Microfinance Institutions Study

This "Promotion of Small Financial Institutions (ProFI)" study focuses on institutional microfinance in Indonesia, providing an overview of microfinance institutions (MFIs) in Indonesia and assessing their strengths, weaknesses, significance and viability.

The study argues that poverty-oriented microfinance interventions play an effective role in the development of sustainable microfinance services, if they:

• Reach clients without access to microfinance institutions;
• Aim at upgrading their clients to MFIs;
• Do not undermine the growth and viability of microfinance institutions through the provision of easy and cheap credit.

The study discusses:

• Framework conditions for the microfinance sector;
• Major microfinance and poverty alleviation programs;
• The structure of the microfinance sector in Indonesia;
• The commercial banking sector, focusing on the largest microfinance network in Indonesia, the unit system of "Bank Rakyat" Indonesia;
• Secondary banks and "Lembaga Dana Kredit Pedesaan", a variety of non-bank MFIs;
• Village credit institutions and village savings and credit units that the Ministry of Home Affairs promotes;
• The cooperative sector and its microfinance windows;
• The Credit Union movement and a commercial bank that provides microfinance services in cooperation with cooperatives;
• Microfinance services provided on the basis of "Syariah" principles, including:
  • The first Islamic commercial bank in Indonesia;
  • Local financial institutions established by an Islamic non-government organization;
  • The "Dakabalarea" microfinance program.

The study concludes by suggesting essentials and elements of a future microfinance sector strategy for Indonesia.