State-owned development banks in micro-finance
Mukherjee, Joyita ; Malhotra, Mohini
The well-intentioned objective of state-owned development finance institutions is too often subjected to political influence. Politicized mandates place undue emphasis on credit outflows over recovery. Poor lending practices weaken the state-owned institutions financially and make them continually dependent on government or external donor funds. Bank Rakyat Indonesia (BRI) is one of the few state-owned institutions that overcame problems that typically afflict them. This note seeks to inform policymakers and other government officials about the process of transformation of BRI's unit desa (or village banking) system, and identify key factors that led to the birth of a successful micro-finance institution. It argues that in the absence of these factors, the efficacy of reform for state-owned development finance institutions will be severely limited.
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