The East Asian Crisis and Microfinance

This paper analyzes the effect of the East Asian crisis in the late 1990s, on the Indonesian microfinance sector. It also examines the experience of the Bank Rakyat Indonesia (BRI), a leading microfinance institution, during the crisis:

• On micro enterprise credit;
• On small, medium and corporate credit;
• In savings mobilization.

The paper presents:

• The organization of BRI into micro, retail and corporate strategic business units (SBUs);
• The effect on micro enterprises in Indonesia of the monetary crisis and the drought which coincided with and compounded the crisis, both directly and through the monetary policies pursued under IMF agreements;
• The contrasting experience of the BRI's three lending SBUs during the crisis.

Finally, the paper enumerates reasons for strong repayment performance of BRI's micro enterprise borrowers during the crisis:

• The microenterprise loans were mostly installment loans adjusted to the borrowers' cash flow. These enterprises were usually less vulnerable financially to external disturbances;
• Microenterprises were more engaged in sale-purchase of domestically-produced essentials, the demand for which is more stable;
• The Indonesian rural sector was less affected by the monetary crisis than the urban areas, but more affected by the severe drought that struck at about the same time;
• Micro-borrowers valued their banking relationship with the BRI Units very highly and were even ready to squeeze consumption to make their loan repayments.