BASIX – RMF – KOMPIP Partnership Update
April 20, 2010
Mr Subhash Jindal, Vice-President of BASIX, visited us in Surakarta, Central Java to carry out an assessment of current operations and current capacity. Our objective was to develop a framework for proposals aimed at attaining funds for the BASIX Technical Assistance and implementation of a comprehensive and institutional microfinance model.After presenting an overview of our microfinance projects at KOMPIP’s office we went to visit the first ever Neighborhood Endowment Fund (NEF) community in Sorowaden. Here, KOMPIP demonstrated its strong relationships and communication mechanisms with the impoverished communities; all attendees registered as members of the cooperative.
Mr Jindal also had the opportunity to meet with the mayor of Surakarta, from whom KOMPIP and RMF have received much support in the development and expansion of NEF communities. Mayor Djoko Widodo is widely regarded as a front runner for social issues in Indonesian politics.
Next, as most of our NEF communities are in the rural town of Klaten, we invited Mr Jindal to a community meeting to interact with NEF members.
After making an appraisal of our operations and circumstances, Mr Jindal began discussing his impressions with us.
We began with a SWOT (Strengths – Weaknesses – Opportunities – Threats) Analysis: The market for microfinance in Indonesia is vast and largely untapped; there is a large demand for institutional finance and often little or no access. The high density of clients in Central Java and the visible cultural emphasis on community are indicators of a viable microfinance market. Concurrently, political and economic conditions are favorable to the emergence of large institutional providers of access to microfinance.
|Young, bright and cohesive team
Genuine intentions, big vision
|Teams lack business pressure
||High density of clients||Cooperative legal status can spur
|Good track record on social issues||Target orientation to be developed
||Conducive cultural characteristics|
|Relationships with donors||Institutional capacity to be improved
||Politically and economically sound|
KOMPIP’s vision for providing this access is great and their grassroots presence is established. KOMPIP’s team is cohesive and committed and the organization has a solid track record in its social activities and strong relationships with donors.
However, a roadmap should be developed that not only expresses the long term vision but also key milestones so as to monitor progress. And the roadmap and implementation process must be complemented by sound business practices and a commercial mindset. Simultaneously, the risk of the microfinance institution (MFI) being hijacked by political entities as a vote bank must be mitigated.
We then began discussing the specifics of our current operations as well as the mechanics of a forthcoming system that will be both institutionally sound and commercially viable. All successful MFIs have an elaborate system and very well thought out mechanisms to achieve these two objectives. During our brainstorming session, we began addressing some of the key questions that will need coherent answers as we build our MFI model and write proposals for funding. These include:
- Who are the target clients?
- What types of products are to be offered? What are the purpose, period, size and frequency of these products?
- What is the loan appraisal procedure? How do we miitgate against willful defaulters and how do we ascertain repayment capacity?
- What are the benefits of group lending (as opposed to individual lending) and what type of group setup would work best for DAMAR in Central Java?
- How can we project the social development outcomes of our operations?
A further question that emerged was how to best harness the strength and success of our NEF communities beyond simply recruiting NEF members into DAMAR cooperative. Indeed, one of the advantages of microfinance in Indonesia is the pre-existence of cohesive socio-geographic groups known as rukun tetangga (RT), or “neighborhood community,” which form the basis of our NEF project and could very well play an intricate role in DAMAR. As Mr Jindal pointed out, the creation of such cohesive and communal grouops is often very costly and problematic when establishing an MFI.
All these issues will be addressed in a comprehensive proposal written collaboratively. At this juncture, an MoU (memorandum of understanding) is currently being finalized between RMF, BASIX and KOMPIP. We expect to have a draft proposal for funding put together this month.