By M. Jarot Eko Winarno (2004)
http://www.alternative-finance.org.uk/rtf/doc00042mx.rtf
Abstract
This paper presents the history and experience of the largest and most profitable microfinance institution, Bank Rakhyat Indonesia (BRI) and highlights key characteristics of its products and operations. The author argues that political support, a clear mandate and certain degree of independence allowed BRI to become a strong and profitable financial intermediator.
The key points presented in this document are:
BRIs transformation from a subsidy-dependent organization into a commercial institution was possible thanks to the political support and commitment for several years at the Ministerial level.
Commercial goals were clear to staff and customers. BRI made a great effort on Aoborrower discipline' to get rid of the non-repayment culture promoted by government programs.
Credit products' success has been based on customer's trust that BRI will provide a loan when they need it, based on their own merits, no external factors are involved.
Savings products' have grown substantially and have been tailored to rural needs and provide: security, liquidity, convenient location, confidentiality, access to credit and positive real interest rate.
Key to the overall success of BRI has been the well-trained staff, simple rules that govern the rural units, good supervision and the fact that responsibility falls 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 took the commitment to monitor its performance and development very closely and for several years, this allowed the organization to stick to its mandate of becoming profitable and protected it from external influence, such as imposed lending targets.
BRI units began to break-even only 18 months after the fist commercial loans were disbursed. This was possible thanks to a significant effort to get borrowers out of the subsidize credit mindset and developing 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 and has had profits ever since.
The author 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 approach, which 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 and 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 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, in a standardized way for all employees.