Desa Pakraman and Lembaga Perkreditan Desa in Bali

This study analyzes the relationship between governance by the customary village, institutional performance and economic development. This forms the basis for designing strategies to strengthen smaller and weaker institutions and manage the risks of larger ones in Bali.

Lembaga Perkreditan Desa (LPD) is a financial institution that is owned and governed by the customary village (desa pakraman), and is fully integrated into Balinese culture. It is inclusive in outreach, covering the vast majority of the population in nearly all customary villages of Bali. The paper examines the following characteristics of LPDs:

• Cultural and religious foundations;
• Establishment as non-bank financial institutions at the customary village level;
• Role of the customary village in governance;
• Benefits and their impact on the customary village.

Study results demonstrate that the LPD has given new strength to the desa pakraman, and has provided inclusive access to financial services for everyone in the customary village. Other findings include:

• Desa pakraman has given the LPD a powerful framework for managing risks;
• External supervision framework is absent;
• LPD regulation needs to be adjusted to meet requirements of small and big LPDs.