Baitul Maal Wat Tamwil (BMT) is an Islamic microfinance institution which aims to collect and distribute funds from the surplus to the deficit unit. As a non-bank financial institution, BMT has been established as many as 200.808 units in 2015. The implementation of Islamic principles with the concept of ta'awun somehow becomes the main attraction of BMT, which in fact, gains the highest number of the service used among other microfinance institutions with approximately 18% percent of the total microfinance institution clients (2013). Meanwhile, BMT’s performance of development assets reached IDR 4.7 trillion with the total funds of IDR 3.6 trillion in 2015. This indicates that BMT has grown rapidly over the years. Despite the significant growth, BMT has also encountered a great deal of problems during the process. Some problems that might occur include the inadequate regulations of credit (credit fund is only distributed to some sectors of mudharib group), the inefficiency of Human Resource (HR) or executives and staff (parts of finance official which exceed the limits when giving loans) and the inadequacy of the detection of non-performing loans possibilities, which includes the growth of cash flow of the mudharib. This paper applied qualitative descriptive method to analyze the problem from various journals related to the issues of BMT. The authors employed categorical analysis to define the MEGA (Performance, efficiency, good corporate governance and value added measurements) whereas strategic measurement was used to measure the financial and management performance, efficiency, quality of governance and value-added achieved in order to improve the quality of BMT. Keywords: Baitul Maal Wattamwil, Measurement, Efficiency, Good Corporate Governance, and Value Added

1. Quality Improvement of BMT by Performance, Efficiency, Good Corporate Governance
and Value Added Measurements Strategy (MEGA) Using Categorical Analysis
Mega Ayu Widayanti
Student of Islamic Economics, Faculty of Economics and Business
Universitas Airlangga
Achsania Hendratmi
Department of Sharia Economics, Faculty of Economics and Business
Universitas Airlangga
Abstract
Baitul Maal Wat Tamwil (BMT) is an Islamic microfinance institution which aims to
collect and distribute funds from the surplus to the deficit unit. As a non-bank financial
institution, BMT has been established as many as 200.808 units in 2015. The implementation of
Islamic principles with the concept of ta'awun somehow becomes the main attraction of BMT,
which in fact, gains the highest number of the service used among other microfinance institutions
with approximately 18% percent of the total microfinance institution clients (2013). Meanwhile,
BMT’s performance of development assets reached IDR 4.7 trillion with the total funds of IDR
3.6 trillion in 2015. This indicates that BMT has grown rapidly over the years. Despite the
significant growth, BMT has also encountered a great deal of problems during the process. Some
problems that might occur include the inadequate regulations of credit (credit fund is only
distributed to some sectors of mudharib group), the inefficiency of Human Resource (HR) or
executives and staff (parts of finance official which exceed the limits when giving loans) and the
inadequacy of the detection of non-performing loans possibilities, which includes the growth of
cash flow of the mudharib. This paper applied qualitative descriptive method to analyze the
problem from various journals related to the issues of BMT. The authors employed categorical
analysis to define the MEGA (Performance, efficiency, good corporate governance and value
added measurements) whereas strategic measurement was used to measure the financial and
management performance, efficiency, quality of governance and value-added achieved in order
to improve the quality of BMT.
Keywords: Baitul Maal Wattamwil, Measurement, Efficiency, Good Corporate Governance, and
Value Added
1. INTRODUCTION
1.1 Background
Indonesian economy is still dominated by Micro, Small and Medium Enterprises (SMEs)
with a contribution of Gross Domestic Product (GDP) of approximately 57.48%. The proportion
of SMEs reached 99,99% of the total number of entrepreneurs. This indicates the existence of
SMEs in supporting the Indonesian economy (Ministry of Cooperatives and MSEs, 2013). The
growth of SMEs in Indonesia cannot be separated from the role of microfinance institutions.
BMT is an Islamic Microfinance institution that provides financial services by applying
Islamic principles and focusing on micro business sector. Deputy for Institutional Ministry of
Cooperatives and SMEs stated that BMT has been established as many as 200.808 units in

