Islamic Small Bank Baitul Maal Wa Tanwil

Open Proposal
COMMUNITY BANK OF SYIRKAH (CBS)
(A concept to enhance Islamic Small Bank Baitul Maal Wa Tanwil)
Prof. Dr. Bambang Setiaji
and Ibrahim Fatwa Wijaya, SE
A. Back Ground: A seeking for Islamic Based Economy
Market economy nowadays has gained more significant role in Muslim countries. This
economy does not meet the Islamic values which demand more egalitarian economy. Bank is
public need, where all society need it, and often to bear if it fail. In case of the bank
ownership, Islam favors to share ownership with more people, or handled by state as the
representation of ummah. This purpose is suitable with community bank which is developed
not only based on merely business but beyond that lead to help each other and hopefully give
spritual satisfaction.
Seeking a suitable banking institution
1. Like other comunity, the Islamic modern economy needs an intermediary function
which is nowadays called as a bank institution. The institution functioned as a
medium to meet the depositor and investors who demand some fund to back up their
business or a consumer to buy durable goods.
2. The bank operation embedded multipliers function which is possible to make the bank
become bigger and bigger. The multipliers happen because the bank is able to lend
some money and lend again the credit payment to other new debtors, and once again
lend the credit payment to the other debtors. The multiplier function makes the asset
of a bank multiplied in amount than their capital. Simply, the bank operates within the
public with the third party asset. For that reason, ummah or state is suitable to become
1
the owner of the bank. At the same time, the owner should not become the small
elitist which is now we call as capitalist.
3. Recently, Moslem has been developing Islamic Banking in many countries, and
particularly in Indonesia. It has been created small financial institutions called Baitul
Maal wa Tanwil (BMT), which are spread over the area.
B. The CBS Concept
In Indonesia, it has been founded thousands of BMT (Baitul Maal wa Tamwil) which operate
as the community bank institution. The BMT sometime gives a very small amount of credit,
approximately US$ 100, in a short term length of credit. Because of the transaction cost, the
margin rate of BMT is very high; usually the margin is equivalent to 4% effective rate
monthly.
The murabahah scheme is used to back up the credit contract. Profit and loss sharing
(syirkah), as the Islamic Bank theme is almost absent in the entire credit contract. The bigger
and more formal Islamic bank also shows the lack of syirkah and shows only murabahah as
the majority if it is not the only scheme of credit.
For this reason, CBS conceptualized as community bank based on syirkah or profit and loss
sharing. The concept consists of the some characteristic below. The application of syirkah
scheme in the Islamic banks ttoday are very limited. This is due to high risk faced by banks
because of probable miss report from the borrowers. Beside that, many small business has no
adequate accounting report.
CBS should be oriented to enhance ummah economy, which do not leave the development of
the CBS itself. The progress in asset is needed in order to expand the CBS capacity to help
more and more people.
The CBS should be formed as “Koperasi” institution which is administered by ministry of

Koperasi and small business affair. Koperasi is a kind of enterprise form, where, capital is
owned by allmembers. The vote do not based on the amount of money invested, but it is
based on the number of members.
2
The ministry differentiates the Koperasi institution which are those operating in real sector,
and operating in small credit market. Many licenses of Koperasi work in both real and
financial sector. In the small finasncial sector, similar to their counterpart in banking system,
also legally operate conventional and Islamic system.
Koperasi is suitable form to carry out community bank. Koperasi by its definition is possible
to make the bank finally owned by community members. The existence of the bank is based
on the community needs to meet the depositors and debtors. If the debtors or member need
some fund, they do not pay any interest (as in conventional bank) or margin (as existence in
Islamic Banking), but they give a reserve fund defined as easily 1% monthly of their
outstanding credit. The reserve will be used to cover operating cost, and to give ta’awun fund
to help bankrupt member. The accumulated fund in the end of period will be subtracted by
the real or incur cost, and the rest of the fund can be viewed as efficiency which is distributed
back to the members. This is similar to profit distribution to shareholder.
To enhance the CBS, all debtors besides paying 1 % reserve fund mentioned earlier, should
also pay certain fund. In addition, to conform to the magnitude of inflation average in
Indonesia, they should pay 0.5% per month. The fund is not an interest or margin but capital
or share payment. The fund will be recorded as the member share. Simply, the fund becomes
the debtors share in the CBS. By this scheme, CBS will be owned by the entire members. The
simulation shows that 100 percent share initiator fund in the first month become 75% in 3
years later, and become 50% in the less than 6 years later, and become 25% in less than 9
years. In the 20th year, initiator fund will be reduced as very small share.
The finanacing example: An entrepreneur asks CBS to borrow Rp. 10.000.000 for 50 months
length of credit. Her obligation is described below:
1. Principal repayments = Rp. 10,000,000/50 = Rp. 200,000

