Reconstruction and Development of the Microfinance System in Nanggroe Aceh Darussalam (NAD), Indonesia

This paper describes a project that aimed at reconstructing and developing the microfinance system in Nanggroe Aceh Darussalam (NAD), Indonesia. The project had a cooperative outreach component that aimed to report on preparations for establishing Pilot Savings and Credit Cooperatives (BQs) in the districts of Aceh Utara and Bireun.

The paper discusses:

• The devastation that the tsunami caused in 2004 and the present need to move from relief to rehabilitation and reconstruction;
• The partnership between the Bank of Indonesia (BI) and German Technical Cooperation (GTZ) in providing technical assistance with a focus on microfinance;
• The project emphasizes the strengthening of five private rural banks (BPRS) and the establishment of a new one.

The paper discusses details of:

• The identification of locations for new BQs and the initiation of two pilot BQs;
• The establishment of the pilot BQs and their cooperation partners and service providers;
• The movement towards a sustainable system of BQs in Aceh.

The paper concludes by presenting recommendations for enhancing the BQ sector in Aceh that include:

• Establishment of new BQs as autonomous, single-purpose financial institutions with the legal status of registered savings and credit cooperatives;
• Self-help-groups (SHGs) as starting points for creating or enlarging BQs;
• A broad membership of shareholders;
• Small share sizes to increase outreach;
• Support at primary and secondary levels to cover establishment costs and investments in working capital.