2. Indonesia while its development assets reaches 4.7 trillion rupiahs with total funds as much as
3.6 trillion rupiahs in 2015 (BMT UGT Sidogiri). BMT is one of the most influential
microfinance institutions that can leverage real sector. By providing the alternative source of
financing with sharia principle, BMT is more likely to be a new competitor for institutions with
conventional systems. The graph below illustrates the demand of microfinance institutions
(including BMT) which reached 18% in 2013.
Figure 1. Share of Financial Institutions
Source: Ministry of Trade, 2013
However, BMT performance does not yet have any clear standard in the financial service
provision, which implicates to the funds distribution into high-risk business sectors. One
significant reason is the non-optimal performance of the managers and executive staffs. BMT
tends to be inefficient in finance provision till exceeds the limits. In addition, BMT has also
inadequacy in the detection of possible financing problems, including the cash flow of the old
mudharib (Luthfi, 2014). Bintoro et al., (2013) stated that the weakness of BMT relies on
management and sharia principles. This is due to the incomplete information about the
technological systems and Standard Operating Management/Standard Operating Procedures
(SOM/SOP). The lack of the members’ interest to save money is more likely to occur because
they do financing more than saving their loan in BMT. A large part of the cooperative capital
comes from financial institutions and donor agencies. The amount of troubled financing is still
considered higher than the capital itself.
Based on the BMT performance problems as described above, the authors figured out an
idea to address such issue by the implementation of strategies Performance, Efficiency, Good
Corporate Governance and Added Value (MEGA) at BMT. The first measurement strategy is
used to measure the management and finance performance. Secondly, BMT needs to measure the
company efficiency related to the use and allocation by considering both input and output to
72%
6%
5%
18%
2% 0%
6%
Share of Financial Institutions
Commercial Banks Rural Banks
Non-bank Financial Institutions Cooperatives
NGO State-owned Enterprises
Individual

3. generate profits in accordance with the performance issued. If BMT’s excessive of financing
exceeds the capabilities, the institution’s operation will be troubled as well as generating
losses. The third measurement is Good Corporate Governance (GCG) for BMT. It aims to
measure the implementation of good governance by the boards. The fourth measurement strategy
is the value added, i.e. measurement of the added value generated within a given period with
financial, economic and social approaches. The measurement of value added is highly required
in order to support company's performance in serving the community.
This study is different from any other studies, in which there has not been any researchers
discuss the topic. In a previous study conducted by (Bintoro et al, 2013) several strategies to
improve the quality of BMT through SWOT analysis (Strength, Weakness, Opportunity and
Threat) were discussed. Therefore, through the MEGA strategy, it is expected that there will be
quality improvement of BMT on its function as Islamic microfinance institutions. If BMT is able
to serve the community satisfactorily, the BMT share will improve, which subsequently be a
significant support for the growth of Indonesian economy.
1.2 Research Problem
This paper applied descriptive qualitative method to analyze the problem and interpret the
strategies to solve them. The author also employed categorical analysis to classify the key
indicators in MEGA strategies that could be applied by BMT through journals. Measurement
strategy is the measurement of the financial and management aspects. In addition, the
measurement strategy is also needed to measure efficiency, good corporate governance and value
added. The research problem formulation is:
“How to improve the quality of BMT with performance, efficiency, GCG, and value added
measurements strategy using categorical analysis?”
2 LITERATURE REVIEW
2.1 Baitul Maal Wattamwil (BMT)
BMT is an Islamic financial institution with the activities of micro-enterprises
development in order to encourage saving as well as support activities through financing (Djazuli
and Janwari, 2002; and Soemitro, 2009). BMT has legal entity and a basic foundation
philosophically, sociologically and judicially. Philosophically, the establishment of BMT is
based on the interests of Islamic economy such as monotheism, justice, equality, freedom,
mutual help, kinship, cooperation and tolerance. Sociologically, BMT is founded due to the
demands and support of Muslims in establishing financial institutions based on Islamic
principles. Legally, BMT is sheltered under government policy based on Law No. 25/1992 on
Cooperatives and PP 9/1995 on the implementation of savings and loans cooperatives (Ridwan,
2004).
M. Zaidi Abdad (2003) defines BMT as a financial institution in the form of Islamic
government to regulate all financial turnover activities, in the reception, storage and distribution
for the welfare of the community based on Islamic law. Over the years, the definition of BMT
has undergone several changes. In the Prophet era, BMT was used as the regulatory body of
public finances of a country. However, BMT nowadays is better known as an independent
microfinance institution which scope are not as wide as BMT in ancient times.

