Case of Muntigunung Lembaga Perkreditan Desa, Indonesia: Village Ownership as a Model for Remote Outreach of Financial Services

This paper examines the potential for remote outreach of the Lembaga Perkreditan Desas (LPDs), village-based financial institutions in Bali, Indonesia. The model has the potential to broaden access to rural, remote areas. Some key features include:

• Use of existing local governance structures;
• Presence of one LPD in almost every village;
• Lowered costs and local ownership;
• High level of acceptance and trust among local people;
• Reinvestment of profits in the community;
• Active member participation in determining the use of surplus funds;
• Strong credit risk control.

Challenges of this model include risk of mismanagement and fraud when village members are reluctant to challenge traditional authority figures. The LPD experience suggests that local ownership does not necessarily ensure depth of outreach or flexible services. Strict collateral requirements and other rigidities limit broader outreach. Finally, representation in the LPD is family-based and the household head is male. As a result, women typically use financial services to a lesser degree, and participate less actively in governance and management.