Beyond Emergency Responses: Ensuring the Legacy of Market-Based Microfinance Expansion

Event:

Beyond Emergency Responses: Ensuring the Legacy of Market-Based Microfinance Expansion

01 October 2009

Author / Speaker:

Mariano Cordero, SMEC International Pty Ltd - Email the author | Other materials by the author

Rizal Matondang, ETESP Project Management Office - Email the author | Other materials by the author

Pieter Smidt, ADB - Email the author | Other materials by the author

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To help Indonesia recover from the 2004 and 2005 earthquakes, the Asian Development Bank, through the Earthquake and Tsunami Emergency Support Project, introduced the Microfinance Innovation Fund, a revolving fund that assists banks which implement microfinance services for micro and small enterprises.

The Microfinance Innovation Fund was intended to be a legacy that will enable banks to empower micro and small entrepreneurs, particularly in Aceh and the Island of Nias. All collections and earnings from the funding assistance it gives to banks are plowed back into the fund, ensuring that grants are available to other banks which need assistance in providing microfinance services. However, several barriers challenged its implementation. Among these is the presence of many grant funds in the two areas. This, combined with a growing grant-dependence culture and misconception of microfinance as mere aid for the poor, threatened to hamper the growth of microfinance in Aceh and Nias.

These challenges, though, were overcome through the innovative management and operations of the fund. To ensure transparency, a three-member board made up of representatives from ADB, the government and a leading local university was set up, which had the sole authority to approve grant applications. It set guidelines that made the Microfinance Innovation Fund available to all banks. In addition, technical assistance for capacity building was provided to partner banks before they can avail of grants from the fund, to ensure proper utilization. An organization that already had the structure, systems and presence needed to screen and process applications for funding and to monitor and collect loans was also selected. Through these actions, transparency and smooth operations were ensured, which will enable the Microfinance Innovation Fund to support the development of sustainable and responsive financial services, long after the Earthquake and Tsunami Emergency Support Project has ended.

Geographical Focus:

Indonesia

Type of Content:

Project Stories

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