Microfinance and Capital Markets - Council of Microfinance Equity ...

compared to per capita GNP. Average loan size was $878, or some 55% of GNI percapita, at the end of 2006. Savings balances continue to reflect the enormous core groupof poor savers, with the average savings balance at $158, or some 9% of GNI per capita,at the end of 2006. 15BRI first listed on the Jakarta Stock Exchange in October 31, 2003. The IPO broughtwith it a new strategic focus for the institution; it would be a full-service commercialbank heavily focused on micro and small business (retail) lending. In fact, as part of amemo of understanding with the International Monetary Fund (IMF), the Ministry ofFinance enjoined BRI from making corporate loans to new customers. The agreementwith the IMF was to sell off the bank’s corporate loans, but that aspect of the agreementwas not fully implemented at the time of the IPO. The bank was instead required todevelop a strategy that would build on its strengths—the unit desa system, retail or smallbusinesslending and consumer lending. 16For the last few years, growth has been modest but steady, reflecting the maturity of theunit desa system and the need for the bank to regenerate its capital. Growth in borrowershas averaged 3.7% a year reaching a total of 3.5 million borrowers at the end of 2006.The loan portfolio has grown to $3.0 billion. Savings accounts have somewhat peaked,growing at 1.23% per year over the last three years and, in fact, declining by 4.1 % in2006. However, the unit desas had 31 million savings accounts, with a total depositbalance of $4.9 billion at year end 2006. 17Financial performance remained very strong at the end of 2006, with a ROA of 6.88%and ROE at 129.96%. 18 The profit margin was 31.17%, and operating expenses to loanportfolio were 8.26%. Portfolio at risk was 5.07%, and the write-off ratio was less thanone percent, at 0.83 %. 19 See Table 3 for a summary of BRI’s microfinance operations.Despite its great success to date, the unit desa system still faces a number of challengesand risks. These are discussed by Marguerite Robinson in her seminal work on Indonesia,Volume II of the Microfinance Revolution: Lessons from Indonesia, 20 and are as follows:• Political instability—There exist threats from outside BRI with respect to thestability of Indonesia and its potential for radicalization as well as from thepolitical direction of the government with respect to BRI’s policies and lendingactivities.• Inappropriate regulatory environment—The unit desas are required to complywith banking regulations that are inappropriate to its microfinance business,15 The MIX Market, http:www.mixmarket.org.16 Bank Rakyat Indonesia, Offering Circular (2003).17 Ibid.18 See footnote 6, where we comment on the potentially exaggerated returns on equity for the unit desasystem.19 Ibid.20 Robinson, Microfinance Revolution Volume 2: Lessons from Indonesia, 398-402 (See “Challenges”). Seealso Rank Rakyat Indonesia, Offering Circular, 18-33 (See “Risk Factors”).10