Paper
An Overview of Microfinance Linkages in Indonesia
A descriptive mapping of different linkage models existing in Indonesia
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29 pages
This overview of microfinance linkage models in Indonesia provides a descriptive mapping of linkage models, and reflects on Indonesia's rich variety and wide range of financial institutions. It identifies the following linkages in the country:
- Multiple linkages between provincial development banks (BPDs) and local institutions;
- Links between microfinance institutions (MFIs)/non-government institutions (NGOs) and commercial banks;
- The links of local institutions with the retail division of Bank Rakyat Indonesia (BRI);
- 4,500 BPDs' link with BRI in supervisory and financial relationships;
- Local- or provincial-government owned entities' link with BPDs for purposes of supervision and liquidity management;
- Linkages between local and international NGOs;
- Self-help-groups' (SHGs) linkages with banks.
The paper classifies linkage models as:
- Simple bilateral linkages;
- Linkage chains from apex institutions;
- Agribusiness financing via non-financial entities.
The paper finds that:
- The linkages are characterized by several small regulated financial institutions and grassroots financial actors;
- Linkages have an explicit role in a new "banking architecture" being created by the Central Bank;
- There are distinctions between autonomous linkages and those occurring as the result of Government or Central Bank initiative.
The paper concludes that:
- There is considerable demand for savings, especially from the financially excluded social groupings;
- There is genuine utility in commercially-motivated linkage arrangements for financial institutions involved in those communities.
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