Case study

Micro Credit Strategy Formulation Mission for the National Community Empowerment Program or Program Nasional Pemberdayaan Masyarakat (PNPM)

Outlining strategy for a national microcredit program
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This study makes recommendations for the formulation and implementation of a national microcredit program in Indonesia. The government of Indonesia has launched a flagship poverty alleviation program called the National Community Empowerment Program (PNPM). PNPM builds upon the work of the Kecamatan development Program (KDP) and the Urban Poverty Program (UPP).

The study aims to complement PNPM by building a strategy for microcredit. It finds that the KDP and UPP microcredit components have the potential to be transformed into sustainable, pro-poor microfinance activities. There is continuing demand for KDP/UPP microcredit from low-income borrowers with few or no alternative sources of credit. Substantial shortcomings in outreach and institutional development must, however, be overcome in order to transform KDP and UPP.

The study identifies five options for the future development of the microcredit programming for KDP and UDP. These include:

  • Executing program credit through banks;
  • Linking community groups to banks;
  • Devolving ownership and management to village level;
  • Forming cooperatives;
  • Determining a supervising financial institution, and giving it ownership or a profit stake in the new MFI.

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