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Commonly Asked Questions.

What is microfinance?

Microfinance refers to the wide range of small-scale financial tools and services such as loans, insurance, savings accounts and mortgages, usually offered to low-income clients. The most common form of microfinance is microcredit, which are small loans in the range of under $100 to a few hundred dollars, often to women, to establish or expand small, self-sustaining businesses.


How exactly does microfinance help people escape from poverty?

Microfinance is considered one of the most effective strategies in the fight against poverty. It is a proven, sustainable way to provide the poor with access to capital and other financial services they would otherwise not be able to access through large commercial banks. Microfinance services help the world’s poor start businesses, acquire wealth and reduce financial risk.


Why Indonesia?

The Indonesian microfinance sector is one of the world’s largest, with more than 50,000 microfinance institutions (MFIs). Yet, the sector is highly fractured and poverty remains high, with nearly half of the population living on less than $2 a day. With the founding of Andara, Mercy Corps anticipates being able to expand the reach, efficiency, and diversity of essential financial services offered by MFIs in Indonesia.


Why couldn’t regular banks in Indonesia help the microfinance sector grow?

Indonesian MFIs consistently cite a lack of access to affordable financing as their key constraint for growth. At the same time, commercial banks have been reticent to lend greater sums to MFIs without more transparency- most MFI are not audited and often lack strong management information systems.



Why is Andara in the best position to help the microfinance sector?

Andara’s shareholder consortium, staff and partners have a breadth of financial and social backgrounds which places the Bank in a strong position to believe in, and understand how to build capacity in unbanked and challenged MFIs and to practically deliver products and services that MFIs and their end clients really need to help drive the local microfinance sector.


What kind of low income people is Bank Andara really helping?

Currently, Andara focuses on for both urban and rural community across Jakarta and Bali such as farmers, self-employed people, contract and day laborers, and others, where many of these people come from the low-income groups and perceived to be economically productive. In addition, Andara’s end clients also consist of significant number of women borrowers, and many borrowers in group lending.


What has Andara achieved in 2009?

Since our launch in April 2009, we have built up our capacity, developed our organization, perfected our products and services, installed tools, procedures and functions required for efficient operations, and raised additional capital from existing shareholders to strengthen our capital and to implement and develop our lending activities. All of this has culminated in us taking considerable first steps towards fulfilling our vision and mission by reaching 88 MFIs borrowers and 37 pro-poor MFIs borrowers; facilitating our rating fund to 38 MFIs to promote investment in bankable MFIs; and conducting product development research for AndaraLink, a CBS and our social deposit products.



How did Andara perform in 2009?

Andara is still in the startup phase, we are: redefining and organizing our needs based products, services and channels for low income, under banked or unbanked Indonesians, learning the techniques, raising funds, recruiting and training staff, providing credit, mobilizing savings, ensuring repayment, avoiding defaults, and setting up our foundation for growth.


Since we launched and became fully operational In April 2009, we have continued to grow our number of MFIs outreach, number of pro-poor MFIs, widen our geographical coverage, increase the volume of our operations, implement appropriate innovations and technologies at affordable rates, facilitate ratings and technical assistance to support MFI quality improvements, and built a strong governance structure.


What was Andara’s profit outlook for 2009?

Andara operates with a double bottom line and must strike a careful balance between financial and social returns. Bank Andara will provide micro entrepreneurs financing services on a viable and sustainable basis through partnering with MFI. The following approach, aimed at providing micro entrepreneurs greater access to micro finance services, is pursued by Andara to realise the objective:

·         Provision of a financial and credit policy environment that is conducive to the effective and efficient functioning of the financial market.

·         Establishment of a market-oriented financial and credit policy environment which is conducive to the broadening (development of new product lines and services, implementation of new technologies and practices) and deepening (increased microfinance intermediation) of microfinance services.

·         Implementation of a capacity-building program for MFIs.


At our startup stage, the initial funding came from existing shareholders, and organizational sources like social investors and development foundations. It has also come from deposits since Andara has been operational. Interest will also be an important earning source for us, but it can’t be much in the beginning. Startup projects need a gestation period to grow and it takes time to have sufficient income to cover all the costs. We’ll continue to push all of our efforts in establishing our track record to get funds from different sources. We are very satisfied with our progress.





How many loans has Andara disbursed to date?

