Small but Effective

KSPPS BMT Al-Falah began working in 1995 as a small self-help group with the motive to provide financial access to small local traders. Today, its total assets cross IDR 83 billion in value, and has nine offices spread across West Java. A detailed look at the financing and savings products shows that it offers simple and convenient products suited to the needs of its members. Al-Falah offers various types of financing - qard (interest-free financing) for trusted/ repeat customers with an upper limit of IDR 10 million, and murabaha (cost-plus-profit) contracts based financing for individuals or groups under fixed margins. Despite expanding to become the largest BMT in West Java, Al-Falah has not ventured far away from the original mission and management style.

Building Trusted Ties to the Community

Al-Falah has managed to gain the trust of the locals and even though it does not offer deposit guarantees to its members as offered by microfinance banks, the ratio of deposits to financing in BMT is above 100%. The success of the BMT owes largely to building close connections with the local community, building a sense of loyalty towards the institute. Even though it doesn’t offer financial returns on savings, it tries to encourage a culture of purpose-based saving like savings for Eid (religious festival) or education of a child. There are some time deposits offered on mudarabah (profit sharing) basis as well.

Operational Practices of Al-Falah

The success of this BMT model could also be attributed to the highly tailored services offered by Al-Falah. Financing products are tailored to be compatible with the payback ability and tenure requirements of the borrower. There are no fixed tenures, and other options to enhance convenience, like collateral free borrowing, available for repeat customers. BMT Al-Falah strives to stay close to its members and even sends their staff to the members’ doorsteps to collect and receive payments. They also stay vigilant of the operational costs and keep them as low as possible.

Competition in the Market

Al-Falah also offers group based financing. Although the BMT has been able to compete with the local loan sharks by offering lower rates, the micro banking industry remains a strong competitor. The greater competition comes from the subsidized microcredit programs, such as Kredit Usaha Rakyat - KUR (loan for small scale business), which offer lower financing rates, longer tenures and higher credit ceilings. Although the BMT has steered well so far, it seems that the institute has not done enough to adopt to fintech based services.

Opportunity for Growth in Fintech

Despite the fact that current demand for tech based services is low in their target market, the possibility of people’s preferences changing in favour of high-tech products, such as payment of bills through Android applications, remains a possibility. Increasing efficiency, productivity, and profitability could also play an important role in strengthening their position against existing and potential competition.