Overview on MFIs in Indonesia and GTZ strategy in capacity building

Workshop on

“Sustainable Microfinance: Developing a Sector Strategy and Building Institutional Capacity”

World Bank Office Jakarta, 11 – 12 February 2002 Dominique Gallmann,

Deputy Team Leader

“The Alchemy of Microfinance”“…it is as if Indonesia has been the world’s largest laboratory on rural financial market experiments…Many different institutional forms have been tested by trial and error… Valuable lessons have been embedded in the variegated experience of Indonesia’s rural financial markets, along a rich continuum of shades and shapes.”(Gonzalez-Vega / Chaves, 1992: 38)

Typology of MFIs Institution and ownership

(formal /informal, Bank/non-bank, NGO/Govt. program)

Financial services (credit and/or savings, asset size, viability)

Clientele and outreach (gender, income level, targeted)

Sustainability and viability (dependence on subsidies, cost coverage)

MFIs in Indonesia: formal sectorserves some 40 - 50 million clients

Commercial Banks BRI Unit (3,700) BDB and others

BPR ( 8,500) 2,240 Peoples Credit Banks (BPR) 4,566 active Village Credit Boards

(BKD) 1,600 Rural Fund and Credit

Institutions (LDKP) Cooperatives ( 4,000)

1,105 Credit Unions (Kopdit) 1,582 Saving & Credit Service Posts

(TPSP) 1,160 Saving and Credit Coops (KSP)

Pawnshops (633)

MFIs in Indonesia: semi-formal sector serves ? million clients

400(?) NGOs with microcredit projects

various ministries with their own microfinance projects (P4K, PHBK, UED-SP, UPPKS, IDT)

MFIs in Indonesia: informal sector serves ? million clients

Roscas (Arisan) Moneylenders Family members

BRI Unit Must do something right Excellent savings mobilization, LDR only

around 37% (no other microbank could afford this)

Excellent scale of outreach (savings: 20 – 25% of all households; credit: 6% )

Unit system is highly profitable, however BRI as a commercial bank faces other risks

The three BPR families (1)BPR Unit Bank

LDKP

LPD

LKDP

BKK

BKD

Ownership mostly private

village (adat)

local govt village (govt)

Established after 1988 1984 1970 1902

BPR license

all none partly Collective license

Financial Services

Loans, savings, deposits

Loans, savings, deposits

Loans, savings, deposits

Mostly credit

Coverage Nationwide (Jawa/Bali)

Sub-district

Bali

Village

Central Java

Sub-district

Java / Madura

village

Supervision BI BPD BPD/BI BRI for BI

The three BPR families (2)

BPR Unit Bank

LDKP

LPD

LKDP

BKK

BKD

Active Units 2,240 1001 160 4,566

Total Assets

5,6 t 500 bn 68 bn 222 bn

No Clients 4,8 m 500,000 180,000 800,000

Avg Outst

Loan

1,300,000 535,000 424,000 142,000

Avg Savings

141,000 130,000 134,000 14,000

Avg Deposits

8,165,000 2,204,000 4,026,000 27,000

BPR Unit Banks

2,240 BPR, most are privately owned regulated under the banking act as secondary

banks Good financial intermediaries (LDR 75%) Reasonable outreach: 4,8 million savers and

1,7 million borrowers but mostly in Jawa and Bali

Only some 60% sound/fairly sound Industry is profitable again since 1999

BPR - BKD 4,566 BKD, owned by the village, controlled by village

government Problematic legal basis: Staatsblad No 357 of 1929, Decree

of MoF, Banking Act No 7, 1992 and Govt. regulation No. 71, 1992

Considered as banks, supervised by BRI on behalf of Bank Indonesia although having no legal body and not fulfilling criteria to become BPR

Operating only in Java and Madura Focusing on Credit financed by retained earnings + forced

savings, voluntary savings marginal, overliquid Industry is stagnant, viability questionable, if loans properly

written off, industry probably insolvent

LDKP

1,600 LDKP established by Provincial Govts, mostly Govt. owned (PD), except for LPD and LPN that are village owned

Regional Development Banks act as supervisors, financial intermediary and technical assitance provider

625 LDKP transformed into BPR (mandated by Govt. regulation No. 71, 1992)

LPD in Bali and BKK in Central Java most successful type of LDKP

Outreach: LPD serve 50% of all households in Bali; BKK serve about 5-10% of the households in their working area

Viability: most LPD and about 50% of BKK are profitable, loan portfolios are sound and performing

Finding about BPR

Long-term performance of the BPR is closely linked to their capacity of savings mobilization. The higher the share of savings of total assets the faster the growth, the higher the profitability and the better the loan performance fo the respective BPR system.

(Steinwand, 2001:324)

MFI OverviewM F IM F I Fin. Fin.

Interm.Interm.OwnerOwner ViabilityViability OutreachOutreach

Depth/ScaleDepth/Scale

BRI LDR:35% Govt. +++ + / +++

BPR LDR:75% Private + + / +

BKD Credit Village -/+ ++ / -

LPD LDR:94% Village +++ +++ / +++

Integrated systematic concept Macro,- Meso- und Micro Level

Macro LevelPolicy advice

ProFIProFI Meso LevelPromotion of associations

Training system

Micro LevelNon-bank MFI

Micro LevelBPR, LPD

Strategy in MFI Capacity Building

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The ProFI ProgrammeThe ProFI Programme

Programme ComponentsProgramme ComponentsRoof/Programme

Complex Programme structure - Stakeholders

BPR

PerbarindoGTZ BI

DPSNSEPerbar.Found.

Apex-Institutions

Non-bank MFI Non-bank MFI

BPD NTT, NTB, SulselProv. Governmts

NTT, NTB

LPD

BPDBali

Prov. Govern-

ment Bali

LPD-Association

MFI Customers

LDP Customers

BPR Customers

ProFI

MFI Customers

MFI Customers

BPR Customers

BPR Customers

LDP Customers

LDP Customers

Pilot Project Areas of ProFIPilot Project Areas of ProFI

NTB & NTTBaliEast-Java

1. Policy Advice

Objective: MFI use the improved

framework conditions to improve their soundness

1. Establishment of policy dialogue with all stake-holders and decision making institutions

2. Deposit protection scheme for BPR

3. Improved regulation and supervision of BPR

4. Improved regulation and supervision of LPD

5. Legal framework for non-bank MFI is available

2. Support for BPR and LPD association

Objective: BPR and LPD improve

their performance by using improved services offered by their associations

1. Support concept and strategy for Perbarindo/LPD association developed2. Technical and organisational requirements created, management works efficiently3. Financing of association secured and sustainable

3. Training System

1. Stakeholders are sensitized for the need of a systematic training system

2.“Standard Board” and “Regional Examination Boards“ are established

3. Regional training institutions and trainers are identified an accredited

4. Financing of the training system secured

MFI employ their trained personnel in a more efficient way

Objective:

4. Establishment of non-bank MFI in NTB, NTT

Objective:

Various options to support non-bank MFI in NTB and NTT are identified, developed and tested as far as possible

1. Selection of suitable project areas and support strategies and organisations

2. Support strategies are tested