Iwan Saktiawan

Iwan Saktiawan is enhancing the core principles and values of an Indonesian model of Islamic banking, the Baitul Maal watTamil, to help small-scale business entrepreneurs achieve economic sustainability and self-sufficiency.

Iwan has adapted Islamic banking principles and microcredit best practices to create a viable new banking model to assist small traders and low-income producers. He is testing an approach that encourages asset development among low-income people through education in effective savings strategies and economic management. Iwan has introduced critical improvements in a model called Baitul Maal watTamil (BMT), which is currently in use in Indonesia. BMT relies on agreements between the lending institutions and the small-scale business borrowers to form a partnership and share in profits and losses. Such a relationship requires that partners both share an equally sophisticated knowledge of the business and respect the necessity of transparent, open communication. Because most iterations of BMT lack the measures that ensure fair management and transparency, the model fails in practice, leaving many users disgruntled or cheated.
To overcome the problems of the BMT model, Iwan has introduced key improvements. Through his approach, the BMT is owned by members of the local community, and individual savings groups are linked in a network that facilitates specialized administrative functions such as research and development, data analysis, and staff training, while individual institutions retain their autonomy. In addition, Iwan and his staff educate and advise customers on how to manage their own business and household finances.

Although they tend to be tough and enterprising individuals, most small-scale business people in Indonesia are facing similar problems. The most crucial is their lack of access to capital to increase their business potential. Currently, to enhance their trade or meet some unexpected need, business people are forced to borrow from money lenders at extremely high interest rates or from a government bank, which has complicated bureaucracy and requirements. The lack of public policy to support a healthy business climate is also a serious problem for business owners. There are few regulations to protect business people, countless illegal fees and bribes that must be paid, as well as unclear tax provisions. Many small-scale business people also lack financial skills to manage both their businesses and their households. An increase in income is usually followed by an increase in expenses, a phenomenon driven in part by consumeristic tendencies. Thus, a successful increase in income that results from more credit, the improvement of product quality, or enhanced marketing strategies sometimes results in no net gain whatsoever because of poor management.
In 1993 a new model of microfinance institution–the BMT (Baitul Maal watTamil)–was launched in Indonesia. The BMT not only refers to the social aspect with funds derived from the zakat (Islamic tithe) and donations, but also to the commercial aspect with funds from savings accounts. The BMT model is based upon the principles of syariah, law that forbids accruing interest on loans or savings. Declining to earn interest, leaders forged an agreement to share in the profits and losses incurred by a business person who takes out a loan from a bank. The BMT model was encouraged by an organization of Muslim intellectuals eager to see it spread quickly. This expansion was accomplished with a total of 2,470 BMTs being established throughout Indonesia by 1998. However, serious problems forced over half of the BMTs to close after a short time. Those that continued to operate did so ineffectively. Problems included unprofessional and poorly trained staff and a low level of institutional capacity within the banks. Staff members were limited in their knowledge and understanding of the economic conditions of the communities they were trying to serve.
Because a cornerstone of the Islamic banking model is to share in profits and losses, it is essential that bank staff have considerable knowledge of the actual and potential conditions of the businesses requesting loans. This aspect–combined with transparency, mutual trust, and responsibility–should be fostered by all parties involved in the transaction. Many of the BMTs that were started in a top-down system supported by ICMI sorely lacked transparency in their negotiations. Besides this, many of these BMTs were also established with a limited amount of capital investment from the members and thus were not economically viable. The tendency for an overemphasis on credit and an underemphasis on savings meant that the target communities failed to reach the potential promised by the BMT model.