2. Reserve (ta'awun fund, and operating costs) divided fairly according to the amount of
fund borrowed. This reserve is estimated 1% =Rp. 100,000. (note: this reserve will be
distributed back after the actual cost, namely ta'awun for loss members, and the cost
of renting the building, salaries, and overhead).
3. Capital obligatory payment, recorded as share of the member is Rp. 50,000
4. Number of payment is Rp. 350,000 per month.
3
At the end of the contract, borrowers pay Rp. 350,000 X 50 = Rp. 17,500,000.
The borrower, now, becomes a member or shareholder with the capital devoted Rp. 50,000 x
50 = Rp. 2.5 million rupiah.
The Rp. 2.5 million fund will increase the capacity of CBS to serve or help others. The new
debtors will also invest n the same amount of money and become the new CBS owner.
During the time, the membership and the CBS’s capacity will get bigger and bigger. Clients
of other banks will move and merge with the CBS because of two reasons. The first reason,
the effective credit cost or margin in small banking or BMT is equivalent to 3.5 – 4%, and the
CBS only charged 1.5%. The second reason, at the end of the contract the debtors will change
their position from consumers to shareholder with about ¼ of their amount of credit.
The CBS will be very competitive and attractive system. The secret key of the CBS potential
development is kindness, justice, and brotherhoods or ta’awun. The system will challenge the
existing system that elitist in nature, selfish, and tend to dominate or oligopolystic. In this
principle bank ownership will be spread throughout the public or ummah.
C. Analysis
a. Customer
Customer is the core of the CBS operations. Customers are the small and prospective
businessman, who has been run the business successfully, but they are shortage of capital.
Customers can also come from a young businessman who dare take the risk; he makes a
good business plan and relinquishes their asset as collateral. Ofcourse wage receivers
possible also enjoy CBS service especially to financing durable goods. Motor cycle is
common sell by credit and it reach million transaction a year.
A businessman must bear the major of loss, while the CBS only bear the small part of loss
which is allocated in ta’awun fund. This scheme of syirkah is fair and kindly, as if the
businessman have some profit the CBS asks for only a small part in term of real cost,
which is subtracted from the reserve fund.
Customer, who fails run the business, his or her collateral asset will be sold in the
maximum price, the result will be used to cover their loss share and the remaining will be
4
returned to customers. The bank will spend its taawun reserve, with reasonable
calculation which is secure to continuing the bank itself. For imstance scheme of loss
cases is 5 to 10 percent for bank and 90 to 95 percent for members, it depend on the risk
calculation.
The bankcruptor now loss his or her asset, but he or she can start a new business with the
rest of asset, plus ta’awun fund, and they can also withdraw their share in the CBS with
special cases. With above scheme, the syirkah principles is approached.
b. The progress of asset
 Interest free banking model above, in simulation shows a certain progress, the assets
was simulated increased by almost triple in three years. Asset of the CBS settle owned
by ummah and the CBS is only wakalah institutions. Rescuing the assets of ummah is
an important step, therefore, the integrity and committed leadership of the CBS is
given priority or as the key factor.
 The CBS will operate as a go public company from the begining or build in system,
which obligates to do the annual members meeting and extraordinary meeting, if
deviate case was happens. The CBS must also report the development of assets,
balance, and income statement every month, to accomplish the good corporate
governance principle.
c. Loss and Profits
 From the simulation we can draw the profit and loss summarized in the table below.
Total reserve fund collected 179.241.607

Actual Cost 87.000.000
Profit before tax 92.241.607
 Capital composition
 Founder 300.000.000 = 0,75

