM), net profit margin (NPM), return of asset (ROA), return on equity (ROE), interest margin (IM), leverage multiplier (LM), and asset utilization (AU).
Five financial ratios were found to have high discriminating power. According to rank, these were LM, LRR, GPM, NPM, and DRR. For all the BMTs, only LM showed higher discriminating power than for all the BKDs. Among the BKDs, BKD Bina Insan ranked highest in performance because it had high LDR, NPM, and ROA values. On the other hand, Alif ranked the lowest in performance due to low LRR, CAR, and GPM.
As of 1999, the BMTs that had good performance (listed by rank) were BMT Nuansa Abadi, Bina Insan and Artha Barokah. Mitra Muamalah Ummat had an average performance. On the other hand, the BMTs that had poor performance (listed by rank) were BMT Bina Tanjung, Harapan Ummat, Wahana Artha Mubarok, and Alif.
BMT Nuansa Abadi ranked highest in performance because it had high NPM and ROA values. On the other hand, Alif ranked lowest in performance due to its low LRR, CAR, and RAR values.
In terms of liquidity, solvability, and profitability, all BKDs had higher performance compared with BMTs. In terms of activity efficiency, all BMTs had higher performance than all BKDs.
Based on the findings of the study, it can be concluded that BKDs were managed better; hence they had higher financial performance than BMTs. BMTs should pay more attention to four discriminator variables, namely: LRR, GPM, NPM, and DRR. They should also improve their performance in terms of the following elements: liquidity, solvability, and profitability.
BKDs, on the other hand, should pay more attention to one discriminator variable
(LM) and improve their performance in terms of activity efficiency. PINBUK should endeavor to assist in improving the financial performance of existing BMTs through training of employees in marketing and accountancy, and other management skills.
Subsequent studies should limit their consideration to only five discriminator variables: LM, LRR, GPM, NPM, and DRR. Other studies should involve the customers in a survey to determine the experiences and perceptions about BMTs and the BKDs in terms of satisfying customer needs.