Bill on Micro Finance Institution in Limbo

The Indonesian Government has always placed great emphasize on empowering small businesses, which entails their access to financing. To date, financing for small businesses are provided through several formal banking arrangements, namely various types of financing through state-owned banks (e.g. Bank Rakyat Indonesia), or through community credit bank (Bank Perkreditan Rakyat or “BPR”). These are still deemed insufficient and since 2002 the Minister for Cooperatives, Small and Medium Enterprises (“Minister”) has been pushing for a bill on micro finance institution (“Bill”).

The Bill aims to create micro finance institution (“MFI”) as a new financing institution targeting small enterprises, essentially those below the target market of BPR. Under the Bill, MFIs can engage in general banking services very similar to BPR, namely savings and loan. However, unlike the BPR, the Bill permits (or in some instances requires) MFIs to invest in certain eligible companies. Nevertheless, the Bill incorporates some prudential banking principles akin to banking institutions.