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Microfinance and Indonesia

The microfinance sector in Indonesia is one of the world’s largest with around 50,000 microfinance institutions serving more than 40 million people. Yet, it’s estimated that 50 million people still do not have access to banking services and nearly half of the population lives on less than US$2 a day.

Self-employment is a key feature of the Indonesian economy. Over 40 million people are self-employed through micro and small businesses but only 13% have access to formal financial services. Microfinance is a proven way to help people move permanently out of poverty, but it hasn’t yet reached its full potential or scale in Indonesia.

Indonesia’s microfinance industry is dominated by small microfinance institutions (MFIs), which serve fewer than 10,000 active clients with individual lending approaches and secure their funding primarily through client savings. The MFI sector is comprised of a wide array of private and public institutions ranging from commercial and rural banks, to cooperatives and village-owned institutions.

Yet despite its size, the Indonesian microfinance sector is fractured. Significant obstacles remain that keep MFIs from improving the quality of their services and expanding their reach to a larger percentage of the country’s poor.

One key factor preventing increased outreach is the lack of sufficient access to capital. As a result, the majority of MFIs are able to offer only the most basic banking services. Additionally, most poor Indonesians are beyond the reach of the formal financial sector because they live in underserved areas or are considered too high risk for traditional loans.

In response, Mercy Corps and the International Finance Corporation developed joint programs to determine the creditworthiness of MFIs and link them to finance. This work culminated in the vision to establish a fully licensed commercial bank to exclusively serve the Indonesian microfinance sector with affordable and secure access to capital. Additionally, the bank would provide responsive and innovative financial products, services and technology to MFIs in order to significantly improve their performance and outreach.

Bank Andara was created with the objective of realizing poverty alleviation goals through the sound and profitable operation of a wholesale banking institution supporting the Indonesian microfinance industry. The bank was designed to provide for and actively promote the wide scale use of mobile financial services for poor populations that lack access to financial institutions. Bank Andara is working to achieve this goal through the creation of scalable, effective, sustainable and replicable mobile banking products and support services.

Bank Andara’s innovative approach to banking offers a unique range of flexible financial and capital management products and services to rated, creditworthy MFIs. Working in partnership with Bank Andara, MFIs will also be able to provide diversified products beyond microloans and savings to their clients including remittances, micro-insurance and a variety of technology-based services.

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