As a university student, Iwan began to work with Yayasan Peramu, a foundation committed to empowering grassroots communities through economic and human rights activities. Iwan offered to help create a model for a BMT to benefit small-scale traders because demand for Yayasan Peramu's savings and loan groups far exceeded the availability. Iwan studied existing microfinance institutions and found that while the principles of the BMT system were good, shortcomings in implementation meant that the system did not improve conditions or empower the communities they were designed to serve.
In 1994 Iwan established a model of an innovative BMT under the auspices of Yayasan Peramu. Ten founding members contributed cash assets (approximately $2,500), and the Yayasan added a computer, a table, and salary for some of the staff. In 1995 the program expanded regionally to include three BMTs and then finally eight separate BMTs–each unique in its rate of growth and process. All institutions are part of the current and still-growing BMT network that Iwan has created and called SAMIN–Syariah Microfinance Institution Network.
Iwan's strategy has been first to develop innovative improvements in the existing BMT model, and second to create a network based upon these innovations to facilitate the operation of sustainable microfinance institutions. Today, the SAMIN BMT serves over 3,000 customers (approximately 60 percent male and 40 percent female) and has assets totaling $400,000. There are currently 60 staff members employed by the eight BMT.
The concept of the SAMIN BMT model is to try to solve some of the problems faced by existing microfinance institutions, particularly those involved with carrying out their mission to empower and develop economic sustainability. The main reason why the general banking sector is rarely accessed by small traders and producers is the preconception that these people have no potential in terms of savings and credit. With Iwan's approach, members of this group are educated to be able to save and pay back their loans. Also, this community has rarely saved money in banks because of both the high cost of transportation to and from the bank and the requirement to maintain a high minimum balance and deposit. The traditional saving methods and daily visits from SAMIN staff solve these problems. For example, customers are encouraged to use a kind of piggy bank so that every day they learn to save some money, instead of spending small change on trivial things.
In terms of household financial management, customers are encouraged to anticipate expenses, e.g., upcoming school fees, plans for a wedding or other ceremony, and some nonemergency healthcare needs, that their families will definitely incur. With the support of staff, customers set their own goals and plan for saving amounts, time periods, and necessity. The planned-savings approach is advantageous to the institution since funds slowly but surely accumulate to become funds that can be used by other customers. Through profit sharing, the business success of a bank customer has a positive impact upon the institution, which in turn benefits all its members.
One criterion for obtaining credit from many microfinance institutions is the individual's saving power. SAMIN BMT tries to help people increase their saving power by thoroughly educating them. Frequent interaction between staff and customers is part of the education process. For example, a staff member visits one area (comprising about 50 customers) and thus converts what would have been the customer's expense for transport into a saving. The services provided by SAMIN BMT have been developed to make it as easy as possible for customers to save. Many are visited briefly on a daily basis.
Some customers form groups of savers based on proximity. These groups enhance efficiency and also provide a medium for education, for example, on how to state one's opinion, how to maintain transparency, how to become active, democratic participants. However, in spite of SAMIN's emphasis, saving is not a requirement to get credit, nor is attendance at group meetings. Individual interactions are an alternative. The SAMIN BMT has chosen the cooperative format as its legal system with a one-person-one-vote system. Customers are all encouraged to participate in the decision-making process through the annual meeting, which contributes to their sense of ownership of the institution.
The membership system of the SAMIN BMT is another part of Iwan's innovation. In an ordinary BMT, membership is closed to all but the members. Membership in SAMIN is open to all customers based on a shared understanding of the institution's vision and mission. Iwan also feels that members' relationships should not be based solely on area, profession, or similar needs. He does not subscribe to the notion that members who might want to invest large amounts of capital should have more authority in the institution than other members who might want to focus on the educational value of the model. For SAMIN, there are three different levels of membership, with progress from one level to another determined by the amount of training a member has received.
Iwan has written extensively about SAMIN and presented his ideas in mass media publications and national seminars. He is actively involved in training staff and developing the SAMIN model to facilitate easier replication. Materials like the Standard Operating Procedure manual and a software package Iwan developed will help train institutions interested in replicating the idea. The software is an integrated system covering all functions from customer saving account records to institutional payments, to transactions requiring daily reports and necessary management information. The software includes a module to evaluate the conditions of SAMIN BMT customers. Taken on a yearly basis, surveys show that 80 percent of customers have shown an increase in their assets and standard of living. Citizen sector organizations involved in microfinance throughout Java, Kalimantan, and Flores have sent staff to train and apprentice with Iwan and his SAMIN staff in Bogor. In October 2002 there will be a nationwide meeting of BMTs, and Iwan will use this opportunity to further socialize the concepts he has developed in the SAMIN model.
Iwan has created SAMIN as a network to provide functions that are essential to a sustainable microfinance institution but which are expensive if they must be carried out by each individual office. These functions include research and development, data analysis, staff recruitment and training. The network allows small, local institutions to develop a professional, unified mission in which local communities have a sense of ownership.

Iwan was born to parents who were teachers in Bandung, but he was raised by his grandmother in Tasikmalaya, West Java, an area whose residents are famous for their business entrepreneurial qualities. His grandmother held special classes in the traditional arts in their home, and Iwan excelled in music and academics and was active in student organizations. Iwan led his high-school student council to participate in music and poetry events at a national level. He chose to attend IPB (the Agricultural Institute of Bogor) for university because he found that the students at IPB had a higher social consciousness than most university students. While studying in the statistics department, Iwan took over the organization of a math competition (mathematic galleria) for high-school students. Through the use of games and interactive techniques, he was able to develop this competition to promote interest in, rather than fear of, math among high-school students. Iwan found local sponsors for the competition and spread the activity to the national level. Winners of this competition now take part in the International Math Olympics.
For his excellent academic achievement, Iwan received a scholarship to help with his studies. The scholarship came from an organization that was the forerunner of Yayasan Peramu. Iwan began his involvement with BMT and Yayasan Peramu in 1994 and is now the head of both the "people's economy" division and training and research. Iwan says that he has been drawn to his work in microfinance not only because it addresses one of the most pressing needs experienced by a large number of people, but also because through this work he is able to encourage people's self sufficiency and business entrepreneurship.