Case study

The Microbanking Division of Bank Rakyat Indonesia: A Flagship of Rural Microfinance in Asia

What has made the microfinance division of Bank Rakyat Indonesia successful?
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This paper discusses the micro banking division of Bank Rakyat Indonesia (BRI) as a flagship of rural microfinance in Asia. It discusses the:

  • Rural financial infrastructure of Indonesia;
  • Policy framework;
  • Failure of subsidized targeted credit in a repressive policy environment;
  • Transformation of BRI units into viable rural microfinance institutions (MFIs) in a deregulated policy environment;
  • Savings, as a source of funds, that made BRI self-sufficient, and donor funding superfluous;
  • Outreach, transaction costs and profitability of BRI;
  • Increased strength of BRI units since the Asian financial crisis;
  • New challenge of microfinance profits and savings.

The paper presents the case of BRI to argue that in a deregulated policy environment, the microfinance section of a government-owned bank can:

  • Be transformed into a highly profitable, self-reliant financial intermediary;
  • Turn into a major microfinance provider offering micro savings and microcredit products to low-income people at market rates of interest.

The paper lists the following lessons that can be drawn from the BRI's experience:

  • Financial sector policies work and are conducive to financial innovations;
  • Attractive savings and credit products, staff incentives and effective internal regulation and supervision can make rural microfinance highly profitable;
  • The poor can save and rural financial institutions can mobilize their savings cost-effectively;
  • Incentives should be given for timely repayment work;
  • Outreach of a financial institution to large numbers of low-income people is compatible with viability and financial self-sufficiency.


About this Publication

By Seibel, H.