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The Unbanked: Evidence from Indonesia

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Author Info

  • Don Johnston
  • Jonathan Morduch

Abstract

To analyze the prospects for expanding financial access to the poor, bank professionals assessed 1,438 households in six provinces in Indonesia to judge their creditworthiness. About 40 percent of poor households were judged creditworthy according to the criteria of Indonesia's largest microfinance bank, but fewer than 10 percent had recently borrowed from a microbank or formal lender. Possessing collateral appeared as a minor determinant of creditworthiness, in keeping with microfinance innovations. Although these households were judged able to service loans reliably, most desired small loans. Calculations show that the bank, given its current fee structure and banking practices, would lose money when lending at the scales desired. So, while innovations have helped to extend financial access, it remains difficult to lend in small amounts and cover costs. Copyright The Author 2008. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/wber/lhn016
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Bibliographic Info

Article provided by World Bank Group in its journal The World Bank Economic Review.

Volume (Year): 22 (2008)
Issue (Month): 3 (October)
Pages: 517-537

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Handle: RePEc:oup:wbecrv:v:22:y:2008:i:3:p:517-537

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Cited by:
  1. Karlan, Dean & Morduch, Jonathan, 2010. "Access to Finance," Handbook of Development Economics, Elsevier.
  2. M.A. Akudugu, 2011. "Rural banks' financial capital and livelihoods development of women farmers in Ghana," Journal of Enterprising Communities: People and Places in the Global Economy, Emerald Group Publishing, vol. 5(2), pages 248-264, September.
  3. repec:eme:jecpps:v:5:y:2011:i:4:p:248-264 is not listed on IDEAS

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