Designing a Microfinance Development Strategy as Part of Economic Recovery & Employment Promotion in Post-Tsunami Aceh

This report presents the findings of a "fact-finding mission" in "Nanggroe Aceh Darussalam Province (NAD)" in Indonesia that aimed to design a microfinance development strategy as part of the economic recovery and employment promotion in post-tsunami Aceh. The report makes the following points:

• The financial sector in NAD before the tsunami was not well developed and reflected the depressed state of the national economy;
• The sector was dominated by commercial banks (CBs), which catered to the financing needs of a few large enterprises, government infrastructure programs and small and medium enterprises (SMEs);
• The "People's Credit Banks (BPRs)", the "People's Credit Bank following Islamic Principles (BPRS)" and credit cooperatives targeted the microfinance market, but had limited outreach;
• The tsunami caused heavy losses to the "Regional Development Bank (BPD)", the "BPR/BPRS" and the "non-bank financial institution (BMT)" systems.

The report concludes that:

• The "BPD"? needs funds urgently to prevent bankruptcy;
• Demand for technical assistance (TA) exists but it is difficult to identify feasible "financial cooperation" (FC) approaches;
• MFIs lack outreach and absorptive capacity for FC funds;
• They need up-front TA in the areas of institutional and human resource development;
• Donor activities indicate sufficient funds for rehabilitating the microfinance system in NAD;
• BMT - MFIs, "community owned village finance institutions (LKDs)" and the revitalization of the income generating groups under the "Family Welfare Program"? constitute potential components of a microfinance program.