Microfinance in Indonesia
Approximately 30% of Indonesia's 266.9 million (2018) people depend on micro- and small-scale businesses to earn a living, but only 6 million out of 72 million microenterprises have access to credit from formal financial institutions. Indonesia has 192,443 cooperatives with a total of 33.6 million members with 7,831 of them offering savings and loan services.
The majority of MFIs in Indonesia are characterized by low growth in outreach and inefficient systems, citing lack of access to affordable capital as their main constraint. There is vast potential for growth in the sector if key inputs can be effectively provided on a wide scale in Indonesia.
More than 90% of Indonesia’s businesses are micro- and small enterprises. For them to grow and create jobs is an important element of poverty reduction. But new micro enterprises and small start-up firms are seldom able to obtain credit from formal sources.
Cooperatives in Indonesia
Cooperatives in Indonesia are seen as highly politicized and used as government funding vehicles. Two types of cooperatives involved in microfinance exist, the credit and savings cooperatives, Koperasi Simpan Pinjam (KSP), and savings and credit units (Unit Simpan Pinjam, USP) of multipurpose cooperatives.
The legal framework for cooperatives exists but does not seem conducive to an active supervision of cooperatives, partly because of the lack of capacity of the enforcement agency, the Ministry of Cooperatives and Small and Medium Enterprises. The cooperative sector is regulated by a government regulation of 1995 and a ministerial decree of 1998, which restricts credit and savings activities to financial cooperatives (KSP) or specialized units of multipurpose cooperatives (USP). Minimum capital requirements are also imposed.
