Leveraging Remittances with Microfinance: Indonesia Country Report
This country report on Indonesia assesses the potential for MFIs to leverage overseas migrant remittances. Remittances can have greater developmental impact on recipient households in Indonesia if channeled through MFIs. With an increasing number of Indonesian migrant workers and the subsequent flow of remittances into the country, MFIs can now look at them as a source of development finance. However, there are several constraining factors such as:
- High cost of transfers and obtaining employment contracts has reduced the potential impact of remittances on receiving households;
- MFIs are constrained due to legislation, remoteness of receivers and consumer preference for commercial banks;
- Government has not made sufficient efforts to improve services for migrants;
- Structure of the financial services industry is not conducive to innovating and developing services for migrants.
To effectively leverage remittances, MFIs and cooperatives should be integrated into the formal financial system. Cooperatives should provide facilities to transport remittances from the district capital to the villages. Finally, the government should address impediments to micro and small enterprise development in a holistic manner.
