Global microscope on the microfinance business environment 2012

28
l Successful experience of several large scale rural
livelihood programmes, which formed the basis for
NRLM, have created new clients in the microfi nance
sector. These programs have encouraged various
fi nancial institutions to work with SHGs to deepen
and expand fi nancial outreach, including savings,
credit, insurance and pensions. By making fi nancial
literacy and fi nancial planning a core aspect of
institution building and increasing emphasis on
savings and savings mobilization, the design of
NRLM seeks to ensure that fi nancial inclusion of the
poor is achieved in a sustainable and responsible
manner.
l Since the start of 2012, the MF sector has begun
to move beyond the AP crisis, which has severely
impaired operations of most major MF providers.
In December 2011, the RBI created a separate legal
category for NBFC-MFIs for which it issued
prudential and non-prudential norms and customer
protection regulations. This latest regulation
complements other post-AP regulations that
introduced a quantitative defi nition of
microfi nance loans, a ceiling on loan amounts and
number of loans per customer, interest rate caps
and margin caps.
l In May 2012, the cabinet approved a longstalled
microfi nance bill. The draft bill still needs
parliamentary approval to become law. It has been
completely recast and, if adopted, will have a
profound impact on the microfi nance sector. It is
seen as far superior to the 2007 version and
refl ects the lessons from the AP crisis. Crucially,
the bill would supersede the AP Act, state
legislation that effectively shut down microfi nance
in Andhra Pradesh, still prevents MFIs from
collecting US$1bn-2bn in outstanding loans in the
state, and restricts both MFI access to bank funding
and access for the poor to credit and basic fi nancial
services.
© The Economist Intelligence Unit Limited 2012
<strong>Global</strong> <strong>microscope</strong> on the microfi nance business environment 2012
■ Indonesia
Key characteristics of the microfi nance business
environment:
l The existence of large-scale subsidised
programmes and institutions puts private MFIs at a
disadvantage. The biggest programmes are the
World Bank-funded National Programme for
Community Empowerment (PNPM) and the socalled
revolving fund agency (LPDB) set up by the
Ministry of Co-operatives, Finance and Industry.
l The market for microfi nance is highly fragmented
and demand for microloans outstrips supply. This
has allowed private operators to thrive despite the
state’s heavy involvement in rural fi nance. The
private bank with the fastest-growing MF unit is
Bank Tabungan Pensiunan Nasional (BTPN).
l Banks and other fi nancial institutions are free to
set interest rates on loans, they do not face
excessive documentation and the capital adequacy
ratios are not excessively burdensome.
l The main informal providers of microcredit are
co-operatives. Co-operatives must register with the
Ministry of Co-operatives. There is a capital
requirement of Rs100m (US$10,500) to establish a
savings and loan co-operative. Co-operatives are
not closely regulated or supervised and capacity
constrains them from playing a greater role in
providing MF.
l The prudential standards, know-your-client
principles and anti-money laundering
requirements faced by MF-providing banks are the
same as those faced by all banks in the country.
Non-formal MFIs are not subject to these
standards, have very little oversight and face few
restrictions on deposit-taking.
l Bank Indonesia (BI, the central bank) has
regulations for e-money. However, a Rs5m (US$520)
limit on e-cards and mobile phones has severely
limited the use of e-money. Mobile and electronic
banking has been spreading, but is still limited.
l There is no effective dispute resolution
mechanism for microfi nance borrowers in place.
However, there have been a number of high-profi le
legal cases involving credit card holders and issuing
banks. The cases have contributed to greater public