Indonesia Microfinance Country Profile

Microfinance in Indonesia: An example of successful commercial microfinance
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This paper discusses the microfinance profile of Indonesia. It states that though Indonesia has witnessed successful development of microfinance sector, yet there is still large unmet demand.

The paper describes the characteristic features of Indonesian microfinance sector as:

  • Development of microfinance sector:
    • Long history of commercial microfinance;
    • Emergence of a strong formal sector with the largest market share;
    • Informal sources with limited outreach and sustainability prospects;
    • Unanswered challenges like underserved rural areas, government subsidies and lack of capacity building.
  • Co-existence of deregulated financial system and subsidized government programs;
  • Enactment of the microfinance bill to provide legal support to the development of microfinance institutions (MFIs), banks and non-bank financial providers, in 2005;
  • Individual lending as the most prevalent credit delivery method;
  • MFIs such as BRI employing innovative methods to encourage savings mobilization.

The paper describes the service providers:

  • The formal sector has BRI units, small financial institutions (BPRs) and state-owned pawning company as the major players;
  • Semi-formal providers are non-bank financial institutions, finance and insurance companies, cooperative and credit unions and non-governmental organizations (NGOs);
  • Informal sources are Rotating Savings and Credit Associations (ROSCAs), self-help groups, individual moneylenders, traders and shopkeepers;

The paper concludes with the description of organizations that are supporting the growth of the Indonesian microfinance sector.

About this Publication

By Asia Resource Centre for Microfinance (ARCM)