4. Antonio (2001) stated "financing is one of the main tasks of BMT, namely providing
facilities for provision of funds to meet the needs of those who are deficit units". In BMT, the
using of financing is considered high. In accordance with its activities in boosting small
businesses productivity, financing may also cause a high risk for BMT.
2.2 Performance Measurement
Performance is a work record earned by employees or certain enterprise through several
activities within a certain period of time (Bodie, Kane and Marcus, 1993). Performance
measurement in BMT is a part of management control system which includes the application of
plan decisions and employee performance assessment as well as the operations. (Yuwono et al.,
2002). Performance measurement plays an important role in the quality improvement of a
company. Selection of performance measurement is related to strategic objectives because most
companies only measure things that are not related to the objectives (Gasperz, 2005).
Wardani in Sulastri (2001) stated that performance measurement can be measured by the
size of finance and non-finance. But, in a simple business management, the focus is on the
financial aspects. The advantage of financial aspect measurement is to encourage managers to
improve short-term performance of a company. Soetjipto (1997) argued that the weakness of
performance measurement is the limited time, the revealing of real financial achievements
without the presence of a hope that can be seen from the factors-factors that caused the
accomplishment itself, and the inability in measuring the invisible assets performance (intangible
assets) and intellectual properties (human resource) of a company.
2.3 Efficiency Measurement
According to economic theory, efficiency may be interpreted into two aspects, which are
technical and economic efficiency. Technical efficiency tends to have micro point-of-view which
is limited only to technical and operational relationships in the process of converting inputs into
outputs. Policies settled to improve technical efficiency of business was carried out by the
controlling and optimal allocation of resources. On the other hand, economic efficiency tends to
be on a macro point-of-view which has wider range (Ghafur, 2007).
The efficiency of financial institutions is indicated from the technical efficiency and cost
efficiency (Hasan, 2006). The cost efficiency is defined as a measure of how the best cost can be
used to produce the same output within the same environmental conditions (Hasan
2002). Technical efficiency is able to be explained by a proportional reduction of the input use if
there is no useless input without exceeding the returns to scale (Hasan and Hussein, 2003).
The main difference between Islamic financial institution and conventional financial institutions
is that the conventional one applies an interest-based principle whereas the Islamic one applies a
profit and loss sharing (PLS) (Ariff, 1988).
Rasulullah SAW said in Khan (2008), "any gains should match the expenses
". Meanwhile, Mahbubi M. Ali and Ascarya explained that efficiency in Islam has always taught
the producers to pay attention to the social, economic, and environmental aspect. To achieve this,
Islam has given the following instructions:
a. Optimization of Resources: Mankind is ordered to work for the sake of earth prosperity and to
utilize the potency of existing resources. Corresponding (Hud: 61):
"... He has created you from the earth (ground) and settled you therein .."

5. b. Work specialization: As the higher population growth, society needs a division and
specialization of workforce in order to enlarge the surplus and international trade. The division
of labor in Islam is explained in the hadith of the Prophet Muhammad:
"Indeed, Allah loves someone who does the work (production) carefully and
diligently (Itqan)" (HR. Thabrani).
c. The prohibition of usury: One of Islam ways to realize efficiencies by means of cost
production minimization is through the prohibition of usury. As part of the fixed cost element in
production, the abolition of interest would cause lower production costs (efficient).
d. The prohibiton of israf and tabdzir in production: the difference between israf and tabdzir
relies on the mismatch measurement, while tabdzir is a folly in the use of proper
allocation. Allah says:
"Eat of the fruit when they bear fruit and pay their due on harvest day (with the excluded zakat),
and do not act exaggeratedly. Allah does not like those who exaggerate."(Al-An'am: 141)
2.4 Good Corporate Governance (GCG) Measurement
Good governance is a process in which the board of directors through the management
govern an institution to achieve a company's mission and to protect their assets. Good
governance can be achieved by optimizing the ability of directors to work in partnership by
creating strategies and carrying out responsibilities. An effective governance occurs when
directors give good and accurate guidance to management regarding the strategic direction of the
institution, and efforts to monitor management (Rock et al, 1998; and Maati, 1999). Good
corporate governance in microfinance institutions can support cooperative performance for a
long-term: "good corporate governance can improve firm performance and help assure long-
term survival "(Labie, Marc, and Roy Mersland, 2011).
A weak governance structure is usually found in a cooperative and non-profit
organizations such as NGOs (Churchill, C. and Coster, D, 2001). In general, Banking
governance measures good corporate governance through some aspects such as ownership
control, board of management, regulation and supervision as well as market pressure (Adams
and Mehran, 2003). The common problems in corporate governance is to ensure that the
company operates in accordance with the interests of the owner, not the interests of the manager
(Stephen and Backhaus, 2003).
Dittmar and Mahrt-Smith (2007) showed that a good corporate management would be
more capable to double 'holding cash value' than the company governed by bad
management. Pinkowitz et al., (2006) in their study of government stated that a good company is
able to improve 'cash flow holding'. Financial institutions regulated by the less efficient
management will somehow affect the cash flow and profit earned.
2.5 Value Added Measurement
Joseph Schumpeter (1951) described an entrepreneur as the agent of change in economy
due to their radical reform and production patterns in producing a new commodity or
reproducing old commodity by a new way. Entrepreneurship (cooperation) aims to explore the
opportunities created by changes such as technology, consumer preferences, and social norms, to
create values (Drucker 1985). Sociopreneur has two missions in operating a company, which are
to create profit and social relation. Measurement of financial value added is one way to

