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Transforming a Microfinance System : The BRI Experience

"The Bank Rakyat Indonesia (BRI) Unit system, which is fully self-financing and computerized, has become one of the world's greatest success stories in microfinance."

The above statement, written in a report by the Harvard Institute for International Development (HIID), accurately describes the achievements of Indonesia's oldest bank: BRI. Such achievements were unimaginable when the bank was established more than a century ago, on Dec. 16, 1895, by Raden Bei Aria Wiriaatmadja, the vice regent of Purwokerto in Central Java.

Having started out with only dozens of clients, today BRI serves more than 30 million customers throughout the nation. As the bank with the largest network in Indonesia, it has 13 regional offices, 325 branches, 3,954 banking units, 147 subbranches and 199 rural offices. BRI New York Agency is its office in New York. The bank has another office in the Cayman Islands. Currently, the bank employs 37,000 people. By this very fact, BRI goes to the record of Museum Rekor Indonesia (MURI)

One unique characteristic marks BRI's long journey: its deep concern for small and medium-size businesses. This remains part of its future plans, with the bank allocating 80 percent of its portfolio to this sector. One of the reasons for this is that small and medium-sized businesses have proven their capability to survive, even during the country's recent economic crisis.

The performance of the revamped BRI Unit system improved significantly. In just two years a financial breakeven was achieved. These achievements show that BRI Unit system is among the best examples in building a sustainable financing system for the poor. It also proves that contrary to popular opinion, the poor are able to interact with and thrive within a market mechanism. This has changed the way in which poverty alleviation is viewed.

From an international perspective, the BRI Unit system is a model of sustainable development and as such performs the role of microfinance best practice. This has been well documented in a variety of articles and international journals. Various international organizations that have acknowledged the success of this system include the World Bank, Asian Development Bank, United States Agency for International Development (USAID), Women's World Banking Organization, Islamic Development Bank and Asia Pacific Economic Cooperation. Several studies have shown that the BRI Unit system has positively impacted rural area economic and social development. For example the Kupedes system had been shown to improve the length of children's schooling, household nutrition levels and the empowerment of women.

International Visitor Program (BRI-IVP) Microfinance has recently gained recognition as an effective tool to improve the quality of life and living standards of the poor. This is because microfinance can help the poor in putting their productive assets to use and at the same time help foster the development of micro- sized enterprises. Therefore, many governments and international organizations are now enthusiastic to develop microfinance systems. In this regard BRI, as a leading institution in microfinance, commits to share its wealth of experience. In 1996 BRI established an International Visitor Program (BRI-IVP) in partnership with USAID. BRI has also established a partnership with the Consultative Group to Assist the Poorest (CGAP), a World Bank affiliate organization, for the purpose of BRI-IVP capacity building programs such as the Study Visit Program and the Training Program, which includes on-the-job training in a BRI Unit.

Almost 1,730 participants from 45 countries have learned about the BRI Unit system and adopted it as best practice in their respective countries. This underscores the fact that the BRI Unit model, besides being tried and tested, is also adaptable. One chief reason participants are attracted to the BRI-IVP programs lies in its approach and methodology, which are practically oriented.

Technology of BRI

Although the bank serves a huge number of customers in rural areas, including the most remote villages, this does not mean the bank is lagging behind in technology. In fact, technology-wise, BRI is now one of the country's most advanced banks.

MS 100, a survey conducted in 2002 of companies using computers in the ASEAN region and Hong Kong, cited BRI as the largest computer user in Indonesia and number three among ASEAN member countries and Hong Kong. To date, the bank uses 25,583 computers. For its information technology, the state bank has developed the BRI IT Plan, which incorporates the Core Banking System, Banking Delivery System and Management Support System.

To provide the bank's customers around the nation with convenient services, BRI serves them through two types of banking delivery systems. The first is the conventional outlet, meaning the bank's premises where tellers and customer service staff serve clients. The second type is e-outlets, which comprise Automated Teller Machines (ATMs) and phone banking. Currently, the bank has 582 ATMs all over the country, as well as 4,999 more jointly operated with other banks.

