| Youth and Access to Microfinance in Indonesia: Outreach and Options |
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Acehnese microfinance institutions (MFI), few in numbers and financially as well as institutionally weakened by a long lasting armed conflict were severely affected by the disaster. Misused as channeling organization for credit lines and forced into low-profile operations to avoid being a target during the conflict, the banks were not used to operate on a commercial basis. Following the tsunami and its desolation in late December 2004, the Economic Recovery and Microfinance program supports the rebuilding and improvement of the microfinance sector in Aceh. The program is part of German Development Cooperation’s “Aceh Recovery and Reconstruction Program” (ARRP), carried out on behalf of the German Ministry for Economic Cooperation and Development in cooperation with the Indonesian Government. By supporting the local microfinance sector, the program is improving access to financial services in Aceh. This will effectively enable people to restart and improve their business activities. The project is implemented in cooperation with the Indonesian central bank, Bank Indonesia. Despite the presence of conventional MFI, Shariah-based MFI continue to emerge as popular banking institutions due to strong Islamic values-influenced culture of Aceh. In this study of clients’ satisfaction and demand on existing financial products and services, it is crucial to understand the satisfaction and demand of current clients regarding Islamic banking products and services. It was therefore also part of this study to ask for clients understanding of Islamic based financial services. Objectives The objective of the study is to assess the satisfaction levels and needs of microfinance products and services, understand drivers and opportunities of the existing and potential product development, and assess the knowledge of Islamic Banking as well as demand and satisfaction of Islamic Banking products and services. Methodology A total of 502 respondents were involved in the study conducted in four districts in Aceh province. MFI clients involved in the survey were clients of six MFIs (four of which are Sharia-based MFIs). The selection of the MFI and the target area of the survey was based on the recommendation of GTZ and MICRA. MFI which have already received significant levels of technical support by GTZ and other donors were selected for the survey. All the MFI were located in Banda Aceh, Aceh Besar and Lhokseumawe districts. Two of the MFI selected to participate in the study were conventional MFI or Bank Perkreditan Rakyat (BPR). Four of the MFI were Shari’ah-based MFI or BPRS (Bank Perkreditan Rakyat Syariah). BPR or rural bank is a term used to refer to small or microfinance institutions, providing deposit and credit services to customers. In the following we provide the names of the MFI from which MFI-clients were selected as survey respondents:
Key Findings and Recommendations A high percentage of respondents in the study were found to either a) not have access to the financial services of MFIs or FIs or b) to not have accessed the financial services of MFIs or FIs. Financial support and assistance for service improvement needs to be provided to MFIs in order to increase their financial capacity as well as improve the service quality for their clients. The study found out that MFIs had been effective in reaching the grass root level of community for financial access. A relatively high percentage of the MFI clients come from low-income and low-educational levels. MFIs have a relatively high potential client base characterized by their high occupational rate, more than one source of income, and a high propensity to save. The majority of MFI clients are business owners in the trading and service sectors owning assets that can be used as collaterals. The satisfaction levels regarding the service and products received by the M/FI clients is relatively high. The study also found that MFI clients more satisfied with their loans while FI clients more satisfied with their savings. The outstanding features of savings products demanded by the MFI clients were: 1) Easy deposit and withdrawal process, 2) Reliability and safety, and 3) Competitive interest rate. There is a high demand for loan products among current M/FI clients and non-clients. The main features of loan services and products demanded by the clients were: close proximity to the point of service, flexible collateral requirements, short loan procurement process, and minimal interest rates on the loan. The strong features on loan products of the MFIs were: shorter loan procurement process, simple procedures, lower-value collaterals, smaller size of loan installment, and, more frequent installment (daily or weekly). To improve its products and services MFIs need to focus on the development of loan products for business capital with longer loan tenure for bigger sized loans, and the development of no-collateral products, which is currently becoming the trend in the commercial banks. The study also found that there is a high demand for technical assistance on business development among M/FI clients and non-clients. MFIs are suggested to collaborate with relevant institutions in providing business development support services to their clients. Participation in financial institutions was seen to have positively impacted the income, business knowledge, saving and assets base of MFI and FI clients. The financial impact, carries on to provide positive impact to even to the non-financial aspects, and has shown to improve the quality of life for a relatively significant number of M/FI clients. The lack of information regarding financial services is the most significant barrier for both savings and loan services, followed by the lack of proximity to the point of services. Financial institutions are recommended to improve on the costumer’s knowledge and understanding of the services and products and bringing the point of services closer to the clients. Another finding of the study is that the knowledge on Islamic banking is low among MFI clients, FI clients and non-clients. Interest in Islamic banking products and services is more related to religious sentiments and not really due to the understanding and economic rationale. Sharia-based microfinance institutions need to move forward with “economic rationale” in marketing their products and operating their institutions. MFI clients seemed to be more convinced by Sharia--based financial institutions’ products and services than FI clients and non-clients. They consider both religious and non-religious reasons to be almost equal regarding their decision on choosing a financial institution. Information on Sharia-based financial products and services needs to be disseminated among MFI clients and more importantly among non-clients. Product development in MFIs needs to be more tailored based on the market demand. A market survey is thus crucial for the product development process. Click here to visit the study report, published by ImagineNations |