6. overcome various problems arise in the measurement of financial performance based on
accounting data. Based on the principle of value based as measurement of a company’s
performance, the management is required to increase a company’s value (Prochaska, 1994).
Financial performance measurement can be implemented by using various types of
analysis methods. One of the methods is Economic Value Added (EVA). EVA is a new kind of
method that measures a company’s financial performance based on the residual wealth by
deducting its cost of capital from its operating profit, adjusted for taxes on a cash basis. (Stewart,
1997; Davies, 2001). EVA has a significant benefit to provide an overview of the added value
gained by a corporation by considering the overall capital cost, including the debt and equity
costs. Value added is related to the fulfillment of stakeholders’ needs toward the capital return
(Stewart, 1997).
3 METHODOLOGY
3.1 Research Approach
In this study, the authors applied qualitative descriptive method and conceptual
framework approach. This is to "... clarify and define the nature of the problem" (Zikmund,
2003). "Qualitative research designs to work with a growing niche are relatively small number
of cases. Generally speaking, qualitative Researchers are prepared to sacrifice scope for detail
"(Silverman, 2005). Malhotra (1996) in Muslich Anshori and Sri Iswati said "Qualitative
research is unstructured, exploratory research methodology based on small samples roomates
provides insights and understanding of the problem setting". Miles and Huberman (1994)
defined a conceptual framework as a visual or written product, one that “explains, either
graphically or in narrative form, the main things to be studied the key factors, concepts, or
variables and the presumed relationships among them”.
This research also applied the Bryman (2008) literacy, which is the use of general
research questions to determine the main topic in formulating the idea framework point on
BMT’s strategy. The authors’ assumptions in determining the basic framework of BMT
strategies are the use of measurement, efficiency, good corporate governance and added
value. Such assumptions were previously obtained from literature and journals.
3.2 Data and Data Sources
Based on the source, this study used secondary data. Cahya Suryani (2010) defined a
secondary data as data obtained or collected from a variety of existing sources (researchers as the
second hand). Meanwhile, the data source was obtained from various sources such as the Central
Bureau of Statistics (BPS), the Ministry of Cooperatives and SMEs, books, reports, journals, and
others.
3.3 Data Collection Technique
With today's technological advances, research of a thing is not only in the library and
only sourced from books, but also can use the internet facility to get journals, articles, and data
on matters related to the research, in particular to methods of library research. The library
research in this paper examine the data which related to the problems of research form books,
articles, papers, magazines and others to find a theoretical study (Sugiono: 2009). While the
location or the scope of research conducted at BMT in Indonesia.
3.4 Data analysis technique

7. In this study, the collected data were subsequently analyzed to draw some conclusions. The
forms of data analysis are as follows:
a. Descriptive Analysis
Collecting and compiling the data, and then analyzing them (Surachman, 1990). The data in
descriptive analysis are in the form of words, pictures and non-numbers. All the collected data
is able to be the key to what had been studied (Moleong, 2004). Consequently, the data will be
presented in the form of quote and data excerpts to provide adequate illustration of the
collected data.
b. Categorical Analysis
Categorical analysis is a method to identify several relevant concepts in the data and then to
classify them into categories (open coding). Meanwhile, the analytical method applied “first
order category” (Strauss and Corbin, 1998; Van Maanen, 1979). The method of “first-order
category” significantly helps the author to look for several categories by using various
references (Gioia, et al., 2010). The categorized data are processed once more using axial
coding to recognize the relationship between categories and was then raised for further
discussion (Strauss and Corbin, 1998).
In conducting this research, such technique was applied to determine whether the quality
of BMT could be improved through the implementation of MEGA. Then, after being collected
and categorized, the data were then analyzed using the determined analytical technique.
Subsequently, the components of MEGA strategy were decided to be finally employed for
conclusion drawing.
4. RESULTS AND ANALYSIS
As one of the economic power to encourage the establishment of small businesses in
Indonesia, BMT needs to increase their resources and performance. BMT still has a weakness in
the regulations for measurable standards of financing. BMT financing funds are still
concentrated in a group of mudharib or high-risk sectors. Human Resources (HR) executives and
staff from the financing have not been optimal enough. Besides, BMT still often provides
financing which exceeds the limits (Luthfi, 2013). This illustrates that the management of BMT
is still considered inefficient both in terms of resources and the management of funds. BMT is
also often inaccurate in detecting the possibility of financing problems, including the detection of
the cash flow of old mudharib, which in the end causes the emergence of new problems and
leads to stuck financing. (Bintoro, 2013).
This paper examines the strategies for improving BMT quality through the measurement
of performance, measurement of the efficiency of fund management (efficiency), measurement
of Good Corporate Governance (GCG) and measurement of value added to determine the
additional value that has been generated by BMT. Therefore, MEGA strategy will improve the
quality of BMT and maintain the continuity of its operations.
4.1 Performance Measurement Strategy
Performance measurement holds an important role for the sustainability of BMT in
improving the performance. The assessment of performance is related to the strategic objectives
of a BMT business. As a business entity engaged in funds collection and distribution through
financing, BMT is able to undertake performance measurement approaches such as finance and

