UPKD Case Studies in Nusa Tenggara Barat: Field Research on the Economic and Social Environment of UPKDs and their Institutional Setup in Lombok

This case study examines the social, economic and institutional environment of village-level microfinance institutions (MFIs), called UPKDs, in order to understand the UPKDs' structure, strategy and culture. The case study focuses on the following topics:

• Local economic conditions;
• Local credit and savings culture;
• Management and Human Resources;
• Ownership and Governance;
• Regulation and supervision.

The study finds that:

• The UPKD is embedded in village life and village stakeholders have an impact on UPKDs' business;
• Socio-cultural influences are not many, but economic conditions have a big impact on the loan portfolio;
• Good customer selection can make the UPKDs sound in dry areas;
• UPKDs in fertile areas can be unsound due to stakeholders' mismanagement of funds;
• Stakeholders include: the village authorities, the UPKD management and the village people;
• UPKDs reduce the illegal moneylender system and provide fair financial services for the people;
• UPKDs replace "collateral" with "character" as the most important selection criterion;
• UPKDs follow an "individual"? approach and design loans for the situation of every single customer;
• UPKDS have a social component and extend loans for a limited time without insisting on interest rates.

The study concludes by identifying problems that UPKDs have in the areas of regulation, supervision, training, capital, credit and savings culture and responsibility of the districts.