Microfinance Industry Report: Indonesia

This review examines the microfinance sector in Indonesia.Indonesia was one of the first countries to develop commercial microfinance in Asia, with regulated financial institutions providing the bulk of microfinance services. With a long history starting with village-owned banks, Indonesian microfinance displays the following features:

• Numerous subsidized government programs, local and community-based financial institutions, cooperatives and NGOs;
• Regulated microfinance providers, commercial banks and Bank Perkreditan Rakyat (BPR) cover the upper levels of the microenterprise market;
• NGOs, cooperatives and village based institutions (BKDs) reach the lower end of the market;
• Bank Rakyat Indonesia (BRI) units lend primarily for investment purposes while BPRs provide working capital;
• BRI units are dominant actors, receiving two-thirds of savings mobilized in the formal and semi-formal microfinance sector;
• Large commercial banks and smaller regulated financial institutions play significant roles.

Indonesia has a long history of informal credit and savings schemes, comprising Rotating Savings and Credit Associations as well as other forms of traditional finance. The paper also discusses institutional support and regulatory framework, opportunities, challenges and future prospects for microfinance in Indonesia.