8. management approaches. The benefits of such measurement is to recognize the results of BMT’s
performance in one period, which then used as the evaluation of performance as one of the
consideration for the settlement of next policies.
Assessment of financial performance is able to measure the performance of unseen
treasures and intellectual treasures. The evaluation of management performance for BMT is able
to measure the company's performance by considering the technical aspects as a whole.
Measurement of BMT can prevent any irregularities of performance. The performance
assessment describes the aspects that should be evaluated, so the same mistakes will not be
recurred in the next period. To explain the measurement, literature review of various scientific
journals could be employed. There are various indicators of performance evaluation on
microfinance institutions, and the table below shows the example of literature review on
measurement:
Table 1. Performance Measurement Indicator
Author Indicator of measurement
Firdanis, Nasir, dan Remba
(n.d.)
Financial; customers; internal business process;
learning and growth
Widaryanti (2014) Manajerial Performance: financial; internal
management
Siti Mahtumah and Fitriyah
(2013)
Financial performance; non-financial performance:
customers perspective; internal perspective;
learning; growth perspective
Monika Kusetya C (2000) Financial and non-financial performance
Pandu Fabriarso (2008)
Satisfactions; stakeholders; contribution stakeholders
B.O Iganiga (2008) Monitoring the goals
Richard Rosenberg (2009) Breadth of outreach (number of client served), Depth
of outreach (client poverty level), Loan repayment
(Portfolio quality), Financial sustainability
(profitability), efficiency
Rovier Djeudja and Franz
Heidhues (n.d.)
Transaction costs; the operation costs; the volume of
saving and financing
Based on the table above, the authors classify measurement strategy into two aspects,
which are the financial aspects of BMT with indicator of the ability to repay their depositors'
savings with owned liquid. Firdanis, Nasir and Remba (nd) used the profitability improvement,
revenue productivity and operational cost control as a strategic objective in measuring financial
aspects. Meanwhile, in management aspects, indicators such as customer satisfaction
measurement that indicates the quality of BMT services to members and prospective members
were gained. BMT can perform measurements on a consumer's perspective with indicators of
customer retention, customer acquisition, customer complaints, service attributes, customer
relationship, and image relationship (Mumtahanah and Fitriyah, 2013). Employee productivity
also affects the skills achievement of employees’ morale, motivation, internal processes
improvement and customer satisfaction (Kaplan and Norton, 1996). The level of company
productivity as indicated by the number of customers who served, the portfolio level,

9. profitability and efficiency of BMT has also become the basis of measurements in BMT
(Rosernberg, 2009).
Aam and Devi (2013) performed measurement in BMT with the tools of Analytic
Network Process (ANP) whereas Firdanis, Nasir, and Remba (n.d.) used the Balanced Scorecard
to measure the performance of companies. Besides, there are many other tools to measure the
performance of BMT.
4.2 Measurement for Efficiency
Efficiency at BMT is undertaken by maximizing the allocation of resources which have
been prepared for the benefit in accordance with the performance done. In carrying out its
functions, BMT needs to apply the efficiency strategy in order to restore investors' funds, finance
operations and generate profits. (Luthfi, 2013) describes "...Financing at BMT is still too big and
so exceeded their limits". This shows the urgency of implementing the efficiency measurement
strategy so that BMT can found the aspects that should be improved to achieve efficient
corporate performance. Vega (1998) stated that one of the causes of inefficiency in microfinance
institutions is the uneven use of technology and the availability of resources (Vega, 1998). The
table below shows the indicators of efficiency measurement in micro-finance institutions.
Table 2. Indicator of Efficiency
Author Indicator of efficiency
Mamiza Haq, Sham
Phatan, and Michael Skully
(2009)
considers multiple inputs; produces multiple outputs
Rifki Ali Akbar (2010) Considers the amount of deposits; operating
expenses; using a variable output; operating income;
financing and cash.
Carola Hug (2014) Reduce these operating costs; healthy competition;
effective regulation; appropriate market structures;
and innovation
Adrian Gonzalez (2007) Operating cost:reduce the cost of service borne by
borrower; measured as Operating Expense Ratio
(OER) over average Gross Loan Portfolio (GLP)
Monica Brand and Julie
Gerschick (2000)
Microfinance management; boards of directors;
investors; donors and regulators with a framework
for measuring and analyzing efficiency
CGAP World Bank (2009) The age of MFIs (Higher numbers of loan; higher
average loan size; and more knowledge about
customers)
Diana Yumanita and
Ascarya (2006)
Technical efficiency (relationships between technical
and operational) and economic efficiency (price)
Begoña Gutiérrez-Nieto,
Carlos Serrano-Cinca and
Cecilio Mar
Molinero(2005)
The number of loans outstanding (output) and the
gross loan portfolio (output)
Henderson (2002) Generating their own internal flow of funds that in

