1. Overview on MFIs in Indonesia and GTZ strategy in capacity building Workshop on “Sustainable Microfinance: Developing a Sector Strategy and Building Institutional Capacity” World Bank Office Jakarta, 11 – 12 February 2002 Dominique Gallmann, Deputy Team Leader

2. “The Alchemy of Microfinance” “…it is as if Indonesia has been the world’s largest laboratory on rural financial market experiments…Many different institutional forms have been tested by trial and error… Valuable lessons have been embedded in the variegated experience of Indonesia’s rural financial markets, along a rich continuum of shades and shapes.” (Gonzalez-Vega / Chaves, 1992: 38)

3. Typology of MFIs  Institution and ownership (formal /informal, Bank/non- bank, NGO/Govt. program)  Financial services (credit and/or savings, asset size, viability)  Clientele and outreach (gender, income level, targeted)  Sustainability and viability (dependence on subsidies, cost coverage)

4. MFIs in Indonesia: formal sector serves some 40 - 50 million clients  Commercial Banks  BRI Unit (  3,700)  BDB and others  BPR (  8,500)  2,240 Peoples Credit Banks (BPR)  4,566 active Village Credit Boards (BKD)   1,600 Rural Fund and Credit Institutions (LDKP)  Cooperatives (  4,000)  1,105 Credit Unions (Kopdit)  1,582 Saving & Credit Service Posts (TPSP)  1,160 Saving and Credit Coops (KSP)  Pawnshops (633)

5. MFIs in Indonesia: semi-formal sector serves ? million clients  400(?) NGOs with microcredit projects  various ministries with their own microfinance projects (P4K, PHBK, UED-SP, UPPKS, IDT)

6. MFIs in Indonesia: informal sector serves ? million clients  Roscas (Arisan)  Moneylenders  Family members

7. BRI Unit n Must do something right n Excellent savings mobilization, LDR only around 37% (no other microbank could afford this) n Excellent scale of outreach (savings: 20 – 25% of all households; credit: 6% ) n Unit system is highly profitable, however BRI as a commercial bank faces other risks

8. The three BPR families (1) BPR Unit Bank LDKP LPD LKDP BKK BKD Ownership mostly private village (adat) local govtvillage (govt) Established after 1988198419701902 BPR license allnonepartlyCollective license Financial Services Loans, savings, deposits Mostly credit Coverage Nationwide (Jawa/Bali) Sub-district Bali Village Central Java Sub- district Java / Madura village Supervision BIBPDBPD/BIBRI for BI

9. The three BPR families (2) BPR Unit Bank LDKP LPD LKDP BKK BKD Active Units 2,24010011604,566 Total Assets 5,6 t500 bn68 bn222 bn No Clients 4,8 m500,000180,000800,000 Avg Outst Loan 1,300,000535,000424,000142,000 Avg Savings 141,000130,000134,00014,000 Avg Deposits 8,165,0002,204,000 4,026,000 27,000

10. BPR Unit Banks n 2,240 BPR, most are privately owned n regulated under the banking act as secondary banks n Good financial intermediaries (LDR 75%) n Reasonable outreach: 4,8 million savers and 1,7 million borrowers but mostly in Jawa and Bali n Only some 60% sound/fairly sound n Industry is profitable again since 1999

11. BPR - BKD n 4,566 BKD, owned by the village, controlled by village government n Problematic legal basis: Staatsblad No 357 of 1929, Decree of MoF, Banking Act No 7, 1992 and Govt. regulation No. 71, 1992 n Considered as banks, supervised by BRI on behalf of Bank Indonesia although having no legal body and not fulfilling criteria to become BPR n Operating only in Java and Madura n Focusing on Credit financed by retained earnings + forced savings, voluntary savings marginal, overliquid n Industry is stagnant, viability questionable, if loans properly written off, industry probably insolvent

12. LDKP n 1,600 LDKP established by Provincial Govts, mostly Govt. owned (PD), except for LPD and LPN that are village owned n Regional Development Banks act as supervisors, financial intermediary and technical assitance provider n 625 LDKP transformed into BPR (mandated by Govt. regulation No. 71, 1992) n LPD in Bali and BKK in Central Java most successful type of LDKP n Outreach: LPD serve 50% of all households in Bali; BKK serve about 5-10% of the households in their working area n Viability: most LPD and about 50% of BKK are profitable, loan portfolios are sound and performing

13. Finding about BPR Long-term performance of the BPR is closely linked to their capacity of savings mobilization. The higher the share of savings of total assets the faster the growth, the higher the profitability and the better the loan performance fo the respective BPR system. (Steinwand, 2001:324)

14. MFI Overview M F I Fin. Interm. OwnerViabilityOutreachDepth/Scale BRILDR:35%Govt.++++ / +++ BPRLDR:75%Private++ / + BKDCreditVillage-/+++ / - LPDLDR:94%Village++++++ / +++

15. n Integrated systematic concept n Macro,- Meso- und Micro Level Macro Level Policy advice ProFI Meso Level Promotion of associations Training system Micro Level Non-bank MFI Micro Level BPR, LPD Strategy in MFI Capacity Building

16. Policy Advice 1234 Support for Associations Training System Non-bank MFI in NTB, NTT Programme Components Roof/Programme

17. Complex Programme structure - Stakeholders BPR Perba rindo GTZ BI DPS NSE Perbar. Found. Apex- Institutions Non-bank MFI Non- bank MFI BPD NTT, NTB, Sulsel Prov. Governmts NTT, NTB LPD BPD Bali Prov. Govern- ment Bali LPD- Association MFI Customers LDP Customers BPR Customers ProFI MFI Customers MFI Customers BPR Customers BPR Customers LDP Customers LDP Customers

18. Pilot Project Areas of ProFI NTB & NTT Bali East-Java

19. 1. Policy Advice Objective: MFI use the improved framework conditions to improve their soundness 1. Establishment of policy dialogue with all stake- holders and decision making institutions 2. Deposit protection scheme for BPR 3. Improved regulation and supervision of BPR 4. Improved regulation and supervision of LPD 5. Legal framework for non- bank MFI is available

20. 2. Support for BPR and LPD association Objective: BPR and LPD improve their performance by using improved services offered by their associations 1. Support concept and strategy for Perbarindo/LPD association developed 2. Technical and organisational requirements created, management works efficiently 3. Financing of association secured and sustainable

21. 3. Training System 1. Stakeholders are sensitized for the need of a systematic training system 2.“Standard Board” and “Regional Examination Boards“ are established 3. Regional training institutions and trainers are identified an accredited 4. Financing of the training system secured MFI employ their trained personnel in a more efficient way Objective:

22. 4. Establishment of non-bank MFI in NTB, NTT Objective: Various options to support non-bank MFI in NTB and NTT are identified, developed and tested as far as possible 1. Selection of suitable project areas and support strategies and organisations 2. Support strategies are tested