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Microfinance In Indonesia: An Assessment of Microfinance Institutions Banking with the Poor

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  • Seibel, Hans Dieter
  • Parhusip, Uben

Abstract

Indonesia is a country with a deregulated policy environment in which microfinance institutions (MFIs) abound. Between 1970 and 1993 poverty has been drastically reduced from 60% to 14%. Three factors have been instrumental: explicit government policies, sustained economic growth and, since 1983, financial and economic deregulation. In the framework of a wider UNDP-supported program of the Asian and Pacific Development Centre in Kuala Lumpur on Microfinance for the Poor in Asia-Pacific, four MFIs were selected from Indonesia and analyzed in terms of outreach to the poor, resource mobilization, viability and sound (best) microfinance practices: a Grameen Bank replicating institution, a private rural bank, a national poverty lending program and an NGO-owned commercial bank. The Indonesian experience shows that only financially viable institutions can reach the poor in significant numbers, and how viability and sustainability can be attained in banking with the poor and the near-poor. Data from Bank Shinta Daya, which combines individual and group technologies, indicate that the latter cover their costs and greatly increase the bank's outreach to the poor as a new market segment, but initially add little to the bank's overall profitability.

Suggested Citation

  • Seibel, Hans Dieter & Parhusip, Uben, 1997. "Microfinance In Indonesia: An Assessment of Microfinance Institutions Banking with the Poor," Working Papers 1997,7, University of Cologne, Development Research Center.
  • Handle: RePEc:zbw:uocaef:19977
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