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Access Towards Microfinance in Aceh Needs to be Enhanced

Banda Aceh, INDONESIA - During a seminar organized under the Assistance for Restoration of Microenterprises and Microfinance in Aceh (ARMMA), Head of ADB’s Extended Mission in Sumatera (EMS), Pieter Smidt, encouraged policy makers to ensure that government credit programs are designed and implemented in such a way that is fair, efficient and leads to permanent improvement in financial access.

"As the study on the microfinance sector in Aceh undertaken by the ARMMA team has shown, there are still large gaps in unmet demand for microfinance. But despite good intentions governments and donors sometimes support schemes which are not sustainable on the long run and achieve little in improving financial access for the poor," says Mr. Smidt.

ARMMA is a $2 million dollar grant from the Japan Fund for Poverty Reduction (JFPR) which is managed by ADB. The project runs from May 2007 until April 2009 and has two main objectives: (i) innovative pilot projects in sustainable microfinance, and (ii) market-oriented microfinance research.

The ARMMA study shows encouraging news in today’s microfinance sector in Aceh. Non-agricultural enterprises, particularly those engaged in trade and retail activities, have good and growing access to basic financial services. In addition, NGOs and a variety of financial institutions in Aceh have developed sustainable approaches to financing low-income household enterprises capable of being replicated province-wide. In agriculture, where progress has been slowest, bankers are just beginning to realize that, with the restoration of peace, certain types of farming activities – including small animal-raising and tree crops such as cacao and oil palm, can have relatively low risks and profitable sales.

“We can see from this study that the prospects for microfinance for the poor in Aceh are good. This potential can only be realized if government and financial institutions share a common goal of implementing programs which are sustainable,” continues Mr. Smidt.

A representative from Bank of Indonesia added that the biggest impediment for microfinance in Aceh is the low number of bankable small and micro scale enterprises.

In addition to the study on the microfinance market in Aceh, ARMMA will also finance a study on the feasibility of financing for raising or growing of 8 agricultural and fishery commodities at micro scale. Additionally, ARMMA will fund four pilot projects – $200,000 each – to be implemented by Bank BPD Aceh, Koperasi Mitra Dhuafa, and PT. Permodalan Nasional Madani (PNM).

In addition to ARMMA, ADB supports the development of microfinance in Aceh through its ongoing Earthquake and Tsunami Emergency Support Project (ETESP). The Government of Indonesia and ADB have agreed to allocate $15 million out of the $291 million ADB grant for microfinance, including an $8.5 million revolving Microfinance Innovation Fund.

ADB, based in Manila, is dedicated to reducing poverty in the Asia and Pacific region through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2007, it approved $10.1 billion of loans, $673 million of grant projects, and technical assistance amounting to $243 million.

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