 Member 93.779.844 = 0,25
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The profit in this business recognized as total of reserve minus actual cost incurs. This funds
will be allocated for taawun, and allocated to investor, both founder and customer, in the 3rd
year the composition of capital are 75 – 25.
D. Closing Note
All of recognized profit in this kind of business possible is allocated to the founders and the
members, and does not require detained profit, because CBS will outgrow automatically by
the member’s compulsory buying share. The Bank will be owned by ummah, where during 3-
years customers share is 25%, and in the 6th year has become 50%. At the age of 9-year
community ownership of the CBS has more than 75%, that is why the bank is called a
Community Bank of Syirkah.
6
Table 1. Cash Flow Simulation for 36 month for CBS’s initial fund of 300.000.000
rupiah
in Rp 000.
Month Item D K S Outstanding
credit
1 Capital deposit 300.000
Funding of 30 small business 300.000 300.000
Principal repayments 6.000 6.000
Reserve of ta'awun/ syirkah and operating 3.000 9.000
cost
Capital deposit 1.500 10.500
OPERATING COST 2.000 8.500
2 New funding 7.500 1.000 307.500
cost
3 New funding 8.725 1.000 316.225
Cad Inflation ,and cost 3.162 10.486
Capital deposit 1.581. 12.067
4 New funding 9.067 1.000 325.292
cost.
5 New funding 9.385 1.000 334.678
cost
6 New funding 9.713 1.000 344.391
cost
7 New funding 10.053 1.000 354.445
cost
8 New funding 10.405 1.000 364.851
7
cost
Capital Deposit 1.824 13.769
9 New funding 10.769 1.000 375.620
cost
10 New funding 11.146 1.000 386.767
Reserve of ta'awun/ syirkah and operating 3.867 12.603Y
cost
11 New funding 11.536 1.000 398.304
cost
12 New funding 10.000 2.940 408.304
cost
13 New funding 14.231 1.000 422.535
cost
Capital paid 2.112 15.788
14 New funding 12.288 1.000 434.824
cost
Capital Deposit 2174 16.218
15 New funding 12.718 1.000 447.543
cost
16 New funding 13.164 1.000 460.707
cost
8
17 New funding 13.624 1.000 474.332
cost
18 New funding 14.101 1.000. 488.433
cost
Capital deposit 2442 18.095
19 New funding 14.595 1.000 503.029
cost
Capital deposit 2515 18.606
20 New funding 15.106 1.000 518.135
Reserve of ta'awun/ syirkah and operating 5.181 16.544o
cost
21 New funding 15.134 1.000 533.269
cost
22 New funding 16.164 1.000 549.434
cost
23 New funding 16.730 1.000 566.164
cost
24 New funding 17.315 1.000 583.480
cost
9
25 New funding 17.921 1.000 601.402
cost
26 New funding 18.549 1.000 619.951
cost
27 New funding 18.698 1.000 638.649
cost
Capital Deposito 3.193 23.352
28 New funding 19.352 1.000. 658.002
cost
29 New funding 20.030 1.000 678.032
cost
30 New funding 20.731 1.000 698.763
cost
31 New funding 21.456 1.000 720.220
Reserve of ta'awun/ syirkah and operating 7.202.201 22.606.602
cost
32 New funding 22.207 1.000 742.427
cost
33 New funding 22.984 1.000 765.412.753
Reserve of ta'awun/ syirkah and operating 7.654.128 23.962.383
10
cost
34 New funding 23.789 1.000 789.202
cost
Capital paid 3.946 28.622.
35 New funding 24.622 1.000 813.824
cost
Capital depsoit 4.069 29.483
36 New funding 25.483 1.000 839.308
cost
Operating Cost 3.000 27.375
New funding 26.375 1.000 865.683
11

Islamic Small Bank Baitul Maal Wa Tanwil

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Open Proposal

COMMUNITY BANK OF SYIRKAH (CBS)

(A concept to enhance Islamic Small Bank Baitul Maal Wa Tanwil)

Prof. Dr. Bambang Setiaji

and Ibrahim Fatwa Wijaya, SE

A. Back Ground: A seeking for Islamic Based Economy

Seeking a suitable banking institution

B. The CBS Concept

The CBS should be formed as “Koperasi” institution which is administered by ministry of

1. Principal repayments = Rp. 10,000,000/50 = Rp. 200,000

b. The progress of asset

c. Loss and Profits

Total reserve fund collected 179.241.607

 Founder 300.000.000 = 0,75

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