10. turn reduce their dependency on external sources
Abdul Qoyum and Munir
Ahmad (n.d.)
optimal or minimum cost point of production;
reduction in cost
M Mahbubi Ali &Ascarya
(2010)
Optimizing human resources; job descriptions;
prohibitted riba; and prohibited israf and tabdzir
Efficiency by input approach can be seen from the financial statements such as profit
sharing, personnel, general, and administrative expenses. In terms of output, efficiency can be
seen from Third Party Fund (TPF), the amount of distributed funding, and other operating
income (M. Mahbubi Ali &Ascarya, 2010; Mamiza Haq, Sham Phatan, and Michael Skully,
2009; Begoña Gutiérrez-Nieto, Carlos Serrano-Cinca and Cecilio March Molinero, 2005).
Efficiency in Islam is by obtaining results in accordance with the efforts. This means that
the optimization of the output will produce a reasonable / comparable input with its
performance. Efficiency can be applied by adjusting expenditures in accordance with a
predetermined capability (CGAP World Bank, 2009). Diana Yumanita and Ascarya (2006)
described efficiency in two ways, which are technical and economic efficiency. Technical
efficiency organizes the appropriate technical issue in BMT, thus a balanced output and input
could be produced. Economic efficiency implicates for a stable price, or in BMT are usually
associated with the profit sharing due to the absence of interest-based system. In several
literatures, it has been stated that one efficiency indicator in Islam is by implementing the
prohibition of riba. The price or the additional charged to mudharib greatly affect for
efficiency. Mudharib will feel burdened by the concept of usury, but in contrast to the profit
sharing, it is more likely to provide justice for both parties.
Mahbubi M. Ali and Ascarya (2010) conducted the measurement of efficiency in BMT
by applying two-stage method of Data Envelopment Analysis. Meanwhile, Muhammad Nasihin
and Ludwina Harahap (2013) measured the financial efficiency by the approach of Cobb-
Douglas Production Function.
3.3 Measurement for Good Corporate Governance (GCG)
Measurement of governance may eventually assist a company to realize an effective
institution (Ratnasari and Prastiwi, 2010). BMT in Indonesia is a financial institution with a
bottom-up process, which means this institution established by the initiation of
communities. However, BMT’s resource management has not yet had a good capability in the
area of Islamic finance (Luthfi, 2013). GCG measurement strategy of BMT somehow helps the
institution to measure the leadership quality of the board in carrying out the responsibilities to
the company and to create policies for the development of institution.
The authors were looking for indicators of GCG in microfinance institutions through various
related journals. Here are several indicators of GCG according to researchers:
Table 3. Indicator of Good Corporate Governance
Author Indicator of GCG
Rachel Rock, Maria Otero,
and Sonia Saltzman (1998)
Ownership (public/non-profit NGO); Fiduciary
responsibility (Low-income micro-entrepreneurs/An
insolvent microfinance institution/microfinance
boards incur a responsibility with donors); Risk
Assessment Capacity; External Actor

