DIFFICULTIES OF BUILDING MICROFINANCE
The progress of microfinance in serving microenterprises in Indonesia remains low. Although theactivity is backed up by some banks such as BRI (people’s bank) and BPR (rural bank), there isstill a huge gap between demand and supply. Based on data of Gema PKM (The IndonesianMovement for Microfinance Development), not more than 10 millions of 41.8 millionsmicroenterprises have been served by microfinance. It means less than 25% of the totalmicroenterprises in Indonesia.In the global level, microfinance is now accepted as a strategic tool for poverty alleviation. It is notvery surprising when the United Nations has named this year as International Year of Microcredit(microfinance). Actually, this event is related with the Millenium Development Goals, which hasan ambitious target for reducing half of the poverty rate until 2015.As it has been accepted in Microcredit Summit 1997 in Washington, there are 4 principles for running microfinance institution. These principles are reaching the poorest, reaching andempowering women, building financially sustainable institution, and ensuring measurable impact.With all of our respect to BRI and BPR for their concern to people’s economy, unfortunately theyhave not been able to reach most of the targeted poor.
This article focuses to microfinance institutions (MFIs) run by NGOs who serve the poor.Indonesia is very different with other country such as Bangladesh. Over 75% poor families inBangladesh are served by microfinance institutions. The main players of microfinance services inBangladesh are NGOs.Actually in Indonesia there are thousands of NGOs, which play in microfinance, they havepotential contributions to serve the poor even more. However, their performances so far are far from what is expected. There are some major constraints which add to this situation.
Unclear Government Policies
In Indonesia, there is still no clear policy regarding microfinance issue. Most practitioners areuncertain where microfinance is positioned in national financial system. There is no clear direction, which can be used among the stakeholders to develop microfinance. The developmentof microfinance so far is influenced and shaped by different or often competing or even conflictingpolicies in other areas. These comprise of poverty alleviation, subsidized credit, and financialsector development.For example, there are 70 projects of government institutions (supported by donors, with budgetalmost $US300 millions), which have a microfinance component. In reality many of them do notfollow microfinance best practices (ADB, 2003), thus they do not sustainable. These projectscontribute difficulties for MFIs with commercial and professional approach to develop.To serve the poor with financial services through effective and sustainable way, financial reform isurgently needed. One of the financial reforms is to make a national policy of microfinance. Thispolicy is needed as philosophical platform for legal and regulatory framework of microfinance.