As of September 2003, 587 offices had been connected in a real-time, online integrated network system using a centralized database in IBM AS/400, Broadband VSAT (Very Small Aperture Terminal), frame relay, as well as its website. In the very near future, the bank, which earned the 2001 E-Company Award from Warta Ekonomi business news magazine, is planning to use VOIP (Voice Over Internet Protocol). With 140 foreign exchange and money changer offices connected online, BRI is also spreading its wings globally.

BRI Performance

Over the last few years of economic turmoil in the country, The bank, which earned the Best Brand Award 2003 from SWA magazine and Best Recapitalized Bank of 2003 from Investor magazine, has not only managed to stand solid, but has made enormous progress. The relatively high business profit as per 30 June 2003, which reached Rp 1.545 billion, shows an increase of 49.71 percent during semester I of 2002 at Rp 1.032 billion. The profit gain was almost 50 percent higher during semester I of 2003 due to an increase in interest revenue to Rp 7.408 billion, in comparison to the same period in year 2002 at Rp 6.543 billion.

The relatively high profit is also due to Bank BRI managing to maintain the quality of productive assets up to semester I of 2003. The quality of this productive assets is reflected in the low level of nonperforming loan (NPL), at 3.41 percent. This figure is still within a limitation set by BI of 5 percent.

BRI president director Rudjito said the growth was mostly due to the increase in loans given to customers. This shows that BRI has also succeeded as a banking intermediary, as reflected in its loan-to-deposit ratio (LDR) of 58.16 percent, which was above the national banking LDR. Loan distributed as of June 2003 was recorded at Rp 43.620 billion, or an increase of 21.68 percent compared with the loan distributed during the same period of last year, at Rp 35.848 billion. With the outstanding credit, the LDR of Bank BRI reached 58.16 percent. Growth of credit during semester I of 2003 is dominated by micro, small and medium-scale businesses (usaha mikro kecil menengah, or UMKM).

The focus of UMKM business is reflected in the composition of loan recorded in the Bank BRI portfolio, which was 91.62 percent. The loan distributed to microbusinesses amounted to 30.20 percent of all Bank BRI total loan portfolio. The loan distributed to small/retail-scale businesses reached 51.92 percent and that distributed to medium-size businesses was 9.50 percent. Awards

Due to the bank's strength and commitment to microbanking -- serving small and medium enterprises (SMEs) -- it has been appointed by the government to conduct a related model project, the SME Center, in Indonesia. This project was part of an agreement reached during a meeting in May 2001 between the private sector, the Federation of Chamber of Commerce, Industry and Service (FCCIS) and heads of governments within the G-15 group. The SME Center is meant to guide and develop small and medium businesses in facing global economic challenges.

For its efforts in guiding and developing small and medium businesses, BRI has received an award from the Indonesian Chamber of Commerce (KADIN), especially for its achievements with the SME Center. The BRI internal audit received further international recognition on Nov. 19, 2002: the ISO 9001 Certificate in the risk-based audit category from three institutions -- the Registered American Bureau, United Kingdom Accredited System and Joint Accreditation System (based in Australia and New Zealand). Besides, BRI was the Best State-Owned Company in Customer Satisfaction Strategy in 2003. The latest award received by BRI is Best Financial Sector Organization of the Year 2003 and its CEO, Rudjito, has earned Best State-Owned Company CEO 2003, in the Gold Category. Both of awards were made by the Office of the State Minister of State Enterprises.

However, the awards have not lulled the bank's management into complacency; on the contrary, they have increased their alertness.

Next to its various achievements that are recognized worldwide and its state-of-the-art technology, most important is the public trust of more than a century. All these form BRI's formidable strength for a more promising future in serving its clients with the highest level of satisfaction. For more detail about BRI, please visit its website: www.bri.co.id.