Transforming Risk-averse Banks into Microfinance Champions in a Post-disaster and Post-conflict Environment

This paper outlines key features of the Asian Development Bank-assisted Earthquake and Tsunami Emergency Support project in Indonesia that aimed to foster economic growth and reduce poverty by developing sustainable and responsive financial services for micro and small enterprises (MSEs).

The project provided technical assistance and encouraged project partners to adopt Grameen microfinance technology. It also:

• Raised awareness among banks of overcrowding and competition in consumer lending, salary-based loans, and services to high-income groups;
• Revealed banking and savings opportunities in the MSE sector;
• Showed bank managements successful ways of penetrating and viably servicing the MSE sector with appropriate financial products;
• Provided intensive training and on-the-job mentoring of account officers and credit supervisors;
• Monitored partner banks' performance, and conducted refresher courses and experience and knowledge sharing among high and low performers;
• Built full commitment at all levels in partner banks through provision of support systems.

The project led to the active engagement of Aceh partner banks in expansive microfinance, expansion of microfinance to all branches of a partner bank in Nias and resistance from government-owned banks to unsustainable and politically motivated credit programs.