11. Marc Labie (2001) limited partnership agreements; high-equity
ownership; board members; small boards of
directors; typically of CEOs
Anthony Kyereboah-
Coleman and Kofi A. Osei
(2007)
the number of board members; financial approach;
firm age; firm assets structure
Marc Labie & Anaïs
Périlleux (2008)
Education; training; networking structures; the
relationship between governance and growth; the
fundamentalism of credit union
Valentina G. Bruno and
Stijn Claessens (2007)
shareholders (managers and shareholders); limiting
private benefits; expropriation by controlling owners
Dennis and McConnell
(2003)
better monitoring of management
La Porta et al. (1997) higher investor protection; more capital market
development; and higher company valuation
Adams dan Mehran (2003) ownership control; board management; regulations;
supervision and market pressure
Robert Cull, Asli
Demirgu¨c¸-Kunt, and
Jonathan Morduch (2009)
The type of industry; lenders; profitability; high rates
advertised; type of customers; maximizing profit of
investors; subsidies; the accuracy of data
Robert Cull, Sergio
Navajas, Ippei Nishida and
Renate Zeiler (2015)
Regulatory Framework and Practices: regulation;
supervision of microfinance portfolios; formation of
regulated; supervised microcredit institutions;
formation and operations of non-regulated
microcredit institutions; regulatory and supervisory
capacity for microfinance; and the regulatory
framework for deposit taking
Supporting Institutional Framework for
Microfinance: microfinance institutions; accounting
transparency; client protection (transparency in
pricing); resolution of disputes between borrowers
and lenders; the effectiveness and reliability of credit
bureaus for microfinance; and the quality of policies
and practices for financial transactions through
agents.
According to Rachel Rock, Maria Otero, and Sonia Saltzman (1998), a microfinance
institution is categorized as good corporate governance (GCG) if it, first, has a clear concept of
ownership property such us public or NGOs ownership. Second, the mudharib who have low
incomes or failed to pay are on donors’ responsibility. Third, financing risk assessment capacity
is among external factors such as shareholders, mudharib and so forth. Dennis and Mc Connell
(2003) stated that good governance in microfinance institutions supervision depends on a good
performance of the directors.
On the regulatory, Robert Cull, Sergio Navajas, Ippei Nishida and Renate Zeiler (2015)
proposed several concepts of corporate governance in microfinance institutions. First, they
suggest the making of regulation in the form of finance portfolios. The second is by formulating
regulatory and supervisory capacity, and regulatory frameworks of deposits. The third is by the

12. implementation of a transparent accounting and customer protection related to the price. The
fourth is the settlement of disputes between mudharib and shahibul maal. The fifth is the
effectiveness and capability of employees. The last is the quality of regulation and its
implementation.
3.4 Measurement for Value Added
Measurement of BMT’s value added is used to determine the added value of the
institution on several aspects. Here are several indicators of value added measurement in
microfinance institutions based on journals:
Table 3. Indicator of Value Added
Author Indikator Value Added
Ruky (2002) Rate of return on investment
Ismail (2010) Financial Performance: ratios to assess earnings
performance, asset quality, capital adequacy
Titik Inayati, Bambang
Subroto, Achmad Fachan
& Atim Djazuli (2014)
NOPAT (Net Operating Profit After Taxes); the debt;
equity; WACC (Weighted Average Cost of Capital);
invested capital
Jay K. Roserngard (2004) Social value added: positive social impact; the
efficiency
Valentina G. Bruno and
Stijn Claessens (2007)
shareholders (managers and shareholders); limiting
private benefits; expropriation by controlling owners
Dennis and McConnell
(2003)
better monitoring of management
Nathanael Goldberg (2005) Control of loan; incoming poverty level; family crisis
Christian Ahlin, Jocelyn
Lin and Michael Maio
(2011)
financial revenue versus financial costs; default costs
(The loan loss expense rate); and operating costs
(average loan size).
Financial measurements can be obtained from the Return on Investment (Ruky,
2002). According to Ismail (2010) financial performance is formulated through a ratio to
earnings, asset quality and capital adequacy. BMT also provides social value added to give a
positive impact for the community. By such activity, poverty can be reduced and the economic
crisis of a family could be overcome.
Iramani and Febiran (2005) applied Economic Value Added (EVA) and Financial Value
Added (FVA) method to measure the value added of a company. EVA method was first
developed by Stewart & Stern, a financial analyst of Stern Stewart & Co. company in 1993. In
Indonesia, this method is called NITAMI (Economic Added Value) method. EVA/NITAMI is a
financial management method to measure economic profits of a company that states that
prosperity can only be created when the company is able to fulfill all operating and capital costs
(Tunggal, 2001).

