By By M. Jarot Eko Winarno (2004)
http://www.alternative-finance.org.uk/rtf/doc00042mx.rtf
Abstract
Winaro presents the history and experience of Bank Rakyat Indonesia (BRI), the largest and most profitable microfinance institution, highlighting key characteristics of its products and operations. WInaro argues that BRI succeeded because it
- Maintained multi-year political support and commitment from the Ministerial level.
- Got rid of the non-repayment culture.
- Provided loans based on customer merit.
- Tailored savings vehicles to meet rural needs.
- Fostered a well-trained, well-supervised staff with responsibility at the local level.
Summary
BRI is a state-owned commercial bank that was originally created to disburse subsidized credit in rural areas. But when the government decided to cut these subsidies, the bank transformed itself into a commercial institution. BRI not only does micro-banking, but also retail, corporate and investment banking. However, micro-credit operations account for 20% of total credit, while the village savings product accounts for 60% of total deposit accounts.
BRI's transformation was supported by government ministers, who were committed to monitoring BRI's performance and development very closely and for several years. This commitment allowed the organization to stick to its mandate of becoming profitable, and it protected BRI from external influence, such as imposed lending targets.
BRI units began to break even only 18 months after the first commercial loans were disbursed. This was possible thanks to a significant effort to get borrowers out of the subsidized credit mindset and to develop a credit-repayment culture. The result was a much lower than expected loss rate, which allowed the bank to have its first profits two years after its transformation. BRI has had profits ever since.
Winarno considers the following areas to have played a key role in the financial sustainability of BRI:
- Previous experience in analyzing local micro-enterprises allowed local units to easily differentiate creditworthy borrowers from non-creditworthy ones.
- Credit lending that is consistent and sustainable. Also, it is only dependent on the borrower's characteristics and does not depend on external factors or policies.
- Development of savings products in a way that meets the customer's demands. BRI made a careful study before taking savings, which are only voluntary. Although lending is the engine of BRI's profitability, it is only one side of financial intermediation. Capturing savings has allowed BRI to mobilize far more resources than those that would have been available from donors or government.
- Motivated and focused staff. Employees in rural units receive good wages relative to the area where they work, and they receive annual incentives based on their unit's profits. Those working on micro-banking concentrate only on that sector; otherwise they would tend to dismiss the smaller clients.
- Supervision and training. Responsibility for loans remains at the local level and is supervised by a coordinating office, which follows straightforward and simple rules. Staff receive intensive training that is standard for all employees.