Next generation of microfinance: Leveraging Indonesian experience
Thursday, September 11, 2014
The history of microfinance institutions in Indonesia dates back more than 100 years. The primary reason for their initial establishment was to combat extortionate lending practices in rural areas and to impose tight restrictions on money lenders. The first rural bank in Indonesia was the Hulp-en Spaar Bank der Indlandsche Bestuurs Ambtenaren or Bank for Civil Servants, founded by R. Bei Aria Wiraadmadja in 1895. The bank then expanded its operations to farmers and other local residents and offered saving facilities at fair interest rates.
Many “paddy banks” or Lumbung Desa institutions were also established to provide savings and loans facilities for rice farmers. During the colonial period, the Lumbung Desa, Bank Desa, farmer banks, market banks and village trade credit institutions became the pioneers of microfinance in Indonesia and the forerunners of today’s rural banks. In the 1970s, microfinance institutions became established throughout the country under government sponsorship for Village Fund and Credit Institutions (LDKP).