13. 3.4 Categorical Analysis

14. Source: Categorical Analysis
Firm age
Firm asset structure
Education/ training
Networking structure
Company valuation
Accuracy of data
Quality of policy
ROI and ROE
Asset quality
Internal Approach
Financial Value Added
Capital adequacy
NOPAT; debt equity;WACC
Financial revenue vs financial cost
The loans expenses rate
Operating cost
Monitoring management
Limiting private benefits
Control of loan
Positive social impact
Efficiency
Incoming poverty level
Family crisis
Internal Firm Value
Social Value Added
Value Added
Measurement

15. Based on the data structure above, the authors analyzed the MEGA strategy into several
approaches. In the performance measurement strategy, there are two approaches, which are
financial approach comprising the volume of saving and financing, operation cost, transaction
cost, and financial sustainability. Besides, BMT also needs to perform measurements by the
management approach through the measurement: the willingness of stakeholders, target
achievement, internal perspective, external (customers) perspective, human resources and depth
of outreach. Despite its status as a micro institution, BMT is still required to take measurements
of the two aspects above to gain more optimal result. Additionally, measurement of performance
by using both approaches eventually helps the acceleration of BMT in order to achieve a better
achievement.
Efficiency measurement strategy can be applied through four approaches, which are the
arrangement of efficient regulatory with market structure, innovation, healthy competition,
resources optimization and clear job description. The main principle is to prevent usury, israf and
tabdzir. On the other hand, efficiency can be applied with the output approach through producing
a wide range of products as well as the allocation of funds. In addition to regulating expenditure,
income (deposit) should also be considered. BMT must also be efficient in its operations. Some
of the efforts are by applying the reduction of operating costs which are considered unnecessary,
reducing the external sources and the most important thing is to maximize production costs to the
fullest extent.
GCG measurement strategies can be applied by several approaches such as ownership,
financial, boards of institution, external factors and internal factors. However, GCG
measurement strategy is still rarely applied in BMT, yet through measurement of GCG, BMT
can determine the director’s performance in managing the BMT. The director’s position is very
important in small institutions. Therefore, the authors classify BMT ownership approach by its
type, whether it is classified as public ownership or non-profit institutions such as the Non-
Governmental Organization (NGO), the owner level equity, the type of owner, the owner
control. In financial approach the authors figured out an indicator of profitability, and subsidies
granted to members as a reference. The boards of institution-level are indicated by BMT’s
responsibility to donors, limited partnership agreement, members of boards, relationship between
governance and growth, as well as the quality of management supervision (SPV) and managers.
Internal factors in BMT will significantly determine the quality of GCG. In this aspect the
authors found the indicator such as the age of BMT, the structure of assets, education/training,
networking structure, investor protection, company valuation, regulation, accuracy of the data
and the quality of policy. Subsequently, the external aspects of the BMT were measured by
indicators of fiduciary number, income level communities served, default rate financing,
fundamentalism of credit, the shareholders and the types of customer.
Value added measurement strategies are helpful to measure the added value generated. The
role of BMT is very significant in the Indonesian economy. According to the data from the
Ministry of Trade (2013) Cooperative in Indonesia, BMT has a market share of 18%. This
amount is greater than several microfinance institutions found in Indonesia. This is supported by
the domestic economic environment which is still dominated by the SME sector (Ministry of
Cooperatives and SMEs, 2013). Thus, the role of BMT needs to be measured by value added
measurement strategy and financial approach, social value added, internal impact. In figure 2, it
is illustrated that financial approach can be measured by calculating the ROI, ROE, asset quality,
capital adequacy, NOPAT, WACC, debt equity, financial revenue vs. the financial cost, the rate
loans expenses and operating cost. Meanwhile, Social Impact can be measured through a positive

16. social impact, efficiency, incoming poverty level and family crisis. Internal Value added in the
above image can be obtained by measuring the level of management oversight, limiting private
benefits and control of loan.
5. CONCLUSION
There are four strategies that should be applied to improve the quality of BMT performance,
which are:
a. BMT should apply the measurements of performance, efficiency, good corporate governance
and value added. The first performance measurement can be undertaken by financial and
performance management approach to determine the quality of business management.
b. Efficiency: Measurement of performance can be seen from the level of business efficiency.
Efficiency is measured from the input, output, and operational regulations approach that was
set by BMT.
c. Good Corporate Governance (GCG): Measurement must also measure the quality of the board
of directors in managing BMT. This is because BMT are still considered as a micro institution
with various quality of directors. The authors obtained GCG measurement strategy to measure
the ownership system, financial approach, boards of institution, internal factors, and external
factors.
d. Value Added: Measurement of value added in BMT is applied to identify the positive effects
of BMT within a certain period. Besides, as an Islamic financial institution, BMT which aims
to serve the community holds a very important role in economic activity. From this study, the
authors figured out three approaches which should be explored by BMT to measure the value
added with the indicators of value added, social value added and internal value added.
From the four measurement strategies above, the quality of performance of BMT is expected to
improve. Through the proposed strategy, BMT is expected to develop significantly and to
provide maslaha for the whole Muslim community.
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