Baitul Maal wat Tamwil (BMTs) are Islamic microfinance institution in Indonesia. Principles encouraging risk sharing, individual rights and duties, property rights, and the sanctity of contracts are all part of the Islamic code underlying the financial system. The objective of the paper is to discuss about the microfinance of BMT, including the development, prospects and challenges. In Indonesia, where more than 90% of all businesses are micro and small enterprises, the question of how toencourage growth and job creation is a vital one in reducing vulnerability to poverty. Micro and small business owners frequently remark that their ability to grow is limited by capital constraints. In fact, very few small businesses obtain credit from formal sources. Extending credit to these enterprises is a challenging task. Small businesses suffer from high turnover, low levels of formalization, and borrow relatively small amounts that are expensive for financial institutions to service.
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