Currently, Andara serves both urban and rural clientele in the Jakarta and Bali regions. Since launching in April 2009, our total microfinance loan volume has risen gradually from IDR 2,500 million consisting of 3 MFIs in May 2009 to IDR 59,400 consisting of 88 MFIs in December 2009. In addition to this, we currently have 77 loan applications to be processed.


What are Andara’s targets for 2010?

Our core service is the provision of microcredit which is typically small loans to the working low income poor through the MFIs (only through BPRs in 2009). Given the diversity of demand for financial services, we’ll expand our outreach to a broad range of MFI institutional types. As our practice has matured and reached a larger number of people, several other financial services such as micro deposits and micro insurance will also be offered to the clientele.


We’re also building MFI capacity to reach the poor. We’ll be working with strong external rating and technical assistance providers to support quality MFI improvements and to lower credit risks. We expect that by working in partnership with Andara, MFIs will be able to provide millions of people who currently lack access to the formal financial sector with the types of financial products and services that only large-scale banks can offer including ATM networks, E-banking, mobile banking, remittances and micro insurance.


What is the prospect for Microfinance in Indonesia?

The microfinance sector in Indonesia is one of the world’s largest with around 50,000 MFIs serving more than 40 million people. Yet, it’s estimated that 50 million people still do not have access to banking services.


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, however, it hasn’t yet reached its full potential or scale in Indonesia. We’re filling a gap that other banks will not or cannot fill given the time required before becoming both socially and financially lucrative.


What does Andara expect to achieve by disbursing loans indirectly through MFIs?

Indonesia’s microfinance industry is dominated by MFIs particularly BPRs and financial cooperatives such as KSPs, USPs, Kopdits. Yet despite its size, the Indonesian microfinance sector is fractured. Significant obstacles remain preventing MFIs from improving the quality of their services and expanding their reach to a larger percentage of the country’s poor. One of key factors 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.


However, due to the financial crisis, many commercial banks withdrew from MFI funding and some other commercial banks became competitors to MFIs, also aiming to provide services directly to micro and small businesses. During this time a market opportunity for Andara arose to help MFIs with financing and technology services. Andara will use this opportunity by:

·         Focusing exclusively on specialized service to MFIs

·         Restricting its activities to wholesale service to MFIs and avoiding competition with MFIs.

·         Providing diversified products beyond microloans and savings to their clients including remittances, micro-insurance and a variety of technology-based services.

·         Understanding the special characteristics of its MFI clients

·         Providing innovative products and services to MFIs

·         Offering web based services include remittances, bill payment and applications for micro-insurance, also installation of a compact shared core banking system specifically configured for the individual MFI.

·         Creating a long-term, profitable institution

What is Andara’s plan for 2010?

Looking ahead to 2010, Andara’s top priorities are to: build a loan portfolio with our main objective to reach the unbanked, develop our sources of funds including introducing Social Deposits in Indonesia, extend our coverage beyond Bali and Jakarta to all of Java and beyond, find and enter partnership with bankable cooperatives to reach the unbanked, serve significant number of Pro-Poor MFIs, establish branch in East Java and invite the current shareholders as well as new investors to increase the capital of Bank Andara.


How will Andara’s plan in 2010 bring it closer to realizing it’s mission and vision?

The above plan will help us in creating a long-term, wholesale banking, institution, serving as the strategic banking partner of MFIs, enabling MFIs to provide innovative financial products and services to millions throughout Indonesia, to fulfill our financial and business objective.


In addition, it will also help us to increase access to a full range of financial services, for low income people and MSMEs throughout Indonesia, on a massive scale, in order to drive economic growth and reduce poverty, thus fulfilling our social objective.


What do you say to people who claim that microcredit actually does more harm than good for the poorest who receive loans?

A variety of microcredit strategies are currently unfolding around the world. It is generally agreed that micro loans with unreasonably high interest rates can have deleterious impacts on the recipients of such loans. The strategy that Andara is employing is to enable MFI’s that work with the poor to improve the scope and efficiency of their operations.


I’ve read that when microfinance banks become more like commercial banks, fewer women (as a percentage) receive loans. How will you ensure that the Andara’s impact on Indonesian MFI’s doesn’t have the same result?

As the founder and ultimate shareholder of the Andara, Mercy Corps will continue to ensure that addressing poverty in Indonesia, for both women and men, remains a key focus of the organization


What happens to the profits that are generated by Andara?

The profits will be distributed to Andara’s shareholders, many of whom plan to reinvest at least part of their portions to fund future innovative, market-driven solutions and to address global poverty.


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