Microfinance in Indonesia: An Assessment of Microfinance Institutions Banking with the Poor

A group of Uganda's MFI representatives, bankers, policy makers visited India and Indonesia to learn and understand the complexities of MFI business. This study is based on their interactions with leading MFI regulatory bodies and practitioners of these countries.

The following are the key observations from the study:

• The state of regulation and supervision of microfinance in Indonesia and India are still at foundation stage - while Uganda has formulated the legal framework for regulating and supervising MFIs, these countries need to explore the effectiveness of government intervention and ascertain the critical areas where government effort could be directed;
• Uniformly, there is a high demand for saving services from low-income communities of India, Indonesia and also Uganda. For ensuring the safety of the deposited amounts, there is a greater need for ensuring regulation of financial institutions offering saving products;
• Innovations by MFIs have resulted in user-friendly products with diverse delivery mechanisms. Moreover, in order to reach out to a wider base, a number of non-bank formal and non-formal MFI organization structures have evolved;
• Informal self-regulation of members by networks, through setting standards and benchmarks for members towards best practices is recommended, rather than policing of the members.

The study concludes that:

• The experience in India and Indonesia provided an insight to the Uganda delegates into how best a MFI regulatory and supervisory framework could be developed;
• Sustainability, in the face of competition, will force the microfinance industry to adopt diverse and innovative approaches.