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For the KUPEDES credit product offered by BRI units, the repayment has been high due to many factors, among them:
Borrowers are selected on their ability to use loans productively and their ability and willingness to repay them
Loans are provided in gradually increasing amounts based on the borrower’s repayment record and the creditworthiness of the enterprise
Loans are provided with attractive terms at reasonable costs, customised to clients’ needs.
Unit staffs treat clients with respect and courtesy.
BRI units have been very successful vehicles to disburse KUPEDES credits and collect SIMPEDES savings products. BRI units’ characteristics can explained this success:
BRI Units are individual profit centers. At the end of 2000, 98% of them were profitable, thanks to the spread between interest rates on loans and the costs of funds, the savings mobilised.
BRI Units are supported by skilled and experienced staff, motivated by incentive to reach higher performance, and held accountable for their results.
Interest on loans should be higher than in standards banks, to reflect the higher costs of providing smaller loans through local sub-branches.
Focus on financial services only.
Standardised and simple systems, products, procedures, and reporting process.
In addition, the key success factors for BRI units had been the following:
Constant focus on sustainability (Pricing, loan quality)
Simplicity (products, services, procedures)
Transparency (active supervision, MIS, good reward and punishment system)
Prudential banking practices (applying multi-dimensional approach (financial, sociological and cultural approaches to clients), client's repayment capacity)
Accessibility (open outlets as close as possible to clients, which requires huge amount of capital expenditures)
From Badan Kredit Kecamatan (BKK) of Central Java, an LDKP system owned by the provincial government of Central Java, we learn some valuable lessons:
[Adapted from Robinson,
2002]
Small, short-term individual loans to rural households can be provided by rural credit organisations owned by local governments at interest rates that cover costs and risks and enable profitability.
Such organisations can be managed with low operating costs, and can be successful even if open only one day a week.
Loans can be financed by retained earnings, savings, and commercial bank loans.
Loans should have a range of maturities and repayment options suitable to the community.
Providing subsidised loans to borrowers leads to losses and can eventually result in unit closure or severe retrenchment.
Training and incentives for management and staff are essential.
Large external injections of liquidity discourage voluntary savings mobilisation
Small voluntary savings accounts can be cross-subsidised with larger time deposits
Emphasis should be placed on appropriate loan loss provisioning and bad debt write-off, an ongoing problem for the BKK Central Java.
Donors that support institutional capacity building for critical needs get maximum return on their investments
Links between microfinance institutions and local governments and banks can be advantageous for both in a variety of ways.
Commercialization of Microfinance. Indonesia. 2003. Stephanie Charitonenko and Ismah Afwan. ADB.
Commercialisation of Microfinance and linkages between microfinance and commercial banking. Presentation by Sulaiman Arif Arianto, Regional Manager of Bank Rakyat Indonesia, Jakarta region. BWTP International Microfinance Workshop. Phnom Penh, Cambodia. December 2004
Presentations made during the microfinance workshop organised jointly by Gema-PKM and BWTP in Jakarta, August 2004.
The microfinance revolution. Volume 2: Lessons from Indonesia. Marguerite Robinson. 2002. World Bank and Open Society Institute.