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The Asian Development Bank and Non-Governmental Organizations: Working Together

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Indonesia: Microcredit Through NGOs

Despite the substantial and sustained economic growth shown by Indonesia over the past decade, income distribution remains skewed. The Microcredit Project in Indonesia, approved in 1994, focuses on microenterprise support, recognizing the potential of microenterprises to create jobs at low capital input costs and raise the income levels of the poor. A major constraint faced by microenterprise development is a lack of access to financial services. The Project provides a line of credit for microenterprise development.

The Project builds on the distinct roles of existing small-scale financial institutions (SFIs) and non-governmental organizations (NGOs). SFIs will deliver credit and savings services to poor and near-poor microenterprise borrowers, while NGOs will organize groups of poor for SFI borrowing and will assist microenterprise development through training activities. NGOs will be involved actively with SFIs in lending and in collection of loan repayments and savings deposits, and in assessing new SFI loans and developing viable and substantial microenterprises.

NGOs will receive training under the Project to enable them to act as catalysts in microenterprise development. NGOs will be provided with support for new staff recruitment and staff training and will be assisted in acquiring equipment for better record keeping and reporting and for expanded outreach. NGOs that have been sufficiently strengthened will engage in providing broader village-level services, including extended group formation and training of borrowers.

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