Mercy Corps, a global relief organization, announced the creation of a ‘bank of banks’ (BoB), a commercial bank that will partner with other microfinance institutions (MFIs), in Indonesia. The MAXIS (Maximizing Financial Access and Innovation at Scale) program, developed by Mercy Corps to build BoB and provide technical asistance, received USD 19.4 million from Bill & Melinda Gates Foundation‘s Financial Services for the Poor initiative. The total capital supporting the creation of Indonesia’s first microfinance wholesale bank adds up to approximately USD 33 million, with funding from investors such as International Finance Corporation (IFC), a member of the World Bank Group, and the Hivos-Triodos Fund, a joint initiative of the Humanist Institute for Development Cooperation (Hivos) and Triodos Bank, based in Netherlands.
Mercy Corps has a record of micro credit lending around the world; as of May 2008 Mercy Corps have built a network of dozen MFIs that distributed 1,171,816 loans worth USD 1.09 billion. In 2001 Mercy Corps co-founded XacBank, a community development bank and microfinance institution. The first commercial bank of Mongolia with a social mission, XacBank is the second largest micro institution in Mongolia with a total loan portfolio of USD 85,208,598. The organization has worked in Indonesia’s microfinance sector since 1997. Mercy Corps in Aceh, an economic recovery program started after the 2004 tsunami and earthquake, is one of the programs doing microfinance work in Indonesia. Working with 200 Acehnese villages, Mercy Corps re-opened or created more than 400 small businesses through its Financial Access program (FinAp).
The largest microfinance institution in Indonesia is The Bank Rakyat Indonesia (BRI), a state owned commercial bank that provides rural credit since 1970. The Unit Desa system of BRI, formed by transforming 3,600 rural, state owned branches into self-sustaining microfinance intermediaries, reach more than 15 million poor and low-income households with deposit services. As of 2006, BRI units have 30.9 million savings accounts and 3.46 million active borrowers. BRI offers non-collateralized loans below USD 327 (Rp 3 million), however loans are usually set at 83% of the amount of collateral provided, meaning poor clients who have little or no collateral can not access to substantial credit. According to a Country Profile on Indonesia prepared by Banking With The Poor (BWTP), a research network based in Asia, as of 2003 approximately 20% of Indonesia’s 214 million people depend on micro- and small-scale businesses to earn a living, but only 10 million out of 42 million microenterprises have access to credit from formal financial institutions. Although the microfinance sector serves 32 million borrowers, according to a WorldBank report entitled Making the New Indonesia Work for the Poor, 40 million people still live below the national poverty line.
Mercy Corps will take over PT Bank Sri Partha (BSP), a local commercial Bali Bank, to create BoB. Servicing small businesses, BSP provided USD 29,049 in credit to 41,000 customers at an average loan size of USD 648, in 2003. Mercy Corps settled on BSP when, in 2007, Bank Indonesia raised capital requirements for banks to USD 8.42 million. Instead of working directly with those who need credit, BoB will provide financial services and products to bankable MFIs in Indonesia. Working together with MICRA (Microfinance Innovation Center for Resources and Alternatives), an Indonesian foundation founded in 2006 by Mercy Corps to build institutional strength and outreach of the Indonesian microfinance sector, BoB will enable MFIs to provide diversified products like microinsurance, remittances, mortgage finance and mobile phone banking, in addition to microloans and savings. In the first three years, BoB expects to reach 620 MFI clients through which around 3.2 million of micro-entrepreneurs and low-income people can obtain financing.
Based in Seattle, the Gates Foundation has an endowment of USD 38.7 billion as of 2007 and is the largest foundation according to Foundation Center‘s ranking of Top 100 US Foundations by Asset Size. The foundation’s Financial Services for the Poor Initiative of the Foundation, launched in 2005, focuses on development of financial services for the poor. Microcapital.org reported on the foundation’s grant to Opportunity International, a non-profit microfinance institution, in creating its subsidiary, the Microinsurance Agency.
By Ipek Kuran, Research Assistant
Additional Resources:
MIX Market – Mercy Corps Profile
Bank of Banks – Summary of Proposed Investment – IFC
Banking with the Poor – Indonesia Page
Asia Development Bank – Quarterly article on Microfinance
World Bank – Making the New Indonesia Work for the Poor
Promotion of Small Financial Institutions – Microfinance Indonesia
Review of Indonesian MicroFinance
Private Sector forum organized by World Bank on the Province of Bali
Oregon Business News – Article on BoB, June 15, 2008
Microcapital story – February 19, 2008
Microcapital Press Release – February 7, 2008
Adam Sack, IFC country manager of IFC, interview
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