Advancing rural microfinance through local government: social commitment and financial sustainability in Riau Province of Indonesia
2019
Ahmad Rifai | Goh, Soo Khoon | Wong, Koi Nyen
Indonesia’s poverty structure is asymmetrical, which means heavy on the rural poor and light on the urban poor. The Riau Province of Indonesia is no exception. The poor are concentrated in the rural areas. Hence, rural MFIs such as UED-SP MFIs are seen as an important tool for rural poverty reduction and rural development. However, most of the large, mature and regulated MFIs tend to be financially sustainable (Hermes et al., 2011). This paper aims to ascertain whether the UED-SP MFIs are sustainable microfinance programmes, given that they are state-owned, not-for-profit institutions, with only six years of experience in microlending. UED-SP MFIs are largely driven by their social mission rather than their financial performance. This study finds that the rural MFIs are able to accomplish the social mission with financial sustainability. In 2015, their performance in financial sustainability and depth of outreach were comparable to the 2009 MFI Benchmarks at all levels, namely, the World MFIs, the Rural Bank Type and the Asian MFIs. The success of the rural MFIs to serve the poor groups such as rural women and rural agricultural microenterprises depends on several key success factors. One of the factors is that their microfinance operations are run on a set of guiding principles with sound lending practices.
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